September 27, 2018 / 6:57 AM / 3 months ago

UPDATE 2-Halfords new strategy stalls profit growth until 2021

* Forecasts flat profit in 2019, 2020 financial years

* To step-up annual capex to 60 mln pounds New CEO started in January, warned on profit in May

* Shares fall as much as 6.8 pct (Adds detail, analyst comment, shares)

LONDON, Sept 27 (Reuters) - British bicycles and car parts retailer Halfords said the need to boost investment in stores, services and its digital operations meant no return to profit growth until its 2021 financial year, sending its shares sharply lower.

Shares in Halfords were down 6.4 percent at 314.3 pence at 0905 GMT, valuing the business at 640 million pounds ($840 million).

Halfords said it aimed to become “a truly differentiated, service-led super specialist,” better placed to thrive in Britain’s ultra competitive retail market as it gave a strategy update on Thursday ahead of its Capital Markets Event, .

A squeeze on British consumers from above-target inflation and sluggish wage growth is denting spending on goods other than food.

Halfords’ update comes nine months after Graham Stapleton, a former Dixons Carphone executive, became Halfords’ CEO. He warned on full-year profit in May.

On Wednesday Sky News reported that Halfords has made a takeover offer for struggling rival Evans Cycles. Halfords declined to comment on the report.

Analysts at Peel Hunt were “underwhelmed” by the strategy update and reiterated their “sell” stance, but said the reported move on Evans Cycles was potentially an interesting strategic move.

“Halfords has long had a problem in attracting serious cyclists but Evans would fill a big gap in the offer,” they said.

But they noted Britain’s competition regulator might have something to say on any deal.

The group currently trades from 452 Halfords stores, 24 Cycle Republic stores, three Tredz stores and 315 garages in Britain and Ireland.

Halfords said its capital expenditure would increase from previous guidance of about 40 million pounds per year to up to 60 million pounds a year over the medium term.

That investment would be funded by cutting costs and seeking efficiencies across the business.

Halfords forecast full-year 2020 pretax profit flat on 2019, with mid-single-digit percentage annual growth anticipated thereafter as the plans take effect.

“Customer behaviours and the competitive environment are changing and we face an increasing number of headwinds,” said Stapleton.

“Our new long term strategy means we will become far more focused on the categories we are best known for, motoring and cycling.” ($1 = 0.7617 pounds) (Reporting by James Davey Editing by Sarah Young/Keith Weir)

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