Car care and cycle retailer Halfords warned it “must act now” if it is to strengthen its business and fight off the challenges posed by the drift to online shopping.
It used its annual results to reveal how profits continue to fall by almost a quarter during the year to the end of March and said it needs to do more to drive sustained revenue growth.
Halfords’ new chief executive Matt Davies said he was determined that the firm should reposition itself in the market, and stressed that time was of the essence.
“Our single most important objective is to drive profitable sales growth and to do this through leveraging our expertise,” Mr Davies said, as he launched the ‘Getting into Gear’ operational plan.
“This programme will focus on supporting our colleagues to deliver consistent friendly expertise, improve our store environment, strengthen the authority of our offer and build our infrastructure and digital capabilities,” he added.
“The investment required is anticipated to reduce short-term retail profitability but is designed to deliver sustainable revenue and profit growth together with sustainable shareholder value.”
He pledged to refresh tired-looking stores and improve customer service, but warned earnings were unlikely to improve until 2016.
Outlets outside London could be set to close, as the firm said it needed to increase its exposure in the capital. Overall store numbers will not be significantly reduced, but some outlets may be reduced in size.
Investors’ final dividends will be cut 35% to 9.1p with the year-end total of 17.1p down 22% on last year. The value of the firm’s shares fell by 12% in early trading.
However, some analysts urged speculators to buy, saying they were reassured by the chief executive’s blueprint for growth and the fall was an opportunity to pick up the stock on the cheap.
Halfords, which employs 12,000 people at 466 stores and 287 autocentres in the UK, reported pre-tax profits, after exceptional items, of £71m, down 24.5% on last year’s £94.1m. Revenues in the period rose by a single percentage point to £871.3m.
Autocentres performed strongly, with a 13% rise in sales, but retail stores suffered as trade dropped by 0.9%. Net debt was cut by 20% to £110.6m.
Mr Davies said he expected profits would fall again next year and earnings would not top current levels until 2016.
He insisted that the dividend cut was necessary to “ensure Halfords has a robust foundation on which to build and maximise longer-term shareholder returns”.
Analysts at JP Morgan said despite the cut in profit forecasts, it appeared Mr Davies was building a base for growth, making the share falls a buying opportunity.
However, Kate Calvert of Cantor Fitzgerald said that while the business had embarked on the right strategy, the changes were long overdue and would have a bigger impact on the earnings in the next couple of years than previously foreseen.