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Halfords eyes three-year turnaround but investors take fright | Halfords eyes three-year turnaround but investors take fright |
(4 months later) | |
Halfords' chief executive has outlined a three-year turnaround plan for the struggling bicycles and car parts chain, but it will come at a cost to investors, who have seen the dividend cut by 35%. | Halfords' chief executive has outlined a three-year turnaround plan for the struggling bicycles and car parts chain, but it will come at a cost to investors, who have seen the dividend cut by 35%. |
Matt Davies has set a sales target of £1bn by 2016, but said that profits would remain flat for at least two years as the chain invests £100m in staff training, store revamps and a better online offering. | Matt Davies has set a sales target of £1bn by 2016, but said that profits would remain flat for at least two years as the chain invests £100m in staff training, store revamps and a better online offering. |
The plan comes as full year pre-tax profits fell 22% to £72m, on sales up 1% at £871m. The shares plunged 63p, or 16%, to 333p as investors reacted to the news that they would be giving up a large chunk of their dividend. | The plan comes as full year pre-tax profits fell 22% to £72m, on sales up 1% at £871m. The shares plunged 63p, or 16%, to 333p as investors reacted to the news that they would be giving up a large chunk of their dividend. |
Davies, who recently joined from Pets at Home, said: "The biggest risk is a do-nothing scenario and I'm asking shareholders for patience. I'm a shareholder too and will suffer, and I'm very aware the dividend is important to shareholders." | Davies, who recently joined from Pets at Home, said: "The biggest risk is a do-nothing scenario and I'm asking shareholders for patience. I'm a shareholder too and will suffer, and I'm very aware the dividend is important to shareholders." |
He pointed out that 10 of the last 12 quarters had seen falling sales – a run broken only last spring and summer when British success in the Tour de France and the Olympics helped bicycle sales. The store now stocks Pinarello cycles – the Italian brand used by Sir Bradley Wiggins, pictured, and the Team Sky cycling squad. | He pointed out that 10 of the last 12 quarters had seen falling sales – a run broken only last spring and summer when British success in the Tour de France and the Olympics helped bicycle sales. The store now stocks Pinarello cycles – the Italian brand used by Sir Bradley Wiggins, pictured, and the Team Sky cycling squad. |
The business will focus significantly on bicycles, hoping to sell 1m a year, and will refit every cycle department. But Davies acknowledged Halfords has been squeezed by rivals and online sellers. | The business will focus significantly on bicycles, hoping to sell 1m a year, and will refit every cycle department. But Davies acknowledged Halfords has been squeezed by rivals and online sellers. |
Without addressing years of underinvestment, the company would suffer further, he said. "Stores are a bit tired so we really need to invest in them. We are also keen to get in knowledgeable people." Staff will undertake a three-month course on joining the company, and will earn pay rises by completing further training, eventually leading to the position of store "guru". | Without addressing years of underinvestment, the company would suffer further, he said. "Stores are a bit tired so we really need to invest in them. We are also keen to get in knowledgeable people." Staff will undertake a three-month course on joining the company, and will earn pay rises by completing further training, eventually leading to the position of store "guru". |
Around £50m will be invested in store refurbishments, with 150 stores to be revamped by 2016, and a further £50m will go on training and improving the company's website and supply chain. | Around £50m will be invested in store refurbishments, with 150 stores to be revamped by 2016, and a further £50m will go on training and improving the company's website and supply chain. |
Staff turnover at the stores has been consistently high: around 20% of new workers leave within three months. Davies wants to halve that number. | Staff turnover at the stores has been consistently high: around 20% of new workers leave within three months. Davies wants to halve that number. |
He said: "That's a problem if you are not recognising people and training people to build careers with Halfords." | He said: "That's a problem if you are not recognising people and training people to build careers with Halfords." |
The company suffered from a fall in sales of car accessories. Davies said young drivers who "pimp up their car" were staying away because they could no longer afford the insurance. | The company suffered from a fall in sales of car accessories. Davies said young drivers who "pimp up their car" were staying away because they could no longer afford the insurance. |
Its Autocentre business continues to perform well, with sales up 13.5% to £125.8m, and management hopes to open 700 repair centres by 2016, offering MOTs and servicing. Halfords currently has 287 sites. | Its Autocentre business continues to perform well, with sales up 13.5% to £125.8m, and management hopes to open 700 repair centres by 2016, offering MOTs and servicing. Halfords currently has 287 sites. |
However, the company said short-term profit expectations at Autocentre since it was purchased in 2010 were "overly optimistic" now that an expansion was under way. | However, the company said short-term profit expectations at Autocentre since it was purchased in 2010 were "overly optimistic" now that an expansion was under way. |
Analysts appeared impressed with the turnaround plans, despite the dividend cut. Philip Dorgan from Panmure Gordon said: "We like the plan and we like the £1bn revenue target, but we were wrong to assume fast payback from investment." | Analysts appeared impressed with the turnaround plans, despite the dividend cut. Philip Dorgan from Panmure Gordon said: "We like the plan and we like the £1bn revenue target, but we were wrong to assume fast payback from investment." |
Bethany Hocking at Investec said: "While near-term downgrades are clearly disappointing, we think the plan is credible and needed." | Bethany Hocking at Investec said: "While near-term downgrades are clearly disappointing, we think the plan is credible and needed." |
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