Bicycle prices will rise this year, says Halfords boss

By James Davey

LONDON (Reuters) - The post Brexit vote slump in sterling makes it inevitable that bicycle prices will rise in 2017, the boss of Britain's UK's largest bike seller, Halfords (HFD.L), said on Thursday.

Robust growth in consumer spending has been one of the main factors sustaining Britain's economy since the Brexit vote. However, retailers fear spending will fall as inflation erodes real earnings growth.

Jill McDonald, chief executive of the bicycles to car parts retailer, said some of its suppliers were raising their prices and some competitors were raising their retail prices by 10-15 percent.

"So it is inevitable over time that we will have to move some prices," she told reporters after Halfords reported better than expected trading in its Christmas quarter, sending its shares up 9.7 percent.

"We will have to move modestly. But we can do that in a reactionary way, we don’t have to lead the price increases."

Sterling has suffered a near 20 percent drop in its value versus the U.S. dollar since last June's referendum. Halfords has a 26 percent UK market share in bicycles, most of which are purchased in dollars.

In total Halfords buys about 200 million pounds ($245 million) of goods a year in dollars, exposing it to major exchange rate fluctuations.

The firm says it is working with suppliers to limit the extent they pass their cost increases onto Halfords and is also seeking more savings and efficiencies in its business.

McDonald said Halfords was in a stronger position than competitors to resist price increases because most of the bikes it sells are own brand, giving it control over the supply chain.

"We also have hedged and a lot of our competitors are smaller, independent, businesses who won’t have been able to hedge against currency," she said.

"So as soon as they see price increases coming through from suppliers, they have to move on them."

British inflation rose more strongly than expected in December to hit its highest level since mid-2014, propelled by higher air fares and the Brexit-fuelled fall in the value of sterling, official data showed on Tuesday.

Halfords said retail sales at stores open over a year rose 7.0 percent in the 15 weeks to Jan. 13, its fiscal third quarter, highlighting growth in new ranges. That compared to analysts' average forecast of 3.6 percent and first half growth of 2.2 percent.

It said there was no change to its profit expectations for the full year.

Prior to the update analysts were on average forecasting a pretax profit before one off items for 2016-17 of 74.2 million pounds, down from 81.5 million pounds in 2015-16.

Halfords also announced a 20 million pounds special dividend and said it had purchased a minority stake in TyresOnTheDrive.com, a UK mobile tyre fitting business, for up to 8 million pounds.

($1 = 0.8114 pounds)

(Editing by Sarah Young/Ruth Pitchford)