Halfords encounters heavy traffic -UPDATE

21st Nov 2012 07:26

As was flagged by Halfords on the past 4th of October, the bikes and car accessories retailer has produced weak interims. It also said it will deliver full-year pre-tax profits slightly below FactSet's consensus estimate of £70.21m.Presenting results for the half year ending September 28th, Chairman Dennis Millard said: "Our second-half Retail planning assumptions remain unchanged and cautious given the prevailing pressures on the consumer as we approach the important winter and Christmas trading periods. We continue to plan for a full-year group profit, before tax and non-recurring items, of between £66m and £70m."His caution seems sensible as interim pre-tax profits were down 22.5% at £42.4m (2012 first half: £54.7m) on revenues that were almost flat at £455.6m (2012 first half: £454m). The company's performance was dragged down by its Retail division, which saw sales drop by 1.9% to £393m (2012: £400.6m) and operating profits before non-recurring items plunge by 23.6% to £42m (2012: £55m).Its much smaller Autocentres operation performed far more strongly, increasing sales by 17.2% to £62.6m (2012: £53.4m), while increasing operating profits before non-recurring items by 10% to £3.3m (2012: £3m).Halfords gross margin fell by 23 basis points, while inflationary pressures and investments saw operating costs rise by 6.4% to £201.8m (2012: £189.6m).More positively, it produced free cashflow of £59.5m, £19m more than in the first half of last year. This enabled net debt to be reduced by £31.3m since the end of the 2011 financial year to £107.9m.The interim dividend of eight pence a share was maintained and will be paid on January 25th.Commenting on the company's figures analysts at Seymour Pierce said: "As expected, it is too early for a strategic update as the new Chief Executive Officer (CEO), Matt Davies only started a month ago. (...) We do not believe Halfords is suffering from structural issues; it is suffering from maturity, a tired offer and operational inefficiencies. Profits, in our view, have now bottomed and while there is much for the new CEO to do, we believe forecast risk has shifted to the upside. "We are retaining our Buy recommendation and our price target of 390p, which would put the shares on a calendar 2013 price-to-earnings multiple of 13.9 times- marginally ahead of the sector rating ex ASOS."CM