BUSINESS LIVE: Halfords prices warning; Serco ups steering

Currys expects AI-powered gadgets to deliver another year of profit growth after a 10% per cent rise in 2023-24 that reflected a steady improvement in trading.

The retailer, which sells fridges, washing machines, tumble driers, televisions, computers and other consumer electricals, said trading in the early part of its new financial year had been in line with its expectations.

‘We’re planning prudently but confidently for the year ahead, on course to grow both profits and cashflow while carefully stepping back up to more normal investment levels,’ CEO Alex Baldock said.

Mark Crouch, analyst at eToro:

‘Halfords’ recent run of poor performance looks set to continue as the bicycle and car products retailer reported another drop in annual profit this morning. Halfords has struggled to gain any traction amidst a cost-of-living crisis that has decimated demand for discretionary spending products, and as a result left companies like Halfords battling to maintain profit forecasts.

‘It wasn’t too long ago when Halfords enjoyed something of a bonanza during the COVID pandemic. Consumer spending was rampant during lockdowns with millions of us taking up cycling for which Halfords was there to meet the surge in demand.

‘From one extreme to the other, the pendulum has now swung back, putting Halfords in a vulnerable position. The company’s decision to shift focus toward motoring services may have softened the blow, however only slightly.

‘Numerous profit warnings will be a major concern to shareholders. And in a period when consumer spending has dried up, the demand for bicycle products and services seems to have all but evaporated.’

Healthcare giant Haleon is offloading the nicotine replacement brands it sells outside the US for £500million.

Indian pharmaceutical company Dr Reddy’s Laboratories is taking on products including Nicotinell, Habitrol and Thrive, which are sold in 30 markets around the world as lozenges, patches and gum for people who want to quit smoking.

Watches of Switzerland Group’s UK sales fell this year after ‘significant price increases’ put off hard-pressed British shoppers as ‘reduced consumer confidence influences discretionary spending’.

UK and Europe sales were down 5 per cent in the 52 weeks ended 28 April to £846million despite market share gains, reflecting ‘macroeconomic conditions in the UK’.

It also blamed a ‘minimal return of tourist spending due to lack of VAT free shopping’ in the UK, where Ecommerce revenues also fell 11 per cent on last year.

However, WOSG said the UK market is now ‘starting to show signs of stabilisation’ and the company predicts that pressure on consumer spending will ease next year.

It added that it was ‘cautiously optimistic’ about trading in new fiscal year 2025 after reporting a 40 per cent drop in its annual pretax profit following a challenging year for the luxury retailer.

Boss Brian Duffy said: ‘I am proud of the performance that our team delivered this year in what was undoubtedly a more challenging market.

‘We cemented our position as a leading international luxury watch and jewellery retailer and delivered further market share gains in both the UK and US, driven by our proven, differentiated business model.

‘In particular, our US business went from strength to strength, growing 11% and will soon represent half of Group sales.’

Serco Group has raised its annual profit forecast, with the outsourcer boosted by international immigration services contracts and acquisitions.

However, it urged caution on the potential impact of elections in the markets it operates in.

The London-listed company has benefited from acquiring immigration service firms, even as weakness in medicare services persists.

Serco, one of the suppliers which had supported the UK government’s test-and-trace programme during the pandemic, expects full-year adjusted operating profit of £270million, higher than its earlier forecast of £260million.

The company, which provides defence, security, immigration, health and transport services for governments, however, said it was mindful of multiple elections impacting its performance.

The UK, France and the United States have scheduled national elections in the coming months.

‘As we enter the second six months of the year, while mindful of a potential impact internationally from elections in 2024, we remain optimistic about the quality of our pipeline of potential new work to support our medium-term growth targets,’ CEO Mark Irwin said.

Derren Nathan equity research, Hargreaves Lansdown:

‘Halfords, the one-stop-shop for motorists and cyclists, has delivered full year results in line with previously lowered guidance. Strong growth in services provided by the group’s Autocentres was tempered by a low single digit uplift in retail operations.

‘The high levels of promotional activity failed to bolster the topline thereby leading to a material fall in underlying profits.

‘Halfords is sticking to its strategy of expanding the better performing services division, which benefit from higher levels of recurring revenue. This should stand it in good stead further down the line, but short-term headwinds are still blowing strong.

‘A perfect storm of low consumer confidence and poor weather has resulted in soft trading so far in the current year. Meanwhile, high freight costs and the increase in the national minimum wage are weighing on costs. The shares are trading a little below the long-term average but for now there’s no sign of a catalyst for a re-rating.’

Deliveroo shares were given a lift as it became the latest London-listed company to be targeted for takeover.

The food delivery group – dubbed ‘Floperoo’ after its disastrous stock market float in 2021 – rose 7 per cent in early trading amid reports it has been approached by San Francisco-based rival Doordash.

However, the discussions, which started last month, ended after a disagreement over price, according to Reuters.

Halfords has warned inflation ‘remains a material headwind’ for the motor and cycling retailer, citing a 10 per cent national minimum wage bump and ‘significant increases’ in sea freight rates since the start of the year.

It came as the retailer reported a drop in annual profit on Thursday as footfall across its stores fell due to challenging market conditions and wet weather.

The company posted an underlying pre-tax profit from total operations of £36.1million for the year to 29 March, down from £44.2million a year earlier and just shy of analyst forecasts of £36.2million.

Freight rates have soared to their highest levels outside the pandemic era, partially due to disruption in Red Sea shipping.

Halfords said it has successfully secured rates ‘well below market spot rates’, but still forecasts freight costs to be £4million to £7million higher than we anticipated at the start of the year.

It said: ‘Against this backdrop, we continue to focus on optimising the platform we have built, and controlling what we can. As such, we plan for proportionately fewer resources to be allocated to strategic transformation, as set out in more detail at the end of the Strategic and Operational review.

‘We do not expect these headwinds to persist in the long term. Consumer price inflation is easing and our core markets are expected to improve in the mid-term.

‘We remain confident that the financial targets announced at the April 2023 CMD are achievable assuming markets ultimately recover as forecast, albeit this will take longer than we envisaged last year.’