By Kristy Dorsey

Surging bicycle sales have failed to offset a decline in motoring revenues while cars have been off the road during lockdown, Halfords has reported, though the retailer remains “confident” in the long-term prospects for the business.

Trading during the 13 weeks to July 3 was better than expected, with the cycling business up 57.1% on a like-for-like basis. Sales were boosted by favourable weather conditions, the avoidance of public transport and the increased take-up of cycling as a health and leisure activity.

However, revenues in the higher-margin motoring business fell by 45.4% reflecting a “material drop in car journeys across the UK”. That trend has been improving in recent weeks as more drivers take to the road, with essential categories such as batteries in high demand.

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As a result, total group sales for the first quarter were 2.8% lower than in the same period a year earlier. Halfords said this was “significantly better” than anticipated in late March and a substantial improvement on the 23% decline during the four weeks to May 1 when human movement was severely restricted by measures to limit the spread of novel coronavirus.

“The start of the current financial year has of course been dominated by the impact of Covid-19, and our status as an essential retailer was a clear endorsement of the wider role that Halfords has to play in keeping the UK moving,” chief executive Graham Stapleton said.

“Having responded quickly and decisively to cater for the surge of popularity in cycling during lockdown, we are now seeing increased demand for motoring services and products as people start using their cars regularly again, having not done so for the last few months.”

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His comments on the first-quarter trading update came as Halfords posted its full-year results for the 52 weeks to April 3, which were impacted to a lesser degree by the pandemic.

Overall revenues edged 0.3% higher to £1.14 billion, with underlying profit before tax of £55.9 million down from £58.8m previously. Excluding acquisitions and the impact of Covid-19, Halfords said profits would have been on par with the previous year.

Those acquisitions included Ayr-based McConechy’s, which Halfords took over in November 2019 in an £8.5m deal. The family-owned firm employed 330 people at that time from 60 sites across Scotland and the north-east of England.

McConechy’s is now part of Halfords’ autocentres business, and helped boost that division’s revenues by 18.8% during the year to April 3.

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Despite performing above expectations during the first quarter, Halfords said the “totally uncharted road ahead” meant it will not be providing formal guidance for the current financial year. Instead, it laid out three separate scenarios ranging from an underlying loss of £10m up to a potential pre-tax profit of £20m.

This spooked investors, with the shares closing more than 14% lower at 152p by the close of yesterday’s trading.

Hargreaves Lansdown analyst Sophie Lund-Yates said Halfords is in a better position than many retailers, but it would be a mistake to assume that profit levels will trend in line with revenues. However, she added there is reason to be hopeful where the online business is concerned.

“Over 80% of online orders are collected in store, so online sales tend to complement physical stores rather than cannibalising them,” she said. “The website now accounts for almost a quarter of all sales too, which we think is step in the right direction.”

Halfords was able to keep the majority of its retail stores open during lockdown, with many initially operating on a “dark” basis, serving customers at the store entrance. The number of dark stores increased gradually through April and May, with some converting to “lite stores” serving restricted numbers of people indoors from the end of May.

As of July 3, 359 outlets were operating as lite stores, eight were dark stores and 77 remained closed to business.