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Highlights
- Group like-for-like sales show slight decline of -0.1%, reflecting mixed performance across Autocentres and Retail segments.
- Gross margin improved by 160bps YoY to 49.4%, driven by price optimisation and Better Buying programme.
- Strategic initiatives such as the Fusion Motoring Services rollout and growth of Halfords Motoring Club (HMC) position the company for future success.
Halfords Group PLC has reported mixed results for the 26-week period ending 27 September 2024, with like-for-like (LfL) sales experiencing a slight decrease of -0.1%. This is a notable slowdown compared to the same period last year, which saw a robust increase of 8.3% in LfL sales. Despite the dip in overall sales, the company’s performance was driven by key growth areas, including a 0.8% rise in Autocentres LfL sales, which account for approximately 40% of the company’s sales. However, Retail LfL sales were down by 0.7%, contributing to the overall sales decline.
The motoring category, which spans both Autocentres and Retail, continues to dominate the company’s performance, representing around 80% of total sales.
Margin Optimisation Drives Profitability
A highlight of Halfords' interim results is a significant improvement in its gross margin, which rose by 160bps year-on-year to 49.4%. This increase is attributed to the company’s ongoing price optimisation strategy and the successful implementation of its Better Buying programme. These efforts have allowed the company to maintain market share, with performance in line with expectations.
Halfords also reported substantial cost savings of £14.6 million in the first half of the year, setting the business on track to meet its FY25 target of £30 million in savings. This is seen as crucial in mitigating the £14.8 million of inflationary pressures faced by the company. The savings and margin improvement contributed to a slight increase in Retail’s underlying EBIT, which grew to £21.2 million, up from £19.6 million in H1 FY24.
Challenges in Autocentres and Tyre Market
While Halfords’ Retail division showed positive growth, its Autocentres business faced challenges, particularly in the Tyres market. The sector remains about 13% below 2019 market volumes, which impacted the company’s sales performance. Underlying EBIT for Autocentres, excluding its recent acquisition of Avayler, dropped to £9.1 million, down from £11.4 million in H1 FY24. Despite a strong comparative performance in the prior year, the Tyres sector continues to struggle, compounded by high labour cost inflation.
Strategic Advancements for Future Growth
Looking ahead, Halfords is accelerating the rollout of its Fusion Motoring Services strategy, which aims to foster closer relationships between its Retail and Autocentres businesses within local communities. The company has committed to expanding this initiative to approximately 40 sites in FY25, following strong returns from its initial locations.
Additionally, Halfords Motoring Club (HMC) has surpassed 4 million members, with premium memberships meeting the company's targets of 8-10%. This growing customer base is expected to support future business growth, especially in the motoring sector.
Outlook: Maintaining Confidence Despite Uncertainty
Halfords remains confident in meeting FY25 consensus forecasts, with strong performance in the first half of the year providing a solid foundation for the rest of the year. However, the company acknowledges the uncertainty created by the recent UK Budget and its potential impact on consumer behaviour. In response, Halfords is reviewing additional options to mitigate any potential headwinds, particularly in its Autocentres business, where demand is more needs-based, and pricing power is stronger.
The company also highlighted that measures introduced in the UK Budget, including increased direct labour costs of around £23 million, will be partially mitigated. Of this, £9 million had already been factored into FY26 planning assumptions.
At the time of writing on 26 November 2024, HFD share price increased by 6.38%.
