(Adds detail, CEO comments, shares)
LONDON, Nov 10 (Reuters) - British bicycles to car partsretailer Halfords said the fall in the pound followingBritain's vote to leave the European Union would remain a majorchallenge after it reported a 12 percent drop in first-halfprofit.
Sterling has fallen about 20 percent versus the U.S. dollarsince the Brexit vote in June. Halfords buys about 200 millionpounds ($249 million) of goods a year in dollars, leaving itexposed to major exchange rate fluctuations.
"It is a significant headwind but I'm confident that overtime we can mitigate," Halfords Chief Executive Jill McDonaldtold reporters on Thursday.
She said it was working hard with suppliers to limit theextent they passed their cost increases onto Halfords and wasalso seeking more savings and efficiencies in the business.
McDonald said raising prices for consumers would be "a lastresort".
Halfords shares were down 4.5 percent at 1035 GMT. They aredown 2 percent so far in 2016 and 42 percent below their recordhigh of 563.5 hit in August last year.
The firm has hedged, or bought forward, nearly 100 percentof its 2016-17 currency requirements at $1.41 and about 25percent of its 2017-18 requirements at $1.37.
While the weaker pound does increase Halfords' sourcingcosts, the firm's motoring, cycling and camping products couldbenefit if it results in more Britons opting to take holidays athome, known as the "staycation" effect.
"We're very well placed to pick up a staycation trend. It'sjust a bit early to see that being reflected quite yet," saidMcDonald.
For the 26 weeks to Sept. 30 Halfords made an underlyingpretax profit of 40.8 million pounds, down from 46.4 millionpounds in the same period last year, despite a 6.3 percent risein revenue to 567.3 million pounds and a 2.2 percent increase insales at stores open more than a year.
The profit fall was due to a 275 basis points decline in itsretail gross margin to 47.6 percent, which reflected a 6 millionpound currency hit and bigger cycling promotions over thesummer. Wage and investment costs also increased.
Halfords forecast full-year profit in line with marketexpectations, or about 74 million pounds compared with 81.5million pounds in 2015-16.
The firm's interim dividend was raised 3 percent to 5.83pence.
($1 = 0.8046 pounds) (Reporting by James Davey; editing by David Clarke)