Shares in Halfords, the UK's leading retailer of bicycles and car parts, plummeted more than 25% on Wednesday (28 February) following an unscheduled profit warning.

The company cited a combination of factors impacting sales, including wet weather, weak consumer confidence, and increased competition in the cycling market.

Profit downgraded

Halfords revised its full-year profit forecast downward to a range of £35m ($44.3m) to £40m, significantly lower than the previously estimated £48m to £53m.

This downward revision reflects a significant drop in sales across various categories, including car parts (down 5.1%), bicycles (down 8%), and tyres (down 4.3%).

Wet weather woes

The unseasonably mild and wet weather negatively impacted footfall in stores and dampened demand for winter car care products and car cleaning items.

This aligns with broader trends in the retail sector, which has seen sales impacted by adverse weather conditions.

Jamel Boughedda, associate analyst at GlobalData, a leading data and analytics company, said:

“The poor performance in its [Halford's] cycling, retail motoring, and consumer tyre segments resulted in a drop in like-for-like revenue growth in its retail business, with the mild but wet weather leading to declines in store footfall and a lack of demand for winter products.”

"In January, volumes in the cycling market fell 8.0% year-on-year, but given the weather has been milder this winter, cycling should have benefitted. Assuming these issues persist during the peak Easter period, this points to an issue beyond weather-related effects for Halfords, with it needing to invest in its proposition to extend it beyond just replacement purchases.”

Consumer confidence concerns

Weakened consumer confidence, likely driven by concerns about personal finances, contributed to overall sluggish sales.

Additionally, the cycling market has become more competitive, with an increase in discount promotions and consumers opting for cheaper bikes, further squeezing margins.

“Halfords pinned its poor cycling performance to a more challenging and competitive market, with more promotions and consumers purchasing on credit leading to weaker gross margins.

"This challenge will persist as consumer confidence remains low, with the high price points of bikes discouraging consumers from buying. Halfords must innovate to reinvigorate its cycling sales, for instance by expanding its successful Motoring Loyalty Club into its cycling business,” added Boughedda.

Looking ahead

Halfords acknowledged the challenging market conditions and expressed cautious optimism about a short-term recovery.

The company remains confident in its long-term growth prospects but highlighted the difficulty of accurate forecasting due to current market volatility.

Second profit warning in two years

This marks the second profit warning for Halfords in two years, following a similar announcement in January 2023 attributing lower profits to difficulties in hiring mechanics.

The recent sales slump comes just a few years after a period of significant growth in the cycling sector during the 2020 Covid-19 lockdown.