Last summer the Olympics, and especially the success of Team GB on the medals front, caused a sporting boom in the UK which boosted the profits of specialist retailers at a time where any small rise in fortune was to be welcomed. Car parts and bicycle retailer Halfords was one such chain which profited from the summer of sport and posted a leap in like for like sales thanks to cycling gold medallist Bradley Wiggins.
However this week Halfords released results which proved hugely disappointing for shareholders, admitting that even cycling’s moment in the sun failed to turn around the chain’s difficult year. In the 12 months to March 31st, pre-tax profits totalled only £71 million – a catastrophic 25 per cent drop from the same period last year.
While total revenues increased by 1 per cent to £871 million, this could have potentially been much higher. The car parts and maintenance aspect of the business proved incredibly strong in the past year, yet much of the revenue growth in this area was counteracted by the poor performance of the chain’s retail outlets.
As a result of the annual report, shares in Halfords dropped by 14 per cent in early trading.
However, chief executive Matt Davies has announced that a sizeable investment would be made into the business to ensure its long term future. The main aims of this plan, according to Mr Davies, will be to “significantly improve our retail customer experience and bring about sustainable and profitable sales growth momentum.”
He continued; “This programme will focus on supporting our colleagues to deliver consistent friendly expertise backed by major improvements in store environments, plus building on the authority of our offer, infrastructure and digital capabilities.”
The total amount expected to be invested into the business is £100 million, and half of this is expected to be used for store refurbishments. Halfords aims to have revamped 150 of its stores by 2016 with every store additionally gaining a refitted cycle department to reflect on its core aim of 1 million bicycle sales per year.
While Mr Davies has set a sales target of £1 billion by 2016 – something he believes will be achievable as a result of the restructuring – he has warned that profits will remain rather flat over the next two years to account for the investment. However, he has asked shareholders for their patience, claiming that the plan will work far better than a “do-nothing scenario”.
Fortunately analysts seem to have a very positive outlook regarding the three year investment plan, believing that investors will win out if they hold out for the long term.
Panmure Gordon analyst Philip Dorgan says; “We like the plan and we like the £1 billion revenue target, but we were wrong to assume fast payback from investment.”
With the retail industry slowly beginning to pick up, but with contraction also highly possible, only time will tell if Mr Davies’ decision to channel a huge amount of capital into the turnaround plan will prove to be the making or breaking of Halfords.
Do you think now is the perfect time to invest in retail turnaround initiatives, or is the economy still too unstable to be certain of positive results?
