By Scott Kanowsky
Investing.com -- Shares in Halfords Group PLC (LON:HFD) surged on Wednesday after the U.K. retailer reiterated its full-year income target thanks to improving demand for auto services.
The company, which also sells products for motoring and cycling, said in a trading update that it backs its expectation for pre-tax profit for the year to April 2023 to come in at between £65M to £75M, as long as "no material changes" occur in the macroeconomic outlook.
It added that "good progress" is being made in its plan to cut costs and mitigate inflation pressures. In June, Halfords warned that soaring prices and declining consumer confidence would impact results, leading it to predict that annual underlying earnings before taxes may come in slightly below analysts' initial expectations.
But analysts at RBC noted the group is managing to partly offset some of these issues through a services-led strategy.
Service-related sales have grown to 42.2% of total group revenue, up from 21.9% in Halford's 2020 fiscal year.
Demand for electric vehicle repairs has been especially strong, increasing by 116% year-on-year. Halfords said its autocenters business also expanded by 67.8% after the acquisition of National Tyres, which offers car services like battery replacements and tire fittings.
Meanwhile, revenue from cycling products slumped by 12.7%. Halfords said the downturn stemmed from tough comparative numbers in the previous year, when demand for bicycles spiked during the pandemic.
Sales at the bicycle products division have also recently been hit by supply chain constraints, as well as an inflation-driven decline in spending on big-ticket discretionary items.
But the RBC analysts said overall retail demand remained strong during the 20-week period to August 19, helping like-for-like total sales post a less-than-expected decline of 1.9%.
Halfords predicted second-half profits will grow compared to the first six months of its fiscal year, citing the "evolving mix of the group."
"This is a result of the seasonality and growing scale of our Autocentres business, the National Tyres acquisition synergy profile, and the growth of our needs-based Motoring products business," Halfords said.