Halfords Group PLC: Interim Results for the 26 weeks to 27 September 2024

26 November 2024

Halfords Group plc

Interim Results for the 26 weeks to 27 September 2024 (“H1 FY25”)

Strong first half delivers £21m underlying PBT; accelerating Fusion garage services rollout to c.40 locations.

*Alternative Performance Measures (“APMs”) are defined on page 16. **H1 FY24 headline measures include the discontinued Viking and BDL tyre and wholesale operations as reported in previous interim accounts; statutory measures have been restated to exclude these as shown in these condensed consolidated financial statements. The narrative below is based on headline measures with total operations as the comparative as they include the ongoing cost of running the discontinued tyre supply chain which is now outsourced.

Strong performance

• Group like-for-like (“LfL”) sales -0.1% (H1 FY24: +8.3%) with Autocentres LfL +0.8% (c.40% of sales) and Retail LfL -0.7% (c.60% of sales). Motoring category across both Autocentres and Retail represents c.80% of sales. 
• Gross margin +160bps year-on-year (“YoY”) to 49.4% due to price optimisation and Better Buying programme.
• Emphasis on margin optimisation reflected in market share performance broadly in-line with forecasts.
• £14.6m of savings delivered, on-track for FY25 target of £30m and mitigating £14.8m of inflation.
• Retail generated underlying EBIT of £21.2m (H1 FY24: £19.6m) with 200bps improvement in gross margin in part reflecting pricing discipline in a better-than-expected Motoring Products market, while the underlying Cycling market remains c.33% below FY19 volumes. 
• Autocentres (ex-Avayler) delivered underlying EBIT of £9.1m (H1 FY24: £11.4m) as challenges in the underlying Tyres market (c.13% below FY19 market volumes) resulted in lower sales growth vs. a very strong comparative period (H1 FY24 LfL: +18.0%) and the business was impacted by high labour cost inflation.
• Underlying profit before tax (“PBT”) of £21.0m, broadly flat YoY.

Resilient balance sheet

• Strong cash generation with a free cash inflow of +£28.1m (H1 FY24: £(19.2)m outflow).
• Disciplined working capital management, including inventory down £18.8m YoY.
• Net cash (pre-IFRS16) of £1.3m, an improvement of £48.3m YoY.
• Interim dividend of 3.0p declared.

Significant strategic progress

• Accelerating rollout of Fusion Motoring Services strategy (which creates a closer relationship between Retail and Autocentres within a town) to c.40 sites in FY25, following strong returns from the first wave of new locations.
• Halfords Motoring Club (“HMC”) passed 4m members with high value Premium sign-ups in-line with 8-10% target.

Outlook

• Comfortable with FY25 consensus with strong performance in H1 underpinning full-year expectations. Whilst the trading outlook is uncertain following the recent UK Budget, H2 is also impacted by short-term costs including incremental freight at the lower end of the previously guided £4-7m range and temporary garage closures to facilitate accelerated Fusion rollout.
• As a business employing more than 12,000 colleagues, measures announced in the UK Budget add c.£23m of direct labour cost, of which c.£9m was already included in FY26 planning assumptions and fully mitigated.
• The effect of the UK Budget on consumer behaviour and hence the trajectory of our end-markets is unclear. We have a greater ability to mitigate headwinds in the more needs-based Autocentres servicing business, where pricing power is greater. Additional tactical and structural options to support mitigation are under review.

Graham Stapleton, Chief Executive Officer of Halfords, commented:

“I am really pleased with the progress we have delivered in the first half. Against ongoing headwinds, we have continued to focus on controlling the controllables, with a disciplined approach to cost and margin optimisation.  We are particularly excited by the outstanding results we are seeing from our Fusion Motoring Services programme, which creates a stronger connection between our Retail stores and Autocentres in a town to fulfil all our customers’ motoring needs. Now live across 22 locations, these motoring services locations are delivering phenomenal returns with a significant uplift in both sales and profit. Given the strength of these results, we are now targeting 40 Fusion sites this year.   

