Halfords Group (LSE:HFD) is one of the UK’s largest retailers of motoring and cycling products and provides MOT, maintenance, and repair services for its customers. Founded back in 1892, the UK-based company has grown to operate in over 400 stores across Britain and has more than 10,000 employees.
Halfords’ share price surged as the Covid-19 pandemic descended on the world, rising almost 500% in the 12-month period between April 2020 and April 2021. Since its peak in early July of last year, however, price action has been rather underwhelming. The stock has suffered considerably, falling by over 10% to 321GBX in 2022 alone as it enters correction territory. We look at whether Halfords shares will continue to plummet this year, or if the company can shake off the rising pessimism surrounding its short- and long-term profitability.
Drivers of Halfords’ financial performance since the Covid-19 pandemic
Halfords was one of the few companies to prosper amid the Covid-19 crisis. Sales of its biking products rocketed as the global pandemic forced indoor gyms to close, prompting people to find alternative ways to maintain their physical wellbeing. The company saw year-on-year rises in its revenue figures in 2020 and 2021 and experienced near-record net income levels of GBP53.20 million for the fiscal year ended 2nd April 2021.
Halfords’ car servicing and repair arm has also posted substantial growth. Revenues at the firm’s Autocentres business soared by almost half in the last 3 months of 2021 compared to the same 12-week period in the previous year as modifications to the UK Government’s MOT deferral programme led to demand peaking.
Clearly, Halfords’ financial performance since the Covid-19 crisis has not been an issue. However, the emergence of severe supply chain issues in recent months has meant the business has not been able to fulfil its potential. Some analysts expect this obstacle to remain in 2022, posing further question marks over the profitability of the company and acting as a cause for concern.
How will Halfords be affected by the carbon-neutral transition?
Perhaps the most influential factor in determining Halfords’ future profitability and financial success is how the company will react to the global transition towards a carbon-neutral society. Rising environmental awareness amongst the public should help boost biking product sales as people begin to adopt more eco-friendly modes of transport in an attempt to lower their carbon footprints.
Since 2020, Halfords has also been a big player in the E-bikes and E-scooters market. With rising consumer demand in this sector set to grow in the coming years, especially amongst the younger demographic, the company looks like it will likely expand its operations in this area and consequently benefit from its increasing popularity.
The transition towards a decarbonised economy will, however, have adverse effects on the usage of motor vehicles and therefore negatively impact Halfords’ car service operations. Whether these undesirable effects outweigh the benefits associated with the increased usage of bicycles remains to be seen. Nevertheless, the global sustainability push is certainly something both retail and institutional investors should consider before purchasing shares of Halfords.
