Car parts-to-bicycles retailer Halfords (HFD) is on a ‘Road to Nowhere’ according to stockbroker Peel Hunt.

It says investors should dump the stock, arguing consensus earnings estimates fail to reflect increasing headwinds and a new store format that ‘doesn’t move the dial’.

Peel Hunt is nervous about the retailer’s cycling growth prospects. It says the replacement cycle for bikes is getting longer. Interestingly, it claims bike sales volumes in general (not Halfords-specific) have flattened despite people riding more miles.

The broker doesn’t think the trend towards more cycling is played out, yet says underlying growth for bikes and kit is likely to be weak.

As for Halfords’ exposure to the car market, higher oil prices means fewer miles driven and less depreciation on the value of a car. That’s bad for the retailer’s higher margin car maintenance revenues.

Furthermore, many people are taking out third party service packs alongside credit schemes to fund a new car – another negative for Halfords.

You also need to consider the impact of the weak pound as the retailer may have to put up prices to mitigate rising input costs.

Halfords recently paid a 10p special dividend, although Peel Hunt doesn’t believe this will become a regular occurrence.

It forecasts Halfords will report an 8% drop in pre-tax profit when full year results are published on 25 May. The retailer’s shares are down 2.4% to 356.6p so far this year. (JC)

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