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Halfords Group plc (LON:HFD): Does The Earnings Decline Make It An Underperformer?

Simply Wall St

Examining Halfords Group plc's (LSE:HFD) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess HFD's latest performance announced on 27 September 2019 and compare these figures to its longer term trend and industry movements.

View our latest analysis for Halfords Group

Was HFD's recent earnings decline worse than the long-term trend and the industry?

HFD's trailing twelve-month earnings (from 27 September 2019) of UK£41m has declined by -14% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -8.8%, indicating the rate at which HFD is growing has slowed down. Why could this be happening? Let's examine what's going on with margins and whether the rest of the industry is feeling the heat.

LSE:HFD Income Statement, January 4th 2020

In terms of returns from investment, Halfords Group has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. However, its return on assets (ROA) of 4.4% exceeds the GB Specialty Retail industry of 3.4%, indicating Halfords Group has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Halfords Group’s debt level, has declined over the past 3 years from 15% to 8.6%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. In some cases, companies that experience a drawn out period of reduction in earnings are going through some sort of reinvestment phase Although, if the entire industry is struggling to grow over time, it may be a indicator of a structural shift, which makes Halfords Group and its peers a riskier investment. I recommend you continue to research Halfords Group to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for HFD’s future growth? Take a look at our free research report of analyst consensus for HFD’s outlook.
  2. Financial Health: Are HFD’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 27 September 2019. This may not be consistent with full year annual report figures.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.