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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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