Reuters: Hot Stocks: UPDATE 2-Halfords slashes dividend to fund 3-year investment plan

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UPDATE 2-Halfords slashes dividend to fund 3-year investment plan May 23rd 2013, 11:07 Thu May 23, 2013 7:07am EDT * Pretax profit falls 22 pct to 72 mln stg * Unveils 100 mln-stg plan to invest in retail business * Cuts dividend, profits to be hit until 2016 * Shares down 15 pct By Neil Maidment LONDON, May 23 (Reuters) - Cycles-to-car-parts retailer Halfords has cut its dividend by a third to help fund a multi-million pound investment programme, warning this would keep earnings below last year's level for the next two years. Shares in the British company, up sharply in the past month, slumped to a six-week low of 320 pence and were down 15 percent at 336p by 1049 GMT. Outlining his strategy on Thursday alongside an expected 22 percent drop in annual profit, Chief Executive Matt Davies said profit would continue to be hit in the short term while he invests 100 million pounds in staff training, store revamps, new cycling ranges and an improved online offering. The investment is the key plank of a turnaround plan announced by Davies, who joined Halfords last October, aimed at revitalising sales that have declined in 10 of its last 13 quarters on a same-store basis, as a result of falling customer service levels and rising online competition. "There is a burning need to generate some sales growth for this business and the plan that we have outlined today we believe will do that," said Davies, who garnered a reputation for strong customer service during an eight-year stint as CEO of Pets At Home. "There is no do-nothing scenario," Davies added. "The cost base is rising, there are very few costs to take out, it's not been generating like-for-like (retail sales growth), so if you roll that forward on that basis, it's not very pretty." He set a target of lifting annual sales to 1 billion pounds ($1.5 billion) from 871 million in the past year. To help fund the investment and account for a short-term dip in profit, the group is making a 35 percent cut to its final dividend to 9.1p per share, taking the full-year dividend to 17.1p, down 22 percent on a year ago. The annual dividend would likely be rebased to around 14p for the medium term, the company added, representing a 36 percent cut on a full-year dividend of 22p in 2012. GOOD BUT COSTLY Halfords, which trades from over 460 Halfords stores in the UK and Ireland as well as some 280 Autocentres, posted profit before tax and non-recurring items of 72 million pounds for the year to March 29, well below the 92.2 million a year ago but at the top end of recent guidance for the year. Revenue rose 1 percent, helped by strong growth at its smaller but better-performing Autocentres unit. Annual like-for-like sales at its retail arm, which generates around 85 percent of revenue, fell 0.7 percent, compared with a growth target of between 3 and 4 percent in the period to 2016. Davies said the impact of its investment would mean core earnings would not grow from the current level of 103.4 million pounds until 2016, while profit would not get back to 2013 levels of 72 million until that time either. To lead a sales charge, Halfords will focus on growing its 20-25 percent share of the 700 million pound cycles market, and expand in other categories like parts, accessories and clothing, and repairs. Stock and staff training will also increase, while a new website optimised for mobile devices will be launched. Around 50 million pounds will be spent on refurbishing 150 stores and modernising all of its cycling departments. It will also increase retail operating costs by 21 million pounds. Analyst Philip Dorgan at brokerage Panmure Gordon said the plan was a good one, but more costly than expected. He reduced his pretax profit forecast for 2014 by 32 percent to 58 million pounds and by 44 percent to 58 million for 2015. "We like the plan and we like the 1 billion pound revenue target, but we were wrong to assume fast payback from investment," Dorgan said in a note. Link this Share this Digg this Email Reprints

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