Halfords shares have plunged by almost a quarter after it issued an unscheduled profit warning, in part because of more consumers buying bicycles on credit.

The motoring and cycling retailer said it expected to post profits of between £35m and £40m for the year up to this April, well down on its initial forecast of between £48m and £53m.

In a trading update to the market on Wednesday, it said the profit warning was driven partly by an overall fall in the current cycling market, which saw an 8% drop in sales in January compared with the previous year.

The retailer said the fall was driven partly by more people wanting to buy bicycles on credit, which was leading to weaker gross margins than expected.

The cycling market had become more “challenging and competitive” as the sector continued to consolidate, the company said, leading to consumers picking up cheaper bikes through an increasing number of discount promotions and clearance sales at its stores.

Halfords’ cycling and retail motoring divisions were also hit by generally weak customer confidence and “unusually mild but very wet weather”, which led to weaker sales in car cleaning and winter products.

Overall retail motoring markets were down by 5.1% in January, compared with last year, while consumer tyres markets had declined by 4.3%. Halfords shares fell by 23% in early trading.

The profit warning was the second issued by Halfords in two years, after the company revealed in January 2023 that it expected to make profits of £60m, down from the £75m first envisaged. The company had blamed difficulties in hiring enough mechanics to keep up with demand.

The falling sales in Halfords’ bicycle division come only a few years after it had to raise its profit forecasts twice in a month during 2020, when it reported a 46% increase in bicycle sales during the Covid-19 sales boom.

It said on Wednesday: “Looking ahead to FY25, we remain cautious on market recovery in the short-term, and the current significant volatility in market conditions means that forecasting accurately is challenging.

“While we have reduced our profit guidance as a result of very challenging and exceptional short-term market conditions, we remain confident in our strategy and longer-term growth prospects.”

• This article was amended on 29 February 2024. An earlier version attributed some figures for the fall in sales on last year to Halfords specifically, rather than to the wider market.