Halfords Group reports £98 million sales from Autocentres

Halfords Group has warned that it is set to achieve pre-tax profits of between £124 million and £127 million (including a £2.2 million amortization charge for the purchase of its auto centre business) when it publishes its full-year 2011 results. The figure is down by up to 3 million from the more confident £127 million guidance the firm gave in January. The profits are expected to be generated from group sales of £869 million, of which the well-known retail business is expected to contribute £771 million and the Autocentres operation, delivered the remaining £98 million.

Halfords Group has warned that it is set to achieve pre-tax profits of between £124 million and £127 million (including a £2.2 million amortization charge for the purchase of its auto centre business) when it publishes its full-year 2011 results. The figure is down by up to 3 million from the more confident £127 million guidance the firm gave in January. The profits are expected to be generated from group sales of £869 million, of which the well-known retail business is expected to contribute £771 million and the Autocentres operation, delivered the remaining £98 million.

Of the £98 million turnover generated through the Halfords Autocentres business, which the group bought from Nationwide Autocentres for £73.2 million in February 2010, £7 million (excluding the £2.2 million amortization charge for Autocentres) is expected to be operating profit for the year. According to the company, this reflects the impact on sales of the deferral of the re-launch and the previously reported tougher consumer environment combined with the high proportion of fixed costs relative to the retail business.

Rebranding completed, eight new locations opened

The good news is that the company says it has opened 16 new centres during the year. In addition Halfords reports that the re-brand of the auto centres in its network (from Nationwide to Halfords) is now complete and consumers are said to be responding well to a recent national promotional campaign. All this puts the current total number of sites at 240 nationally, up from 224 last February.

Considering the target then was to add around 200 branches to the chain in the next few years, it looks like progress is going slower than expected. Judging by the diagrams published by the company on the subject, it now looks like the target is 77 branches by 2014. 30 new centres are planned in 2012, with what looks likely to be another 30 in 2013. Other initiatives include growing business with fleet customers and accelerating tyre sales are being planned for. According to Halfords, this and the benefits of the operational gearing of the Autocentres business are expected as sales improve.

Currently the Halfords Autocentres’ branches are reported to generate £40,000 of annualised EBIT. If this was spread evenly across the whole network, this would mean the firm would be taking in £9.6 million of EBIT a year from its 240 branches. However, if the company made it to is long term target and was able to achieve this so-called “mature” profitability across the board, this would mean the network would make around £16.8 million of pre-tax profits (EBIT) a year.

Explaining why the company has downgraded its profits advice in general and why the auto centres are expanding as fast as first expected, Halfords’ management said: “continued deferral by consumers of car servicing expenditure will delay the delivery of the initial earnings objectives for Autocentres. The long-term growth opportunity of this business remains compelling given the market size, its fragmentation, the strength of the Autocentres proposition and the potential to leverage the Halfords brand.”

David Wild, chief executive officer, commented: “We believe the environment will remain difficult for customers…In Halfords Autocentres we will build on the good early results since rebranding.”

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