Investing.com -- Shares of Halfords Group (LON:HFD) jumped over 13% on Tuesday after the company reported better-than-expected first-half profits, aided by stronger performance in its retail division and improved cost management.
The retailer, which specializes in automotive and cycling products and services, posted underlying pre-tax profits of £21 million, surpassing the Visible Alpha consensus estimate of £15 million.
Halfords' H1 sales came in slightly below expectations at £865 million, compared to a forecast of £879 million.
“Near term, we expect continued market weakness in tyres and cycling, but we see potential for some recovery in the motoring market, given some improvements in UK consumer sentiment recently,” said analysts at RBC Capital Markets in a note.
However, the company's gross margin improved by 160 basis points year-over-year, driven by pricing strategies and its ongoing "Better Buying" initiative.
Retail operations were a standout, with underlying EBIT of £21 million exceeding expectations, while its Autocentres division performed in line with projections, generating £8 million in EBIT.
The company declared an interim dividend of 3.0p per share, consistent with the prior year, further boosting investor sentiment.
However, Halfords remains confident in achieving its full-year pre-tax profit target of around £28.5 million, despite challenges like increased freight costs and investments in its Fusion garage network.
While recent trading has been more volatile due to declining consumer confidence ahead of the Autumn Budget, Halfords noted that cooler November weather has provided some relief, spurring demand for certain products and services.
Moreover, higher interest income contributed to a reduction in net finance costs during the period.
The retailer faces £23 million in added labor costs, though nearly half of this had already been accounted for in its forward planning.
The company remains cautious going forward about consumer behavior but affirmed it is on track to deliver its FY25 guidance.
“We see potential for HFD to become a major player in EV servicing, but we believe a material step up in UK EV penetration is still a number of years away,” RBC said.