Profit warning wipes £100m off retailer’s value
Investors in Redditch-headquartered retailer Halfords have reacted badly to a profit warning, with the retailer’s share price falling 22% during trading on Thursday.
The drop wiped more than £100m off the company’s value and drove the share price down to a six-year low.
Poor trading in the run-up to Christmas, attributed to mild weather and weak consumer confidence, forced the company to significantly reduce its forecasts. It also warned that it did not expect profits to bounce back in 2020.
Russ Mould, investment director at AJ Bell, said: “When will companies learn to stop blaming the weather for their problems? Auto parts and bike retailer Halfords attributing a big reduction in guidance given as recently at November on ‘exceptionally’ mild temperatures, even in part, is hard to justify.
“Perhaps the cycling boom in the UK, which boosted Halfords historically, is losing traction, or the company simply isn’t as well positioned as it should be to benefit from it.”
Halfords underlying pre-tax profit, 2015-2019 (£m):
Halfords chief executive Graham Stapleton had sought to reassure investors in the FTSE 250 company about its longer term prospects.
“This has been a challenging third quarter for the business, driven by exceptionally mild weather and ongoing weak consumer confidence,” he said.
“Together, these factors have led us to reduce our profit expectations. Whilst this has been a difficult period, we have managed costs and margin well and our free cash flow remains strong.
“Halfords is a robust business and we firmly believe that the strategy we outlined in September is the right direction for the business.”
That strategy sought to improve the shopping experience, improve its offer of services and increase cross-selling.
Underlying profits for the financial year to March 2019 are expected to be between £58m-£62m, which would be the fourth consecutive year of falling profits for the group.
Its shares had closed on Wednesday last night at 279p – almost exactly half of its peak achieved in summer 2015 – before the morning sell-off dragged the price as low as 210p. At the close, shares were trading down at 217p.
