Halfords’ new team brings familiar strategy
IT’S all change and no change at Halfords.
The entire board-level leadership team has been shaken up, with a new CEO, CFO and chairman. But last week’s strategy update could have come straight out of the outgoing team’s playbook.
We’re certainly not complaining about that. CEO Graham Stapleton’s predecessor believed Halfords had to offer something Amazon couldn’t if it was to compete effectively – face-to-face service.
Nearly 42 per cent of bulb, blade and batteries it sold last year were fitted to customers’ cars there. An increasingly skilled workforce means service-related sales are rising, up 14.2 per cent in 2017/18. Long term, that should let the group justify a premium to online rivals. The fact that 85 per cent of Halfords’ growing online sales are being picked up in store also bodes well, complementing physical stores rather than cannibalising them, and an online shop with real-world service offers the best of both worlds.
Stapleton has made some tweaks around the edges. Store refurbishments are set to increase, with a 50 per cent rise in capital expenditure.
While that’s expected to be funded out of cost savings, elsewhere in the business increased operating expenditure is contributing to an unexceptional profit performance this year and next. Growth from there on is expected to be modest, but we think it’s the right decision.
The Autocentres garage business is also in line for tinkering after being an entirely separate business and attracting just 2 per cent of the group’s retail customers. Management plan to bolt it closer to the rest of the group as the focus on services intensifies.
Going forward, a healthy balance sheet and plenty of free cash gives the board room for manoeuvre. It can double its current level of debt and still be within its target range. The prospective yield of 5.3 per cent isn’t under threat, and the board is looking to grow payments to shareholders when conditions allow.
Overall, we think Halfords is one of the better-placed retailers. If spanners, greasy fingers and financial firepower can’t keep Amazon at bay, the future for bricks-andmortar retailers looks bleak indeed. “This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”