Halfords closes Central Europe shops to focus on UK growth

HALFORDS today announced the closure of its loss-making Central European operations because of the drain they were placing on group performance.

In an interim management statement, the Redditch-based retailer said the seven stores trading in the Czech Republic and Poland had posted a combined operating loss of £2.8m in the last 12 months. The stores will close later this summer.

“The costs associated with the withdrawal from these markets will result in an exceptional charge against profit in the current year of £7.9m, of which £5.4m relates to non-cash items,” said the report.

Elsewhere, the company said the bad weather during the winter had brought mixed fortunes.

For the 11 weeks to March 19, Halfords (HFD) said revenues increased by 1.3% with like-for-like sales 0.8% higher than the prior year. Cumulative sales, for the 50 weeks, increased by 2.6% with like-for-like sales increasing by 1.3%.
 
Revenue performance was led by its Car Maintenance operation, which delivered like-for-like growth of 13%.

“This reflects the benefit from the prolonged winter weather together with a record quarter of fitting participation of bulbs, blades and batteries,” said the statement.

However, things were not as good for the group’s Leisure operation as customers shunned the outdoor life in favour of staying at home.

Cycle sales were below expectations, with revenues increasing just 1.9% on a like-for-like basis. Sales of satellite navigation devices also continued to decline.

Overall, the company said that profit generation continued to be strong, with solid revenues, especially in higher margin products and services.

It said that complemented by ongoing cost control, full year earnings were expected to be ahead of market expectations.

One factor boosting this will be the company’s recent £75m acquisition of car servicing chain Nationwide Autocentres.
 
It said that in the four-week period since acquisition, trading had been good, with a like-for-like sales growth of 5%. The integration plan is progressing well and the rebranding of the centres will be rolled out during the next financial year.
 
David Wild, chief executive, said: “Halfords retail performance continues to be robust, with full year earnings now anticipated to grow by approximately 25%.

“The acquisition of Nationwide Autocentres, completed during the quarter, logically extends our successful service proposition and provides a further opportunity for future growth.”  
 
He said the group’s decision to focus on the UK for its growth had impacted on the Central European operations even though long-term, the region looked attractive.

“Recent performance has improved and the region has long-term attractive characteristics, but the continuing recession is severely limiting the property opportunity to move the operation to a viable scale,” said Mr Wild.

“While an international strategy clearly represents an opportunity for future growth, the board has decided that management and financial resource is better devoted, at the present time, to the lower-risk return opportunities in our core market.”
 
He said that even though the consumer environment remained challenging, the group was confident of a strong trading performance and that full year earnings before exceptional items would be “well ahead of market expectations”.

According to consensus analyst predictions from Reuters, pre-tax, pre-exceptional profits are likely to be around £112.7m.

The group is a little more optimistic and has estimated the figure will be somewhere between £114m – £116m.