Malcolm Wheatley reckons Halfords is a truly Foolish share.
With rising inflation, interest rates and taxation, Middle England is feeling the squeeze. As households watch the pennies more carefully, some retailers have been having a torrid time of things, as a string of recent profit warnings and trading updates have made clear.
But one retailer is better placed than many to profit from a change in expenditure patterns -- and poised to do so, what's more, by helping its customers espouse Foolish principles.
Keeping your car properly maintained is very Foolish, for example: lack of maintenance can cause expensive breakdowns. Carrying out that basic maintenance ourselves, where we can, is even more Foolish. Cycling, too, is very Foolish: a cheap way to keep fit, save on fuel and help the planet -- all at the same time. Likewise camping and outdoor leisure -- especially for those of us Fools with young children and tight budgets.
Visit some of the Fool's popular discussion boards -- such as Living Below Your Means, Cyclist's Corner, and Cars & Driving -- and you'll find Fools busily exchanging tips about just such activities.
One retailer serves all three markets: Halfords
(LSE: HFD)
. It carries vehicle parts and the tools to fit them, a wide range of cycles and cycle accessories, and in recent years has stocked a growing range of camping gear and other outdoor leisure goods -- from tents and trailers to stoves, portable refrigerators and towing equipment.
Spun out of Boots in June 2004, Halfords' sales have been steady growing, rising from £628 million in 2005 to £682 million in 2006, on which it earned profits of £53.6 million. The dividend per share in 2006 was 12.75p, up from 12.00p in 2005. The shares closed tonight at 383.75p giving an historic yield of 3.2% and a price/earnings ratio of 16.
But with just two year's full trading history, Halfords isn't yet a share with a wide following. That's far too short a dividend history, for example, for the folks over on the High Yield Portfolio discussion board to feel comfortable with.
So how has Halfords fared in the year ending 31st March 2007 -- its third full year of trading on its own? It's too soon for the annual accounts, of course, but the company did issue a trading statement this week, which offers some useful insights.
Last November's interim results reported sales growth of 9.3%. That growth has largely been maintained over the quieter winter months, with full year revenue growth of 9.1%. Stripping out the impact of 25 new store openings (18 net of closures), and adjusting for the fact that the previous year's sales didn't include an Easter holiday, Halfords reckons that like-for-like growth has been 5.3% -- a solid enough performance.
Expect better things from the new stores, and new store formats, though. The in-store cycle departments, now badged 'Bikehuts', are being complemented by cycle-only Bikehut stores, and even larger mezzanine floors. And whereas some High Street retailers have been desperately discounting unwanted merchandise in a bid to create space for incoming stock, the trading update spoke of 'a further reduction in margin dilution as the product mix continues to be managed effectively'.
In short: steady as you go, with a full year profit -- to be announced on 7th June -- predicted by the company 'to be in line with market expectations'. That's £55 million, in other words, with earnings per share boosted by a share buyback programme reported in the trading update to have now totalled 3.9% of the shares in issue at the time of the spin-out from Boots.
My view is that if Halfords had been about to take a tumble in the present trading environment -- and there's a lot of red ink on the High Street at present -- then signs of this would have shown up in the trading update.
Crucially, I also think that the prospects for the current year are even better. Well-stocked with brands that customers trust -- including Halfords' own brands -- footfall at Halfords' stores should be even higher in the months ahead, as financially-squeezed consumers contemplate cheaper activities for their weekends and holidays: DIY maintenance, cycling, outdoor leisure and camping.
Of the eleven brokers covering Halfords, seven rate it a "buy" or "strong" buy. I think they're right.
More: Halfords Gets A Boost
