Halfords suspends dividend after forecasting a 25 per cent drop in sales
Halfords has suspended its dividend to shore up its balance sheet after forecasting a 25 per cent drop in sales amid the coronavirus outbreak.
The retailer anticipates a sharp drop in sales, of around £300m, following the government’s tightening of restrictions, but shares soared 56 per cent in morning trading before trading up 22.63 per cent.
The group said the shortfall will likely have an impact on profitability, such that underlying profit before tax for 2020 could be at the lower end of, or slightly below, the current guidance range of £50-55m.
Halfords joins a long list of firms cancelling dividends in a bid to shore up cash. The board announced the suspension of the dividend, resulting in a cash saving of approximately £24m.
The retailer is also taking full advantage of Chancellor Rishi Sunak’s stimulus package, including the business rate relief for the full-year. Where stores and garages are closed, Halfords will access government support on salary payments.
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The group has access to a £180m revolving credit facility (RCF) and a £20m overdraft facility, expiring in September 2022. It has drawn down the RCF and now has approximately £118m of cash on deposit, with total liquidity of £138m. Halfords says it remains confident it can operate within its existing debt facilities.
Halfords has been designated by the government as a provider of key services and so can remain open across the entire business.
The retailer said its auto garages and mobile vans remain open and is looking to provide partial store coverage in its retail division. Halfords continues to take orders online on both Halfords.com and its cycling business Tredz.co.uk, offering home delivery or a Click and Collect service.
Sophia Lund-Yates, equity analyst at Hargreaves Lansdown, said: “The group is responsible for maintaining some very important vehicle fleets, including the Ministry of Defence. That means we can expect a certain stream of revenue to keep flowing through the difficulties and gives the group an edge over peers who’ve been forced to shut down completely.”
“What will be important is making sure the group gets the balance right between providing enough of a stripped back, essential service and not firing on too many cylinders while customer traffic is a lot slower than usual.”
There was some backlash to Halfords store openings as some people took to Twitter hashtagging “Boycott Halfords”. But the majority of users condemned the criticism, noting that Halfords garages were essential for key workers during the lockdown.
Chief executive Graham Stapleton said: “While significant uncertainty exists on the impact of COVID-19, we are taking immediate and significant measures to contain our costs and protect our financial position. We have a strong balance sheet, with significant liquidity headroom and low levels of financial debt.”
“This is an unprecedented challenge for all of us, but I am confident that the actions we are taking to successfully navigate the current situation will put the business in a position of strength, enabling us, over the medium term, to refocus on our strategic transformation.”