Investment bank Peel Hunt downgrades profit outlook for retailers including Boohoo and Halfords because of Budget impact

Alongside Boohoo and Halfords, Peel Hunt also downgraded its forecasts for Pets at Home, THG, Pro Cook and Topps Tiles, warning the increase to employer national insurance contributions and the lower threshold at which businesses will begin paying it will have a big hit on profits. 

“Investment bank Peel Hunt has downgraded its profit forecasts for six retailers, including struggling fast fashion player Boohoo and cycling and motoring specialist Halfords, due to the effects of changes to national insurance made in the recent Budget,” warned analysts John Stevenson, Jonathan Pritchard and Ruben Pathmanathan.

“The sector has dealt with a raft of unexpected headwinds lately,” they added. “While mitigation efforts will be prioritised, some stores may become unviable, projects may be shelved and prices may rise.”

The Peel Hunt analysts said that while they expect most of the retailers they cover will be able to “lean into the national insurance contributions increase and mitigate the majority of the impact through efficiencies” however, they added that “inflation and interest rates may prove to be slightly stickier”.

They also said the changes in national insurance will likely have a comparable effect on the wider retail industry, the ongoing international freight crisis, and predicted more automation and job cuts as a result. 

“The idea that this is simply an additional cost that retailers must wear is not really how this will land,” they said. “We anticipate that the decision to automate elements of a warehouse or production process will now be more compelling.

“Similarly, some stores will no longer be viable if the increased labour costs cannot be offset through other efficiencies to keep the contribution rate at a sustainable level”.