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Retailer Halfords shares slump 19% after profit outlook cut

By Sinchita Mitra and Radhika Anilkumar

(Reuters) - Shares in Britain's Halfords slumped 19% on Thursday after it cut annual profit forecast and the motor parts and cycling retailer said it was struggling with labour shortages and weaker demand for bicycles amid a cost-of-living crisis.

Shares of the company slumped as much as 22% in early trade after it said staff shortages were expected to eat into its margins in its fourth quarter, which ends on March 31, a period considered to be the peak trading season for the retailer.

Full-year underlying profit before tax is now expected in a range of 50-60 million pounds, down from last June's forecast of 65-75 million pounds, it said.

British businesses are battling inflationary pressures and tepid demand as soaring prices of everything from energy to food are forcing consumers to curtail non-essential spending as they try to make ends meet.

Halfords adult bike sales shrank 12% in the final three months of 2022 from a year ago as a surge in demand for bicycles during the peak of the COVID-19 pandemic faded.

"The cycling market has slumped since a boom period in the early stages of the pandemic when people were desperate to buy any form of two-wheeled bike they could," analysts at AJ Bell said.

The London-listed company, which also sells used car parts, said the shortage of skilled labour was particularly hitting its booming motoring services business.

"Recruitment proving to be extremely challenging," Chief Executive Graham Stapleton said in a statement. The consumer tyre market is, however, expected to recover through the course of the year, the statement said.

Halfords like other British retailers benefited from the first holiday season free of significant COVID restrictions for three years with total annual revenue growth of 21.7% for its fiscal third quarter, the 13-week period ended Dec.31, 2022.

As Halfords makes progress in moving to a focus on motoring and services, short term macro headwinds mean it is taking longer for the financial benefits of higher margins and more resilient earnings to come through, analysts at Investec said in a note.

($1 = 0.8239 pounds)

(Reporting by Sinchita Mitra and Radhika Anilkumar in Bengaluru; Editing by Sherry Jacob-Phillips and Conor Humphries)