Halfords makes loss after restructuring and higher labour costs

Times

7 hours ago

Halfords fell into the red after it was hit by restructuring costs and forced to write down the value of its retail business, which it blamed on rising UK gilt yields and increased labour costs.
The troubled car parts and cycling retailer swung to a statutory pre-tax loss of £30 million in the 52 weeks to March 28 after booking a £49.1 million non-cash impairment predominantly relating to its retail segment.
The company said the writedown resulted from a higher discount rate applied to its five-year cash flow forecasts, which reflected elevated UK-wide borrowing costs as well as anticipated increases to the national living wage and national insurance contributions.
Henry Birch, the new Halfords chief executive, said: 'The main factor is essentially out of our control. Our discount rate has gone from 8.5 per cent to 9.5 per cent, but that change is driven by the change in UK gilts over the last year.'
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He said the impact of increased labour costs over the forecast period, estimated at about £23 million annually, had also been factored in, but denied the writedown reflected under-performance in the retail business itself, despite a post-pandemic slowdown in bicycle sales.
Shares in the business rose 0.35 per cent to 172p on Wednesday as investors focused on the company's underlying pre-tax profit, which rose 6.4 per cent to £38.4 million, ahead of analyst expectations and up from £36.1 million the previous year. Group revenue was marginally higher at £1.71 billion.
The company said it would close under-performing garages and stores as part of a review of its physical estate, although it declined to specify how many sites and jobs would be affected. It also blamed the closures on increased labour costs introduced in Rachel Reeves's October budget.
Closure costs of £14.9 million were booked during the year, the majority of which related to a strategic review of garage locations deemed 'sub-scale' or unsuited to future investment.
Halfords said many of the sites earmarked for closure were located near existing branches being redeveloped as 'Fusion' garages: expanded locations that combine retail and repair services. 'These closures will be immediately accretive to earnings accretive,' the company said.
The company also took a £1.5 million restructuring charge linked to the continuing replacement of its warehouse management systems. It acknowledged deployment issues at its Coventry distribution centre and warned the disruption would continue to affect profits in the present financial year.
Birch said that while its Washford warehouse in Worcestershire had transitioned smoothly, the Coventry rollout had experienced 'teething problems', requiring additional staffing to maintain output levels. The final phase of the rollout, at its Crick site in Northamptonshire, is not due to be complete until 2027.
Although Halfords' motoring segment, which includes garages, parts and maintenance, is in 'very good shape', according to Birch, the retail division continued to face headwinds. Sales of bicycles, which surged during the pandemic, have slowed. The group's tyre sales, a key part of its motoring offer, were described by its boss as 'muted'.
Birch, who joined in April, said he had no plans to retreat from cycling: 'A lot of people recognise the Halfords brand as being a cycling brand. Half of all bicycles that get sold in the UK are sold by Halfords. It's an incredible category leader, but actually 80 per cent of our revenues come from motoring products. So, we really are first and foremost a kind of motoring and automotive focused business, but we also happen to be the cycling leader in the UK. I don't see us dropping cycling or moving away from it.'
He said he had no plans to take the business private despite a sharp fall in its share price since the pandemic. 'I haven't had any chats, nor approaches,' he said. 'And obviously, as a Plc, we're a public company. I'm not out there looking to have those chats.'
Despite cost pressures and operational disruptions, Birch said Halfords' performance in its core motoring categories and the resilience of non-discretionary demand for repairs and maintenance gave him confidence in the business's outlook. ' Clearly, the last few years have been quite difficult, I think, for all retailers, but I'm really confident about where we can take the business.'
Birch, who succeesed Graham Stapleton, was formerly the chief executive of Very Group, the online retailer, and William Hill Online, the betting group.
Asked why he took on the top job at Halfords, he said: 'It's got an incredibly strong brand. It's got a fantastic network of retail stores, garages, mobile vans, and [has] a strong digital element to it. We are category leaders in a sector, which is […] needs-based. If your car won't start, you need a new battery. I think we're in a really strong position.'