REG-Halfords Group PLC Halfords Group PLC: Q3 Trading Update: Financial Year 2024

HalfordsAnnouncement

25/01/2024 07:15

============

   Halfords Group PLC (HFD)
   Halfords Group PLC: Q3 Trading Update: Financial Year 2024

   25-Jan-2024 / 07:00 GMT/BST

   ══════════════════════════════════════════════════════════════════════════

                                                                             

   25th January 2024

                               Halfords Group plc

                     Q3 Trading Update: Financial Year 2024

                                        

      Continued share gains and focus on motoring services drove resilient
           performance in Q3, despite challenging market conditions.

                      Cost savings ahead of expectations.

          Strong start to Q4 trading, FY24 profit guidance maintained.

                                        

   Halfords Group plc (“Halfords” or the “Group”), the UK’s leading  provider
   of Motoring  and Cycling  services and  products, today  announces its  Q3
   Trading update for the 13 weeks to 29 December 2023 (“the period”).

   Q3 FY24

   Group revenue summary

                  Q3: Growth vs FY23 39 wks YTD: Growth vs FY23
          
                                                  
                    Total     LFL        Total         LFL
   Halfords Group   1.6%      2.0%       9.5%          6.0%
   Autocentres      4.1%      5.1%       22.4%        12.4%
   Retail          (0.1%)     Flat       2.1%          2.7%
   Motoring         0.7%      0.7%       5.4%          5.6%
   Cycling         (1.2%)    (1.2%)     (2.5%)        (2.3%)

    

     • Group revenue grew +1.6% and +2.0%  LFL in the quarter, with  stronger
       sales in Motoring and needs-based  categories partly offset by  weaker
       spend in discretionary areas.
     • Whilst October and November sales were strong, sales in December  were
       much weaker, driven by a combination of mild and wet weather impacting
       demand for winter  products and  footfall into  stores, and  customers
       balancing difficult spending decisions in the lead up to Christmas.
     • This effect was most pronounced in Retail Motoring, where monthly  LFL
       growth averaged +10.2% in  October and November but  fell to a  -15.3%
       decline in December. In January, we  have seen sales growth in  Retail
       Motoring return  to  the  levels  seen  in  October  and  November  as
       conditions normalised.
     • Market share gains  continued in all  four of our  key markets  (being
       Retail Motoring, Cycling, Consumer Tyres and Motoring Servicing) as we
       successfully navigated a difficult  trading environment and  continued
       to execute  our  strategy.  However,  market  volumes  remained  below
       expectations: Cycling market volumes were down (5.1%) in Q3 and are c.
       28% below pre-pandemic  levels, whilst the  Consumer Tyres market  was
       down (2.6%) in the quarter and is c. 14% lower than pre-Covid.
     • Autocentres:

          ◦ Continued to deliver robust LFL growth, with YTD in double-digit
            growth. This was against a strong prior year comparator and was
            driven by further improvements to our customer proposition,
            optimising our online platform and a clear focus on value to
            support customers through the ongoing cost-of-living crisis.
          ◦ The Consumer Tyres market remained subdued, with drivers
            continuing to delay essential maintenance for longer than
            anticipated. Recent data from TyreSafe estimates that one-in-four
            tyres on Britain’s roads could be illegal, equating to just over
            10 million tyres. In our Autocentres, we are also seeing an
            upward trend year-on-year in the number of cars with tyres
            classed as unsafe with a tread depth below the legal limit of
            1.6mm.
          ◦ Growth in the Motoring Services market softened in the quarter,
            reflecting the ongoing impact of changing MOT seasonality caused
            by Covid disruption. Over a full 12 months, the MOT market is
            expected to grow marginally in FY24, slightly higher than our
            initial expectation of broadly flat.

