Jerry can sales up 500% in March, but what about profits?
The recent panic over the distant possibility of a fuel tanker drivers' strike caused disruption to fuel supplies across the UK, leaving many garages dry. Some businesses did benefit, however, with Halfords (LSE: HFD) recording a 500% rise in jerry can sales.
On the face of it, Halfords is an attractive investment, offering a tasty 7% yield, decent profits and a strong brand. Earnings growth is expected to reverse this year before continuing next year -- so is it a value buy?
Halfords released a pre-close trading statement today, providing some clues as to what its full-year results will contain when they are published in May.
Slight decline
Overall, Halfords Group revenues declined by 0.8% in 2011, with expected full-year revenues of £861m and full-year profit before tax of between £90m and £93m.
Last year's comparative figures were £869.7m and £118.1m, suggesting a fall in pre-tax profit margin from a fat 13.6% to a still-healthy 10.6%.
From retail to repairs
In 2010, Halfords bought the garage chain Nationwide Autocentres, rebranding it Halfords Autocentres.
So far, this seems to have been a wise move. Despite only accounting for 12.7% of the group's turnover, it delivered a 13% increase in revenues in 2011, helping to compensate for the 2.3% decline in the Group's UK retail sales.
Halfords' other growth areas were cycles sales, up 5.7%, and revenues from the company's WeFit service, which rose by 28.1% as more customers choose to pay to have someone fit their wiper blades, light bulbs and accessories.
Sales of high-margin items like sat navs, child safety products and performance-enhancement products all fell badly, putting pressure on retail gross margins, which Halfords expects to have fallen by about 1.5% last year.
A value share?
Halfords trades on an undemanding forward price-to-earnings ratio of about 9, below the sector average of 12. As you would expect, a lot of its current assets are tied up in relatively illiquid inventory, but its generous dividend yield was covered 1.95 times last year, with a similar situation likely this year.
Its debt situation has improved considerably in recent years, with net gearing falling from 88.6% in 2007 to an expected value of about 22% this year.
Halfords expects "broadly flat" retail margins and a 4% rise in underlying retail operation costs in 2012. However, its cycling business should receive a boost this summer, thanks to the Olympics, and it believes that growth of the WeFit service will help offset the decline in sales of high-margin car accessories.
The market wasn't keen on Halfords' trading statement this morning, lopping 4% off its value, but I think that in the longer term, owners of Halfords shares should see an acceptable capital return -- plus there's that 7% yield to enjoy in the meantime.
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