Halfords looks like a contender for king of the mountains jersey as it powers over pandemic hill

Budget week is ideally suited for burying bad corporate and financial news and more of it wouldn’t be at all surprising given the pandemic. 

Halfords, however, chose to spring a surprise. The car parts to cycling retailer did something different with an unscheduled trading update brimming with mostly good news. A reverse profit warning if you like. 

There was so much fuel in it that the shares started the week like an oil gusher, putting on more than 16 per cent before gravity imposed itself. It’s worth pointing out that the stock was languishing at a low of just 49.42p last March. 

But it’s less oil that has fuelled this than it is pedal power. 

Halfords withdrew its guidance at the start of the year with the nation back in lockdown but the company has since handled the hill like a contender for a king of the mountains jersey. 

Its third three month quarter at the end of last year was bedevilled by weak sales growth but over the first seven weeks of the fourth, which started on 2 January, cycling sales surged by a stunning 43 per cent. 

The activity has enjoyed a boom in interest through the course of the pandemic, partly through people’s understandable desire to avoid public transport, partly through the activity affording them with the opportunity to get out of the house for a bit of exercise.

But that figure is still remarkable, particularly when one considers the problems with supply the business has faced, which haven’t settled down yet. 

The curb your enthusiasm question to ponder for anyone tempted to tuck into the shares at their current elevated level is whether this will prove sustainable? Even if it is, sales of new bikes may find a natural ceiling through everyone who was going to buy one having made their purchases. 

The group is optimistic that the increased interest will continue, by contrast to the period after the 2012 Olympics when there was a similar surge followed by interest tailing off when the sport disappeared from the back pages.

As for sales finding a ceiling, perhaps the company could persuade new cyclists to upgrade and trade-up after they’ve got their feet wet. Notably, its pricey high-performance line did best of all. Kids, meanwhile, grow.

Halfords customer service hasn’t always been tip-top, which is one way to lose enthusiastic converts to a hobby. It says investments have been made in training staff but this still an area where it will need to maintain its focus.

The other side of this two-headed monster of a business (you would never put cars and bikes together like Halfords does if you were starting a company today) has understandably found the going a lot tougher during the pandemic.

But while a 14 per cent decline in retail sales mightn’t look good, it looks a whole lot better when you consider that journeys by car have declined by 40 per cent. 

The group’s garages and mobile repair operations, coming under the Autocentres heading, are also growing fast (more than 13 per cent) and gaining market share. 

Before the current management team took the reins in 2018, Halfords suffered from something of a revolving door at the top. 

While the company continues to describe trading as “volatile”, the numbers it is currently producing at a time when the rest of the retail sector is a disaster zone have made the CEO’s office occupied by Graham Stapleton look like a des res. 

The share price surge means the annual report will make for interesting reading when it comes to the subject of executive bonuses, although big shareholders aren’t likely to complain, with annual profits expected to be in the £90m to £100m range.

Any controversy will be further eased by the company paying back £10.7m of furlough cash, something that has become increasingly fashionable among businesses that have weathered the pandemic as well as this one has.