Not many retail shares have risen in price over the course of the last year but Halfords is one of them. And it still doesn't look expensive.
From 1969 until 2004, it hadn't been possible to buy shares in car parts, cycling and camping retailer Halfords (LSE: HFD). Variously owned by Burmah Oil, Ward White and pharmacy chain Boots, potential investors consequently had little visibility into the company's finances and prospects, and at the time of the 2004 flotation, many were sceptical.
Halfords may have had a point in years past, they fretted, but did it have a point now? In short, did it pass the Woolworth's test: if the business didn't exist, would you invent it?
As the fifth anniversary of the 2004 flotation approaches, the answer is becoming clearer. Yet again, in its half-yearly trading statement issued today, Halfords has delivered a solid set of results, and painted a picture of a credible business model dealing successfully with tough times.
On yer bike...
It helps, of course, that those tough times in part help to drive customer footfall. Doing you own car repairs? You'll likely want to go to Halfords, then. Going camping this year, in search of a cheaper holiday? Ditto. Cycling to work instead of taking the car? That'll be Halfords, then -- the company now sells over a million bikes a year, making it Britain's biggest cycling business.
And it helps, too, that the company's product lines aren't just good sellers in times of recession, but work when times are better, too. Camping, cycling and car maintenance are all things that people do in better times, just differently -- fitting a new satnav instead of an oil filter, and buying a tent for a short weekend break rather than for two weeks on a French campsite.
That said, today's trading statement does reflect some economic strains. Like-for-like sales are down, on an adjusted basis, by 3%, hit especially hard by falling satnav prices and falling consumer demand for the devices. Sales of other product lines are up, though. And tough times, competition from its own bigger stores, and competition from the Internet have proved terminal for the 'bikes only' Bikehut stores that the company had been operating on an experimental basis. Most will now be re-branded as Halfords stores, and will sell the full range of products.
Debt is dropping
On the other hand, cost-cutting has delivered useful savings in employee numbers and distribution costs, net debt is now below £170 million from £182 million last year, and the end-of-year figures, due in June, should show a small increase in profit before tax, taking it to somewhere in the range of between £92.0 million and £92.5 million. Annual growth in earnings per share should be in the high single digits, says the company, and the board intends to continue to maintain its progressive dividend policy. So, a retailer on the ropes this isn’t.
Presently operating from 466 stores, the company is adding about a dozen new outlets a year. Ireland and Central Europe are seen as ripe for expansion, with including 22 stores in Republic of Ireland, five stores in the Czech Republic and one in Poland. In short, while other retailers are bleeding red ink and retrenching, Halfords seems to think it can weather the recession well.
Almost a year ago, we said that Halfords' shares look cheap. Despite having risen from 274p back then to 323p today, Halfords is still trading (just) on a PE that's in single figures.
Cheap a year ago, when the nature of the present recession was very much an unknown, Halfords is still cheap today, when investors know much more about the recession and Halfords' resilience to it.
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