The chief executive of Halfords has warned of a further retrenchment in consumer spending early next year after Christmas credit cards bills land in January.
David Wild made his gloomy forecast as the bicycle-to-car parts group suffered a 20.4 per cent slump in pre-tax profits to £54.7m in the half-year to 30 September.
Halfords was hit by tumbling gross margins, as its retail chain was forced to discount heavily in a fiercely competitive environment.
Mr Wild said: "I think there is an inevitability about what will happen. There will be a late Christmas, but people will enjoy Christmas, and they will survive through January and the credit cards will land around 20 January. February will be tough – definitely."
He added: "I just don't think people will have the money to spend. Fuel bills for the winter will be higher and this late Christmas on the credit card will bite people in February."
Total sales at Halfords, which has 466 stores in the UK and Republic of Ireland, slipped by 0.5 per cent to £454m over the half year. But its car maintenance business performed ahead of its retail division. The group acquired Nationwide Autocentres for £73.2m in February 2010 and has since rebranded Nationwide's 247 sites to Halford Autocentres.
The division, which provides MOTs, repairs and car servicing, revved up sales by 9 per cent to £53.4m, boosted by six new Halfords Autocentres. The unit's gross margin jumped by 36 basis points to 66.5 per cent. Mr Wild said: "We offer the same value as an independent [garage] but the same quality of service you would get with a main dealer."
But cutbacks in discretionary spend left a bigger mark on Halfords Retail, which saw its sales fall by 1.6 per cent to £401m over the half year. Its like-for-like sales in the UK fell by 1.9 per cent, as a strong performance in bikes was more than offset by a dire performance at its car enhancement arm. Retail gross margins fell by 128 basis points, dragged down by hefty discounting.
The continuing decline in the satellite navigation device market, which is being hit by competition from smartphones and in-built systems in cars, contributed to a 9.8 per cent fall in its car enhancement revenues. Sales of car accessories, such as mats and wheel trims, are also being squeezed.
But Halfords posted a 3.9 per cent rise in leisure sales, driven by robust demand for bikes, from its premium Boardman to the lower-priced bikes sold in a box.
Mr Wild expects the group's bike sales to get a further boost next year from the London Olympics. He said: "One of the best Olympic teams that the British have is the cycling team and it is bound to create further interest in cycling."
Halfords maintained its interim dividend at 8p.