“Critical to our success, and what really stands us apart from the competition, are more than 12,000 fantastic colleagues. We continually prioritise investment in their training – with skills and capability our number one focus.   The cost implications from the recent UK Budget are particularly acute for a specialist retailer that provides expert advice and assistance to customers, face to face.  While we will work hard to mitigate these costs, we urge the government to consider alternative ways of supporting businesses like ours, including the acceleration of Apprenticeship Levy reform, which would help us to upskill existing colleagues and offset some of the new headwinds. 

“Looking ahead, while the short-term outlook remains challenging, we will continue to build on our unique omnichannel platform and focus on what we can control to deliver on our strategy this year and beyond.” 

Investor and analyst meeting:

A webcast presentation for analysts will be broadcast at 9am followed by a live Q&A. To join the webcast please follow this link:  Halfords Group plc FY25 Interim Results Webcast. A recording will subsequently be uploaded to www.halfordscompany.com.

For further information:

Investors:

Holly Cassell, Director of Investor Relations & ESG          investor.relations@halfords.co.uk

Media:

Rob Greening / Steve Marinker / Jane Glover, Sodali & Co.    halfords@sodali.com 

Notes to Editors

www.halfords.com            www.avayler.com         www.tredz.co.uk      www.halfordscompany.com                     

Halfords is the UK’s leading provider of motoring and cycling services and products. Customers shop at 377 Halfords stores, 2 Performance Cycling stores (trading as Tredz), 636 consumer and commercial garages (trading as Halfords Autocentres, McConechy’s, Universal, National Tyres and Lodge Tyre) and have access to 268 mobile service vans (trading as Halfords Mobile Expert and National) and 502 commercial vans. Customers can also shop at halfords.com and tredz.co.uk for pick up at their local store or direct home delivery, as well as booking garage services online at halfords.com. Through its subsidiary Avayler, Halfords also sells the Group’s bespoke, internally developed software as a service (“SaaS”) solution to major clients in the US, Europe and Australia.

Cautionary statement

This report contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Halfords Group plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Halfords Group plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.

CEO Review

Business Update

In the face of previously flagged short-term headwinds as well as more structural changes to our cost base that have emerged from the recent UK Budget, we continue to prioritise optimisation of our existing platform, positioning Halfords for growth in the years ahead. We have taken some important steps forward in H1, optimising our platform to generate improved returns, mitigating headwinds through cost and efficiency savings, and prioritising existing strategic initiatives where we have a proven ability to deliver. A particular highlight has been the rollout of our Fusion Motoring Services concept, which is designed to create a closer relationship between our retail and garage infrastructure within a town. The excellent returns we have seen in the first wave of Fusion locations delivered in H1 have given us confidence to accelerate the programme in the remainder of this year to drive substantial incremental profit in converted sites in FY26 and beyond.

1. Optimising our platform to generate improved returns

Halfords occupies a unique market position: we benefit from a trusted, super-specialist brand; a national, omnichannel footprint; leadership positions in both the motoring and cycling markets; and a strong, resilient balance sheet. We also have millions of loyal customers, including more than 4m Halfords Motoring Club members, and more than 12,000 highly engaged and committed colleagues who are the linchpin of our business. In the context of a challenging macroeconomic backdrop, we have focused on maximising the value of these differentiating attributes for all our stakeholders, including both our customers and our colleagues.

The steps we have taken in H1 are very clearly manifested in our gross margin performance, which increased by 160bps YoY to enable us to hold PBT flat vs. last year despite significant wage inflation across the business.

Central to this improvement has been our Better Buying programme, which is built on stronger partnerships with key suppliers which drive not only improved economics but also allow us to have more influence over ESG practices throughout our supply chain. Now in the second year of this programme, we are seeing the benefits accelerate, contributing £5.7m of incremental gross profit in H1 FY25.

Pricing has also been an important lever, with a high degree of pricing discipline combined with efficient promotional activity enabling us to pass on some of the headwinds in our cost base.  Our ability to do this varies by end market, depending on both structural factors and short-term competitive dynamics which are visible in the ‘Market Volume and Share’ table below. Pricing in Cycling and Tyres is particularly challenging, as volumes in the underlying Cycling market continue to decline (now c.33% below FY19 levels) while the underlying Tyres market remains depressed by historical standards (c.13% below FY19 levels). This market is also characterised by lower margins and a high degree of transparency on pricing.