     • Retail:

          ◦ A resilient performance against very strong motoring comparators.
          ◦ As referenced above, Motoring sales were adversely impacted by
            very few days of sub-zero temperatures, particularly relative to
            December 2022. Whilst weather still affects short-term sales
            trends, our strategic shift towards Services and B2B means the
            Group is now much less prone to such impacts.
          ◦ Cycling LFL decline of (1.2%) was an improvement on H1 and
            reflected continued share gains in a market that was down (5.1%)
            on a volume basis vs prior year. This represented a strong
            performance, with Kids Bikes up +5% in December, and Tredz taking
            significant share in a challenging market, up 20% in the quarter
            versus FY23.
          ◦ Our mix of own brand products and strong relationships with
            supply partners has meant that stock has been well controlled
            over the quarter, with inventory volumes materially lower than
            last year and expected to remain lower at year end.

     • B2B revenue continued to  perform strongly, up  6.9% versus the  prior
       year and driven by robust growth with our Fleet customers. 
     • We expect a cash inflow in H2  resulting in a small net debt  position
       at the year-end, excluding lease debt.
     • In what remains a challenging consumer environment, we are  continuing
       to sharpen our focus on what is within our control, including:

          ◦ Announcing today a strategic partnership with specialist tyre
            distributor Bond International. The agreement is expected to come
            into effect this financial year, resulting in a cost reduction of
            c.£5m per annum from FY25 onwards, as well as better service for
            our customers and improved operational processes in our
            Autocentres. Over time, the partnership will also unlock buying
            synergies and significantly improve working capital. The closure
            of our existing tyre supply operation will result in a
            non-underlying P&L charge in FY24.
          ◦ Rolling out our Fusion concept to 10 towns following successful
            trials in Colchester and Halifax, where we have seen a near
            doubling of revenue and an even greater increase in EBITDA in the
            garages in those towns. Project Fusion enhances the motoring
            services offer in a town, improving both the Retail store car
            park and Autocentres garage experience through a more seamless
            operation and improved customer experience. The towns have been
            identified and we are targeting a launch date in Q1 FY25.
          ◦ Successfully managing costs and continuing to identify further
            structural opportunities. We now expect cost savings in FY24 to
            exceed £35m, an upgrade to the £30m target announced previously.

   Outlook

   The Group  continues  to deliver  revenue  growth in  a  very  challenging
   consumer environment, highlighting the benefit  of our strategic shift  to
   needs-based, service-related revenues,  focussed on  motoring. Whilst  our
   cost and efficiency programme continues to perform well and we continue to
   take share across all four of  our core markets, the Cycling and  Consumer
   Tyres market are performing significantly worse than anticipated and  have
   weakened in Q3. 

   Notwithstanding this and assuming  that markets do  not weaken further  in
   Q4, we continue to expect PBT  to fall within the previously  communicated
   range of £48m to £53m. Whilst  Q3 sales were below expectations, a  strong
   start to Q4 trading, further cost  action and resilient areas such as  B2B
   performing well, mean that we are confident in the Q4 outlook.

   Looking to  FY25,  we  will  focus on  driving  profit  growth  through  a
   combination of further cost savings, more profitable sales, and leveraging
   our Motoring Loyalty Club.  We remain cautious on  market recovery in  the
   short-term and we are not currently planning for a material improvement in
   our key markets in FY25.

   Looking beyond FY25, we remain confident in the mid- and long-term  future
   of Halfords and believe the business will be exceptionally well positioned
   when markets recover. Our scale,  brand recognition and market  leadership
   provide us with  a platform  that has  significant competitive  advantage.
   Given volumes  in  the  Cycling  and  Consumer  Tyres  markets  are  below
   pre-pandemic levels by c. 28% and  c. 14% respectively, a market  recovery
   alongside continued delivery of  the strategy gives  us confidence in  our
   ability to grow profit significantly in the future.

