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How is British business fairing in lockdown 3?

The Hargreaves Lansdown Share Research team today publish analysis of three major players in British commerce. The revenue figures reflect the diverse effects of the last year’s intermittent lockdowns, and include insights into how these British businesses may fair following a third lockdown.

 

Halfords – ‘Sales motor over best Christmas ever’

Halfords’ third quarter revenues rose 11.5%, including the group’s best ever Christmas week. That reflects a 30.5% increase in Autocentre and a 7.7% increase in retail revenue. The group saw particularly positive results from Online Cycling sales and the Halfords Mobile Expert proposition.

Despite the strong recent performance so far this year the group warned lockdown 3 could dent fourth quarter performance. As a result the group will not be issuing full year guidance.

Halfords shares were broadly unmoved following the announcement.

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown:

“The combination of essential retailer status, the roll-out of Halford Mobile Expert and an online offer that finally seems to have got its act together delivered a bumper Christmas for Halfords – the best it’s ever had.

“We have been long term fans of Halfords – and at times that’s been a tough place to be. The transition from out of town warehouse retailer to service led specialist has been a difficult one, but the initiatives begun several years ago now seem to be bearing fruit. Drawing on staff expertise to deliver services alongside retail gives the group a clear differentiator from online competitors and seems to be pulling customers through the door, meanwhile the Mobile Expert proposition increasingly means autocentre expertise can be delivered where and when a customer needs them.

“Looking ahead lockdown 3 is clearly a headwind, since if we’re all staying home fewer cars and bikes will need the kind of minor repairs Halfords specialises in. However we think supply disruption is probably a bigger issue going into the fourth quarter – there’s nothing more frustrating than a sold out sign and lack of product availability could shift customers back towards online competitors.

Overall though there’s a lot to like in these numbers. Increased investment and restructuring could hold back cash flow and the balance sheet at the full year, but once the heavy lifting’s out of the way Halfords could start to really motor.”

 

Boohoo – ‘Better business than usual, no backlash in sight’

Group revenue rose 40% in the four months to 31 December, to £660.8m. That reflects double digit growth in all regions, with the UK and US the best performers.

Sales growth guidance for the full year has been upgraded to 36% – 38%, up from 28% – 32%.

The Rt. Hon. Sir Brian Leveson’s initial report to the board is now available on boohoo’s plc website. The high court judge was appointed in November, to provide independent oversight of boohoo’s Agenda for Change programme, following the supply chain and working conditions scandal.

The shares fell 3.1%  following the announcement.

Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown:

“It’s even better business than usual at boohoo, with the group reporting an impressive 40% increase in revenue in the four months to the end of December. Its core, young demographic has shrugged off concerns surrounding the supply chain and working conditions scandal with aplomb. boohoo’s often astonishingly cheap price tags will have a lot to do with this – a £5 dress will do a lot to help customers reassess their priorities.

As we shop online more than ever before, boohoo has emerged as a favourite spot to snap up lockdown attire. boohoo’s nimble supply chain allowed it to pivot its offering quickly when tastes changed in favour of loungewear and pjs, which offered a serious boon.

And it’s this fast fashion mindset that landed the group in some hot water. Sir Brian Leveson, who was drafted in to provide independent oversight of boohoo’s efforts to turn its supply chain management around, said implementing the amount of change needed isn’t straightforward, and there is plenty of work to be done. But he acknowledged that boohoo was now on the right road. This is important, because while medium term business performance looks well set, the long-term investment case rests on there being sufficient quality of management and corporate governance in place.

In the core business, while sales are booming, its facing an industry wide bugbear. Gross margin dilution is often a function of reducing prices, which tends to be a key tactic of boohoo. Its increasing volumes mean this issue doesn’t make its way down to depleted profit, which is why medium term guidance hasn’t budged.”

 

Primark – ‘Warns of a one billion pound fall in revenue as it becomes a thorn in ABF’s side’

 

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

‘’Primark used to be the jewel in the crown for Associated British Foods, but it’s now more like a thorn in its side with the lockdown closures now expected to create a gaping hole in revenues.

“While the grocer Tesco stacked up an extra one billion in sales due to a surge in demand, by contrast, Primark now expects revenues to fall by one billion pounds. That’s significantly worse than its forecasts at the start of the year when it predicted sales would fall by £650 million.

“While its fast fashion rival ASOS has cleaned up online, and Boohoo has today reported a 40% surge in sales, Primark can’t offset store closures with digital sales because it doesn’t have an e-commerce arm to fall back on.

“In many ways Primark has been resting on its laurels and its huge fan base of shoppers, hooked into its social media channels, who have flocked back through the doors when restrictions have eased. But the fresh spike of infection rates, caused by the new infectious strain have brought a whole new level of uncertainty.

“It’s unclear when stores will be able to reopen and loyal customers who may have held out on purchases waiting for business as usual to resume, may be tempted to test the water with rivals online. If restrictions remain in place past February, Primark’s current estimates of sales losses could deteriorate further. Already £200 million of unsold stock will now linger in warehouses until later in the year.”

Whether this shock to the system will lead the retailer to re-visit an e-commerce trial remains in question. The high cost of returns are  thought to be one of the reasons its resisted making the investment, so far. But at ASOS returns have fallen during the pandemic. The way fashion followers shop has changed dramatically over recent years, and Primark now risks finding itself behind the curve.’’

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