Halfords speeds past Q3 consensus but margins diluted - UPDATE

16th Jan 2014 07:27

- Q3 like-for-like sales up 5.2 per cent- Cycling leads growth, diluting gross margin- Expectations and full year guidance unchangedAided by mild weather and continued retail reinvigoration by Chief Executive Matt Davies, Halfords trounced third-quarter analyst forecasts with a period of rapid top-line growth.Group like-for-like growth of 5.2% was chiefly from retail, where like-for-like sales powered ahead by 5.9%, led by 19.5% growth from cycling products, while the Autocentres division reversed its previous like-for-like decline with marginal growth of 0.1%.A consensus average of analysts forecasts had pointed to retail like-for-likes of 3.9%.The FTSE 250 group admitted the retail gross margin was diluted by the weighting of the sales mix towards cycling products, which offer lower margins, but Halfords stressed that its expectations and guidance for the full year remained unchanged.It had previously guided to a decline of 125-175 basis points, with an outcome in the mid-point now expected versus the low end previously.Davies acknowledged a retail top-line performance up 6.2% was robust in a period of comparatively mild weather. "Cycling was again the standout performer, with our customers engaged by refreshed ranges, supported by a renewed customer-first promotional stance," he said. Within the car maintenance retail section, despite a fall in demand for winter products and low growth in auto-parts sales, store staff undertook fitted record levels of '3Bs' (bulbs, blades and batteries) to lift like-for-likes 3.4%. Car enhancement like-for-likes fell 4% as an improved year-on-year car cleaning performance was outweighed by an increased decline in sat nav sales.Davies' five-point 'Getting Into Gear 2016' retail plan progressed well, he said, with 12 stores refurbished and a successful and much-needed relaunch of the retail website.Online retail sales grew by 13.8%, which was down from 16.9% in the first half, with online representing a record 11.7% of total retail salesThe Autocentres arm improved from its 2.1% like-for-like decline in the first half of the year, with a further four centres opened and a new Managing Director appointed. The bulk of further planned openings look likely to be delivered before the year end.Broker Investec was also bullish, praising the defensiveness of the offer and the "fabulous" performance from cycling as opposed to car maintenance, which usually drives the business in the quarter but was weather affected.N+1 Singer noted that, prior to Thursday's announcement, consensus estimates stood at £69.3m pre-tax profit for the full year. The adverse gross margin movement along with slightly higher operational expenditure broadly offset the better than expected LFL performance and so analysts do not anticipate any material changes at this stage. "Getting into Gear 2016 is definitely one of the more impressive strategic turnaround plans we have seen for some time and tackles the key issues around service and range head-on," Singer added, impressed that "upgrade momentum" has returned. "The route map for the turnaround is transparent and our analysis of potential share gains in core categories comfortably supports management's £1bn sales target in Full Year 2016. Confidence in outer year forecasts is underpinned by the strategic initiatives being implemented, and with further upgrades possible in the short term due to improving UK consumption, the investment case is compelling."Shares in Halfords were up 7.12% to 493.8p at 11:40 on Thursday.OH