    

   Graham Stapleton, Chief Executive Officer, commented:

   “In what remains a very challenging time for our customers, we are pleased
   to have  delivered a  resilient  performance in  Q3. Against  the  current
   backdrop, our continued strategic  shift towards needs-based and  motoring
   service-related revenues has  never been  more relevant.  However, we  are
   still seeing drivers delay essential  maintenance and there is a  worrying
   increase in potentially unsafe vehicles on the road.  Recent TyreSafe data
   estimates that  one-in-four tyres  on Britain’s  roads could  be  illegal,
   equating to just over 10 million tyres.

   We are  continuing  to  grow share  across  all  of our  markets  and  are
   confident that  the  business is  very  well-placed to  drive  significant
   profit growth once those markets recover. Trading in Q4 has begun strongly
   and we remain focused on everything that we can control, with a number  of
   initiatives underway to achieve further efficiencies within the  business,
   as well as investing in areas  where we see real opportunities for  future
   growth.”

    

   Market Volume and Share (fig.1)

                                       Retail           Consumer   Motoring
   Market Volume and Share            Motoring Cycling            Servicing
                                                         Tyres
   Market Volume                                                       
   Growth forecast in FY241            +0.5%    -1.0%    +2.6%   Broadly flat
   Market Volume Movement Q3 FY24  vs  +0.2%    -5.1%    -2.6%      -1.6%
   FY231
   Market Volume Movement YTD FY24 vs  +0.8%    -5.6%    -1.0%      +1.7%
   FY231
                                                                       
   Market Share (volume)                                               
   Share expectation in FY242         +0.6ppts +0.7ppts +0.2ppts   +0.2ppts
   Share movement Q3 FY24 vs FY231    +0.7ppts +1.0ppts +0.4ppts   +0.2ppts
   Share movement YTD FY24 vs FY231   +3.0ppts +1.7ppts +0.4ppts   +0.2ppts

    

   1Sources: Market  Volume  data:  Retail Motoring,  GFK;  Cycling,  Bicycle
   Association; Consumer Tyres, GFK; Motor Servicing – MOT data from DVSA

   2Halfords targets

    

   Enquiries

   Investors & Analysts (Halfords) 

   Jo Hartley, Chief Financial Officer 

   Neil Ferris, Director of IR and ESG +44 (0) 7483 457
   415                                                   

    

   Media (Powerscourt) +44 (0) 20 7250 1446

   Rob Greening halfords@powerscourt-group.com

   Nick Hayns

   Elizabeth Kittle

    

   Notes to Editors

   www.halfords.com                                       1 www.tredz.co.uk  
    2 www.halfordscompany.com                     

   Halfords is the UK's leading provider of motoring and cycling services and
   products. Customers shop  at 386  Halfords stores,  3 Performance  Cycling
   stores (trading  as Tredz  and Giant),  645 garages  (trading as  Halfords
   Autocentres, McConechy’s, Universal, National  Tyres and Lodge Tyres)  and
   have access to 266 mobile service vans (trading as Halfords Mobile Expert,
   Tyres on the Drive  and National) and 554  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.

   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.

   ══════════════════════════════════════════════════════════════════════════

   Dissemination of a Regulatory Announcement that contains inside
   information in accordance with the Market Abuse Regulation (MAR),
   transmitted by EQS Group.
   The issuer is solely responsible for the content of this announcement.

   ══════════════════════════════════════════════════════════════════════════

   ISIN:           GB00B012TP20
   Category Code:  QRT
   TIDM:           HFD
   LEI Code:       54930086FKBWWJIOBI79
   OAM Categories: 2.2. Inside information
                   2.2. Inside information
   Sequence No.:   299505
   EQS News ID:    1822385


    
   End of Announcement EQS News Service

   ══════════════════════════════════════════════════════════════════════════

    3 fncls.ssp?fn=show_t_gif&application_id=1822385&application_name=news&site_id=reuters9

References

   Visible links
   1. https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=8d9c0d9b41eb2335e0a4ce386dba87e7&application_id=1822385&site_id=reuters9&application_name=news
   2. https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=dc934a09a1192ec0a1dd5bc4c5b4e7f2&application_id=1822385&site_id=reuters9&application_name=news


============