Halfords

Car parts and bicycle specialist Halfords (HFD) has reported a 11.5% increase in cycling sales in a trading update for the 13 weeks to 1 July.

The fully-listed concern reported that the increase in cycling sales was driven by 'premium and new entry-level bikes' in particular drawing attention to its premium cycling brands Boardman, Voodoo and Carrera, adding that its 'Trax bikes' - a range of mountain bikes, are 'successfully delivering our entry level cycle strategy.

The strong growth in cycling offset a dismal performance in its car enhancement operations, which reported a 10.6 per cent decline in like-for-like sales. Car maintenance fell 2.8 per cent with its retail operations falling by a total of 1.1 per cent. However its autocentres bucked the trend of a weak performance for car-focused products, growing 2.1 per cent over the period. For the group as a whole sales grew by 0.3 per cent. To date the company has bought 8.4m shares worth £32.4m, as part of its £75m share buy-back programme.

Analysts at Seymour Pierce downgraded their pre-tax profits forecasts for 2012 from £106m to £101m, with EPS of 36.7p and a dividend of 22p now also pencilled in.

A business that has focused over the last decade on moving away from its reputation as a company that sells car accessories to young males into car modification, Halfords now generates considerable revenue from cycling, as well as in niche areas such as camping.

Its challenge going forward will be to build its growing car servicing and cycling operations at a time in which spending on cars is declining fast, with many consumers selling their cars altogether. We therefore rate the shares as a hold.