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You can take “Rover” into a Pets at Home store and stock up on flea treatment at the same time as you get him his annual booster jab - or even pamper him with a wash and blow dry at some branches of the pet store and veterinary services chain. It is no secret that this one-stop-shop is a business model that is proving to be a winning formula for the group.
Little surprise then that Halfords Group (HFD) is shaping its business model to do much the same thing; the only difference being that you might take your (Land) Rover in for a replacement indicator bulb and splash out on a new set of floor mats for it while you’re there.
Halfords, once known predominantly for bikes and bits and pieces for drivers, has diversified, with not only car servicing at its Halfords Autocentres, but also minor repairs carried out at its stores and diagnostics added to its existing collection of automotive, cycling and outdoors products.
This is all part of a strategic move to reshape the business, in much the same way, it could be argued, that Pets at Home has. In November last year Halfords made clear that its intention was to deliver a more integrated and flexible customer and services proposition. Since then it has closed 33 sites, including 22 Cycle Republic Stores, and said it would be closing a further 47 financially low returning stores before the end of the financial year.
In January Halfords’ chief executive Graham Stapleton said the group had seen its “best ever” Christmas week and added that despite a large reduction in traffic on the roads, its “strategically important” Autocentres business had seen significant growth, with particularly strong demand also seen for its growing fleet of Halfords Mobile Expert vans.
The figures showed it was carrying out over half a million services and repair jobs on cars and bikes each month, no doubt boosted by the free checks and discounts to 239,000 NHS workers, teachers and Armed Forces staff to help them keep their vehicles safe and roadworthy.
In March, giving its latest trading update, Halfords said that full-year trading had been "stronger" than initially anticipated and that it expects full year pre-tax profits to come in between £90 million and £100 million. And that is even more impressive coming as it does after full repayment of the £10.7 million of furlough income it had received.
In its statement it said: "Although we have continued to experience a volatile trading environment across the first seven weeks of Q4, overall trading has been stronger than we initially anticipated across the business.
"Although only six weeks remain of FY21, the expected profit range remains quite broad as trading patterns continue to be volatile, with sales ahead of Easter particularly difficult to predict whilst the UK remains in lockdown.”
The third quarter trading update though shows that both parts of its business did well in the 13 weeks of trading to 1 January 2021. Overall like-for-like group sales growth of 11.7%, was on the back of 9.8% from Retail and 21.1% from Autocentres. Additionally, the report shows that Autocentres sales were up 30.5%, reflecting a significant increase in market share, the group said.
On the Retail side, Halfords has seen cycling generate like-for-like growth of 35.4%, driven by the covid-19 induced bike boom. However its performance cycling business, Tredz, shows that overall, like-for-like rates were lower than quarter averages as increased lockdowns weakened demand and supply chain disruption hit the retailer.
The biking trend doesn’t look to be showing any signs of slowing down though, at least not according to Halfords’ own poll. And new data from TfL and Halfords has revealed record increases in the number of people cycling in London, with an increase of more than 200% on some weekends, while survey data from Halfords suggests bike owners are cycling more often and feel safer on the roads.
Paul Tomlinson, Cycling Director at Halfords, said: “The cycle market has seen demand continue to soar. As soon as stock arrives in our shops it is snapped up straight away. We’re working night and day with our suppliers to increase availability. We think that we’re starting to see a permanent change in the market – this marks a change in how people are moving and underlines the importance of bikes to health, fitness and as a viable alternative to public transport.”
Interestingly, broker RBC Capital Markets recently initiated coverage of both Halfords Group and Pets at Home (PETS), arguing that while the former is pretty much fully valued, Halfords is “shifting up a gear”.
In its note on Halfords, which was given an ‘outperform’ rating and a 450p price target to start with, analysts at RBC said: “We see opportunity for market share gains from its growing Autoservices business and expect that its more integrated strategy should help to sustain some of the topline gains it has seen over the course of the pandemic.”
For investors interested in pitting Halfords against Pets at Home, analysts at RBC had this to say about Pets, which it has initiated coverage of with a ‘sector perform’ rating and a 450p price target: “Whilst we think that PETS is a well-run company with a pragmatic and achievable strategy, we think growth rates will likely moderate going forward.
“The shares have had a strong run over the last year and valuation prevents us from being more positive”, it adds.
Halfords Group’s full-year results are due out on Thursday.
More on Halfords Group (HFD)
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