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Halfords flags fragile consumer confidence despite forecast beating profits
Halfords Group has become the latest retailer to flag a fragile consumer environment, despite cost savings driving a better than expected profit last year.
The group told shareholders on Wednesday that while inflation 'appears to be moderating and interest rates are falling', the 'negative outlook for employment and the impact of geopolitical instability continues to weigh on confidence'.
UK unemployment hit its highest level since July 2021 in the three months to April at 4.6 per cent and forecasters expect increased labour costs to continue to hit the jobs market in the months ahead.
Halfords also highlighted Britain's relatively savings ratio, reflecting a consumer base that currently prefers to save rather than to spend 'despite rising real incomes'.
But underlying pre-tax profits at the motoring and cycling services retailer rose by 6.4 per cent to £38.4million in the year ending 28 March, above its previous guidance of £32million to £37million.
The Redditch-based company, which owns Boardman Bikes, reported achieving around £35million in savings during the year.
It said this offset approximately £33million of inflationary costs, largely resulting from a 10 per cent hike in the National Living Wage.
Halfords also said profitability benefited from increased prices, favourable foreign exchange rates, and demand for higher-margin maintenance and repair services.
The group's turnover flatlined at £1.7billion, although its like-for-like sales increased by 2.5 per cent following growth in both its retail and Autocentres divisions.
Halfords noted enjoying healthy demand for kids' bikes, Tredz and the Cycle2Work scheme during the final months of the period, and a further boost to cycling sales since then due to the warm spring weather and late Easter.
Henry Birch, chief executive of Halfords, said: 'The business has delivered a strong financial performance, made good strategic progress and has a clear plan in place to tackle external inflationary forces.'
Birch joined Halfords in April after Graham Stapleton announced he was standing down following seven years in charge, during which time he helped grow the firm's annual revenues from £1.1billion to £1.7billion.
The Stanford University graduate was formerly the CEO of online retailer The Very Group and Rank Group, owner of Mecca Bingo and Grosvenor Casinos.
Over the current fiscal year, Halfords plan to continue rolling out its Fusion strategy, which involves integrating its retail and autocentre operations within the same towns.
With 50 locations already trading, the company intends to have more than 100 Fusion garages operating by the end of the year.
Chris Beauchamp, chief market analyst at IG, said: 'Halfords has become the latest retailer to issue a cautious update on the outlook for consumer spending, which comes despite its steady expansion into the higher-margin car servicing business.
'The rise in earnings for the autocentre division suggests the new CEO appointment is bearing fruit. Overall today's numbers seem to provide the justification for the recent share price bounce to the current eighteen-month highs.'
Halfords shares were 1.5 per cent lower at 169p on Wednesday morning, although they have still gained around 27 per cent since the year started.
