Investing.com -- Halfords (LON:HFD) shares surged over 18% on Tuesday after the company raised its profit forecast for the current fiscal year, citing stronger-than-expected trading and progress on key initiatives.
The UK-based company reported an improved performance outlook, raising its annual profit forecast to between £32 million and £37 million.
This follows a period of stronger sales, particularly in cycling and services, which contributed to a 19% increase in its share price.
The retailer reported strong third-quarter results with like-for-like sales growth in both its retail and Autocentres segments.
Retail sales were particularly strong during the peak Christmas period, driven by consumer demand, especially in cycling.
December saw a 13.1% LFL sales increase, boosted by strong gifting product sales. Autocentres, operating in the services, maintenance, and repair market, also posted growth.
"Near term, we expect continued market weakness in tyres and cycling, but we see potential for a continued recovery in the motoring market, given some improvements in UK consumer sentiment recently," said analysts at RBC Capital Markets in a note.
Consumer garage sales increased by 10.3%, driven by the rollout of Halfords' Fusion Motoring Services, which offset the continued decline in the consumer tyre market.
Trading remained strong in the first weeks of 2025, with LFL sales growth of 5.5% in the Motoring Product category.
This growth was supported by colder weather, increasing demand for related products. Halfords also reported an improved hedged foreign exchange rate, exceeding previous expectations for the year.
Freight costs are now projected to be lower than initially anticipated, further improving the outlook.
Halfords has maintained strict cost control. The company expects to exceed the previous £30 million cost-saving target for the year.
This, combined with stronger-than-expected demand in key segments, have supported the upgraded profit forecast.
The outlook for FY26 remains uncertain. The UK consumer landscape is expected to face challenges due to upcoming changes in the Autumn Budget.
These changes, including higher minimum wages and national insurance contributions, will increase the company's direct labour costs by an estimated £23 million.
The broader economic impact of these changes on consumer spending remains uncertain. Inflationary pressures are also expected to continue impacting managed services, although Halfords is exploring cost mitigation strategies.
"We are encouraged by Halfords' Services led strategy, which should be supportive for margins in the long run, however we note that there is execution risk for this strategy. We see potential for HFD to become a major player in EV servicing, but we believe a material step up in UK EV penetration is still a number of years away," RBC said