Halfords climbs after abrupt exit of CEO -UPDATE

published 19 July 2012

Investors of Halfords shrugged off some disappointing profit guidance on Thursday, as the market seemed to celebrate the abrupt departure of its Chief Executive Officer (CEO) David Wild.

Non-executive Chairman Dennis Millard is now in charge of the shop while the struggling seller of bikes and car parts looks for Wild's replacement.

The news comes as Halfords released its first-quarter trading statement, in which it revealed that full-year pre-tax profit will be in the range of £62m to £70m, compared with the current market consensus forecast of £75m. The firm also expects like-for-like (LFL) sales comparisons to be negative - or at best flat - for the remainder of the financial year.

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Nevertheless, shares were 3.98% higher at 205.25p in afternoon trade.

Analysts at Investec said in a research note this morning: "FY13E looks set to be tough, and clearly a change of CEO adds an element of uncertainty to the business. However, the strategy is unchanged, cash generation remains strong, supporting our unchanged dividend forecast, and early feedback from the three 'laboratory' stores has been 'encouraging'."

The broker maintained its 'buy' recommendation for the shares on Thursday, but was prompted to slash its target price by 27% (from 310p to 225p) on the back of the lower profit guidance.

Total revenue at Halfords in the 13 weeks to June 29th dropped by 5.2% year-on-year (y/y), while LFL sales tumbled 5.6% from a year earlier in the 13 weeks to June 29th. This comes despite the recently acquired Autocentres business (formerly Nationwide Autocentres) growing revenues by 14.5%, or by 9.2% on a LFL basis.

The main consolation for long suffering shareholders is that after making a terrible start to the new financial year - LFL sales were down 12.4% in the first eight weeks of the period - LFL sales in the five weeks to June 29th were up 0.9% y/y. There was also some cheer on the Internet-side of the business, with online revenues up 13.0% from a year earlier.

Revenue at the Halfords retail estate was down 7.8%, with LFL sales falling by 7.5%. The car maintenance business held up well, with LFL sales up 1.0% on a year earlier, but LFL sales in the car enhancement and leisure divisions both declined 10.5%.

Gross margins and costs in the first quarter were in line with management expectations.

Looking ahead, the group's planning assumptions now reflect continuing negative Retail (i.e. excluding the Autocentres business) LFL sales in the remainder of the first half, with second-half Retail LFLs likely to be flat to mid-single-digit negative. Previous guidance on Retail margins and costs and on Autocentres' profit growth is broadly unchanged.

The group said it was confident it would enjoy "healthy underlying cash flows" while it implemented its turnaround plan.

Dennis Millard, interim Executive Chairman, commented: "The consumer environment remains difficult and the unseasonal weather conditions this quarter had a direct impact on sales of cycles and outdoor leisure products. In this challenging economic environment the management team will be focused on maximising our trading performance and cash generation, prudent cost management and delivering the longer term strategy outlined to shareholders in May 2012."

Millard gave the usual thanks for the service of now departed Chief Executive David Wild, but said the time was right for a change of leadership.

Millard will revert to a non-executive role once a replacement for Wild has been found, though the group warned that the search could take a number of months.

JH/BC