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UK's Halfords softens outlook on spending hit even as repairs demand strong

A member of staff works on a bike at Halfords in Rugby

By Prerna Bedi and Pushkala Aripaka

(Reuters) -Bike and motor parts retailer Halfords said its full-year earnings would be at the bottom end of forecasts after interim profit halved partly due to higher costs and as Britons spend less on non-essentials amid a cost of living crisis.

Shares in the company tumbled 15% before paring the losses to trade 8% down by 0900 GMT.

Soaring prices of everything from energy to food are forcing British consumers to curtail purchases as they try to make ends meet, while businesses are looking to rein-in costs and stay afloat by wooing customers with offers and discounts.

Halfords said on Wednesday its recently launched loyalty programme has been performing well but with rising input costs, it had to "inevitably" pass some costs on to customers for certain products, without specifying which ones.

Though it said it was seeing strong demand for repairs the retailer now expects underlying profit before tax to come in at the lower end of its previous forecast range of 65 million pounds to 75 million pounds ($77 million-$89 million) for the year ending March 2023.

While the company's half-yearly revenue grew 10.2% to 765.7 million pounds on the back of growth in servicing, profit halved to 29 million pounds, partly on higher costs and as the year-ago quarter benefited from a pick up in post-pandemic sales.

Halfords has been shifting focus to steadier revenue streams such as motoring services which consumers would still turn to for their motorcycles, bicycles and cars during the lull in purchasing new items.

The company said availability of its cycling stock was strong heading into the Christmas period, when retailers are typically boosted by customers splurging on gifts and other special items.

"In such a volatile macroeconomic environment, our strategy ... has never been more relevant," Chief Executive Officer Graham Stapleton said in a statement.

To keep up with the strong demand for servicing, the company separately on Wednesday said it was aiming to recruit 1,000 new technicians over the next 12 months by attracting retirees.

Hargreaves analysts said Halfords' decision to focus on its service revenue stream "couldn't have come soon enough".

Peel Hunt analysts said Halfords' interim results and full-year guidance were as expected even if trading was "anything but straightforward".

"There is undoubtedly a brighter future ahead for Halfords as a service-provider-that-does-some-retail and not vice versa."

($1 = 0.8405 pounds)

(Reporting by Prerna Bedi and Pushkala Aripaka in Bengaluru; Editing by Dhanya Ann Thoppil and Emelia Sithole-Matarise)