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LONDON (Thomson Financial) - Halfords Group Plc, the car parts and bicycle
retailer, said Wednesday it is confident of delivering full year earnings in
line with internal expectations despite reporting a slowdown in underlying sales
growth over its first quarter, sending its shares over 4 percent higher.
The 450-store retailer blamed the slowdown on non-comparable weather
patterns year-on-year but in contrast to a raft of other UK retailers was upbeat
on short term prospects despite the worsening economic climate.
"We very much believe we are well placed to take advantage of increased
demand in the balance of the summer season for bikes, both commuting and
leisure, and for our travel and camping products, particularly as more and more
of the UK population decide to holiday in the UK this year," Nick Wharton,
finance director and acting joint managing director told reporters.
He noted that the retailer, which sells one in three bicycles sold in the
UK, has waiting lists for some of its Boardman bikes, a range designed by
Olympic champion Chris Boardman priced at 500 pounds to 1,400 pounds.
Prior to Wednesday's update analysts were forecasting a consensus underlying
pretax profit for the group's year to end-March 2009 of 93 million pounds, up
from 90.2 million pounds in the previous year.
In a statement published ahead of Halfords annual shareholders' meeting it
said total sales for the 13 weeks to June 27 increased 1.7 percent against a
tough weather assisted comparative figure and were down 1.1 percent on a
like-for-like basis, which strips out the impact of new space.
Adjusting for the absence of a full Easter during the quarter, the
performance represents total sales growth equivalent to 3.0 percent and equates
to like-for-like sales growth of 0.2 percent.
The like-for-like sales outturn compares to a plus 3.2 percent run rate at
the end of the group's last financial year.
Many UK retailers are struggling as shoppers cut back on spending due to
higher fuel, food and mortgage costs.
However, Halfords said its year-on-year total sales growth strengthened each
month across the first quarter.
The car maintenance division, which sells products such as wiper blades, car
bulbs and car batteries, was the best performing, reflecting its
"counter-seasonal and defensive characteristics".
"Car maintenance products are high margin, low average transaction value and
are needs driven. This provides a resilient backbone to our business," said
Wharton.
Sales in the leisure category, which includes bikes, improved after a slow
start to the quarter and, within the car enhancement category, in-car technology
continued to deliver year-on-year growth in both volume and value.
The strong contribution from car maintenance meant gross margin was
"slightly ahead" of internal expectations and above the upper range of its
previous guidance.
However, reflecting the strengthening of lower margin leisure sales in the
balance of the season, it still anticipates a full year gross margin in line
with the guidance of a range of minus 20 basis points to plus 20 basis points.
Reflecting the favourable margin position and a focus on costs, operating
profit for the first quarter is ahead of internal hopes.
"This is an encouraging start to the financial year which, when set against
the strong sales growth achieved in the same period in the prior year (total
sales up 11.4 percent and like-for-like sales up 8.4 percent) underlines
Halfords' resilient and defensive proposition," said Wharton and his fellow
acting managing director Paul McClenaghan.
"Whilst not immune to the ongoing challenging retail environment, our market
leading positions, extensive ranges and unique service proposition continue to
provide us with confidence in delivering full year earnings in line with our
expectations."
Analysts at Morgan Stanley described the trading statement as "reassuring"
and reiterated their 'equal weight' recommendation.
"Performance is ahead of consensus [expectations] and comments on mix and
trend through the quarter are encouraging," they told clients. "Most other
hardline retailers would love to have this level of like-for-like [sales] at the
moment."
Halfords has been without a chief executive since the surprise resignation
of Ian McLeod, who left to run Australian retailer Coles in February. Last month
it lured Wal-Mart Stores Inc executive David Wild to the role. He starts on
August 4.
At 12.29 p.m. shares in Halfords were up 11-3/4 pence at 288-1/4 pence,
valuing the business at 607 million pounds.
Autobacs Seven Co, Japan's largest car accessories retailer, owns a 5.2
percent stake in Halfords, has a sourcing deal with it and has been tipped as a
possible future bidder.
Since June 2006 Halfords has spent 66.1 million pounds buying back shares.
james.davey@thomsonreuters.com
jdd
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