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Gamble of the week: struggling retailer that just might prosper
This retailer is in a bit of a mess. But it has several advantages over similar businesses, and could pick up plenty of new customers, says Phil Oakley.
Comet is the latest high-profile casualty of a retail market that has changed forever. The internet has empowered consumers, giving them the knowledge they need to seek out the best products for the best price. A few clicks of a mouse and you can have what you want delivered to your door without too much hassle. Why bother going to the shops?
This leaves companies like Argos, Mothercare and Dixons with big problems. They have lots of stores with lots of staff and lots of stock. This puts them at a massive cost disadvantage. Throw in the problems of car parking and you have to give customers good reasons to go and shop there. Without a decent product range and top-notch customer service, a slow death beckons.
So what's in store for car parts and bike seller Halfords? This company is in a bit of a mess too. It is battling with online competition and has a pretty mixed reputation for customer service. Profits at its retail stores fell by nearly a quarter during the first six months of the year. But there's good reasons to think that it might just survive and prosper.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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I think Halfords is a turnaround story. Former Pets-at-Home chief executive Matt Davies is now running the show. He comes with a good track record and has a chance to put things right. Halfords has the chance to create a brand in an area where there is presently little trust cars and car maintenance. Rightly or wrongly, people believe that finding a reliable garage that won't rip you off is hard. It's also handy to have someone to fit tricky accessories such as roof bars.
With its chain of autocentres and range of car parts, Halfords has the chance to gain lots of customers. After all, you cannot get your car serviced over the internet. There is also a big opportunity in company car fleets.
Halfords is also training up its staff and selling better bikes and camping equipment (cycling is growing in popularity, but Halfords has sold pretty duff bikes for a long time now). Changes like these should attract more customers.
Halfords generates surplus cash and does not have dangerous levels of debt. The shares have rallied since July's profit warning, but still offer a free cash flow yield of over 10%. Davies is heavily incentivised to deliver the goods, so the shares look worth a gamble.
VERDICT: SPECULATIVE BUY AT 343p
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