Halfords eyes 'staycation' boost after Brexit vote

By James Davey

LONDON (Reuters) - British bicycles to car parts retailer Halfords (HFD.L) could benefit from the country's vote to leave the European Union if the fall in sterling means more Britons opt to holiday in the UK rather than overseas, its boss said on Thursday.

The pound has tumbled to 31-year lows against the U.S. dollar since the EU referendum on June 23 and has also fallen versus the euro, making foreign holidays more expensive.

"Within the more discretionary categories, such as cycling, roof boxes and camping, there are opportunities to grow if more people choose to holiday in the UK rather than abroad," said Chief Executive Jill McDonald after the company gave an update on first-quarter trading.

Halfords also said sterling's weakness would raise sourcing costs which will have a negative impact on profit.

McDonald said Halfords had benefited from the so-called "staycation" effect in previous years when the economic climate has been tough.

"It’s not just a vague hope, it's something that we have seen historically," she told reporters, noting that the group's car maintenance business would also benefit if more people travel around Britain.

McDonald's view is supported by some analysts.

"We expect summer 2017 to be a ‘staycation’ year. Halfords is well-positioned to benefit from this trend and has defensive earnings in a weak demand environment given its needs-driven offer," Investec analyst Kate Calvert said, referring to essential purchases.

But Halfords is facing higher sourcing costs because of sterling's weakness.

The retailer buys about 200 million pounds of goods a year in dollars.

In June, it outlined a net impact of 3 million pounds on profit for its 2016-17 financial year at a pound/dollar rate of 1.45. On Thursday, it said that more than 75 percent of its dollar purchases were hedged at around $1.45. The pound (GBP=) was trading at $1.32.

If the pound remains weaker than $1.45 it may have a small further impact on the company's profit, depending on the extent to which it can be mitigated, it said.

Halfords' shares, which have lost 39 percent of their value over the last year, were down 1.8 percent at 329 pence by 1037 London time, valuing the business at 660 million pounds.

Halfords said overall retail sales at stores open more than a year fell 0.2 percent in the 13 weeks to July 1, adjusted for the timing of Easter. That compares with growth of 1.1 percent in the fourth quarter of its 2015-16 year.

Bike sales fell 4 percent on a like-for-like basis, affected by poor weather in April and late June, but in car maintenance sales of bulbs, blades and batteries and service-related sales increased, it said.

(Editing by Susan Fenton and Jane Merriman)