After two years of double-digit growth triggered by British victories on the pro circuit, Halfords Group plc said it expects its cycling sales to grow 3-5 percent in coming years through the opening of Cycle Republic stores and acquisition of other bicycle dealers.
The U.K. retailer said cycling revenue grew 1.9 percent on a like-for-like basis in the fiscal-fourth quarter ended April 1, but declined -0.9 percent in fiscal 2016 compared with gains of 19.4 and 11.4 percent in the preceding two fiscal years, when victories by professional British road racers Bradley Wiggins, Chris Froome and Mark Cavendish stimulated sales of high-end bicycles.
Halfords estimates it accounted for nearly one-in-four bicycles sold in the United Kingdom during the fiscal year, but it is encountering growing competition from private-equity-backed online-only sellers like Wiggle and Germany’s Canyon, which announced last week plans to expand to the United States.
“Looking specifically at recent market performance, our analysis suggests that the market declined in the last 12 months,” company officials said in their June 1 report reviewing its preliminary results for the period. “This decline was principally attributed to the summer of 2015. Since then we have observed a gradual stabilizing of market conditions, notwithstanding that it may take some time to return to consistent growth and the weather continues to have an impact on the timing of customer purchase.”
Halfords reported overall retail revenue, which reflects results at 462 Halfords stores and 10 Cycle Republic shops, increased 3.3 percent in the fourth quarter and 1.2 percent in the fiscal year ended April 1 compared with the year earlier. Halfords’ stores, which on average have 8,120 square feet of selling space, offer car parts, cycling products, in-car technology, child seats, roof boxes and camping equipment. Cycle Republic, which Halfords launched in 2013 to focus on premium cycling products, opened six new stores in fiscal 2016.
While the company did not disclose cycling revenues, it said they comprised about 30 percent of total revenue in fiscal 2015, or about £306.5 million ($462 million).
On a like-for-like basis, including online sales, retail revenues rose 1.3 percent to £868.5 million ($1.31 billion) in fiscal 2016, as a 2.5-percent rise in the sale of motoring products and services more than offset the -0.9 percent decline in cycling sales. The decline was principally driven by a -7.6 percent decline in like-for-like cycling sales in the fiscal second quarter, when Halfords faced tough comps, poor weather and deep discounting.
“In cycling our sales improved in the second half of the [fiscal] year and cycle repair delivered good growth,” MacDonald said June 1. “The recent acquisition of Tredz alongside the continued expansion of Cycle Republic and the launch of our new Laura Trott range demonstrates the strength and breadth of our cycling proposition.”
On May 23, Halfords paid £18.4 million cash to acquire retailer Tredz Limited and Wheelies Direct Limited, which sells replacement bicycles to U.K. insurance companies. Collectively, the businesses generated revenue of about £32 million for the year ended Feb. 29, up from about £24 million in the prior year, and EBITDA of £2.4 million, indicating a valuation of about 7.5 times EBITDA, not including potential earning out payments. The company will continue to expand Cycle Republic.
Based on a survey conducted last summer, Halfords estimates it controlled around 24 percent of bike sales, 15 percent of bicycle parts and accessories sales and 10 percent of cycle repair sales in its market. The company derives cycling revenue primarily from owned brands including Apollo, Carrera, Boardman and 13 Cycles, but also carries Kona, Mongoose, Raleigh and Pinarello bicycles, Thule cargo carriers, CamelBak hydration products, Giro helmets and apparel and accessories from other brands.
Halfords’ like-for-like travel solutions revenues, which reflect sales of rooftop boxes, CampinGaz fuel and Outwell camp kitchen products, rose 9.5 percent during the quarter and 2.8 percent for the full fiscal year, driven by growth in child car seats and camping equipment.
Service-related sales at Halfords and Cycle Republic shops increased by 8.5 percent, driven in particular by cycle repair and the installation of car audio systems, racks and roof boxes. Online retail revenues grew by 1.4 percent to reach 12.1 percent of total retail sales, which was flat with fiscal 2015. About 90 percent of the company’s online sales were picked up in-store during the fiscal year.
Halfords will continue to expand Cycling Republic, which operates seven of its 11 stores in London.
“We remain confident in the long-term growth prospects of the cycling market,” MacDonald said. “Participation in the UK is still low and there is large scope for new cyclists as well as increased spend from existing cyclists. This is supported by significant government support in London and in many other cities, as well as consumer trends towards healthy activities.”
Photo courtesy Halfords
