A profit warning from Halfords today has left analysts scratching their heads and caused some investors to jump ship.
The cycling and car specialist cautioned that its profits for the full-year will be much lower than expected – between £58million and £62million, a far cry from the £70million analysts had pencilled in.
But it blamed warm weather over the last three months for a 1.7 per cent decline in sales, and some analysts are unconvinced.
Halfords confessed that its profits for the full-year will be much lower than expected – between £58million and £62million – and blamed falling sales on warm weather
AJ Bell investment director Russ Mould said Halford’s excuse, even in part, is ‘hard to justify’.
‘When will companies learn to stop blaming the weather for their problems?’ he said.
‘According to the Met Office the UK’s mean temperature in December 2017 was, like last month, above the long-term average but the company made no mention of this a year ago when its figures were more robust.
‘And even if, as the company indicates, the weather hit sales of retail motoring products and services, it could have provided a boost on the cycling side as the mild conditions encouraged more people to get on their bikes,’ Mould argued.
XTB market analyst David Cheetham agrees that the firm’s reasoning looks ‘bizarre’ and ‘far-fetched’.
He said: ‘The firm has blamed the performance on weak consumer confidence and rather bizarrely ‘exceptionally mild weather.
‘Retailers are renowned for blaming the weather for poor performance, but these claims appear especially-far fetched for a company that generates the bulk of its business from bikes and cycling accessories – an area that would surely benefit from milder conditions.’
Just a few months ago, Halfords was toasting a period of warmer weather, claiming that an increase in demand for bikes and camping kit during the heatwave helped it to offset weak sales during the so-called Beast from the East.
The news perturbed investors too, triggering a near-20 per cent slide in the retailer’s share price to £2.10 in early trading.
Halfords also pointed to waning consumer confidence and said uncertainty in the market will continue to impact its performance, forecasting flat profits for 2020.
Weak consumer confidence, according to Mould, is ‘a more likely culprit’.
The firm’s retail sales declined 2.2 per cent, but it suffered a particularly weak performance at its motoring centres, down 3.4 per cent.
It argued that drivers were put off from buying weather-related products during a balmy autumn. The milder weather meant fewer breakdowns too, which knocked what is the higher margin part of its business.
Cycling was broadly flat, dropping 0.3 per cent. Growth in children’s cycling and accessories was offset by a decline in big-ticket adult bikes.
New boss Graham Stapleton (above) said it was a challenging third quarter for the business
Chief executive Graham Stapleton said: ‘This has been a challenging third quarter for the business, driven by exceptionally mild weather and ongoing weak consumer confidence.
He added: ‘Whilst this has been a difficult period, we have managed costs and margin well and our free cashflow remains strong. Halfords is a robust business and we firmly believe that the strategy we outlined in September is the right direction for the business.’
Profit warning from Card Factory
Halfords was not the only firm to issue a profit warning today. Card Factory suffered over the Golden Quarter too, and warned today that as a result profits for the 2020 financial year are likely to be flat.
The value card firm put it down to ‘ongoing challenges from the consumer and macro backdrop’.
It said it is trading in line to meet expectations of between £89million and £91million in the current financial year. Shares in Card Factory were down more than 9 per cent in early trading.