Halfords shares tumble as bike sales decline

2nd Sep 2015 07:45

(ShareCast News) - Shares in Halfords slid after it said cycling sales fell 11% in the eight weeks to 28 August and are likely to be below current expectations for the quarter, although trading in all other areas of the business remains strong.The company said the disappointing cycling performance was primarily driven by mainstream bikes, as well as associated parts and accessories. It considers this to be principally market-driven, reflecting greater levels of discounting as well as poor weather deterring casual cyclists.Like-for-like retail sales declined 1.3% over the period mostly as a result of the drop in cycling, as car maintenance, car enhancement and travel solutions sales all grew.For the first half, Halfords expects its retail gross margin to be at the better end of the previous full-year guidance range, but said it now anticipates retail operating cost growth of around 3%, versus previous full-year guidance of 4% to 5%.Chief executive Jill McDonald said: "This recent weakness in our cycling sales is disappointing, but it comes after two years of very strong growth in the category and has been partly offset by strong growth in both car maintenance and car enhancement sales, which is a testament to the balanced nature of the business.""Looking ahead, we remain confident in the long-term growth opportunities in cycling and I will talk more about our plans for cycling and across the broader group at our interim results in November."Keith Bowman, equity analyst at Hargreaves Lansdown said: "In all and with investors' nerves more generally being tested, today's news has not been taken well."The update in short raises questions over the group's rollout of its Cycle Republic stores, with pressure on the new chief executive clearly rising. For now, and with analyst opinion having already fallen back from a buy to a cautious buy, a further downgrade looks inevitable."Investec, meanwhile, said that while cycling sales were disappointing, it sees good future growth potential there and across the business, which isn't reflected in the valuation. It rates the stock at 'buy'.At 0948 BST, shares were down 8.1% at 468.60p.