- Earnings seen at top end of market forecasts
- Full-year revenues upgraded to $1.1 billion
- Operational leverage helps drive momentum
Shares in promotional gift seller 4imprint (FOUR) surged as much as 9% on Friday after the company said it expected pre-tax profits to be at the upper end of market forecasts and ‘at least’ $90 million.
The company also raised guidance for full year revenues which are now expected to reach $1.1 billion, smashing through its long-held $1 billion target.
4imprint said October year-to-date order counts in the North American market were up 32% while average order value remained buoyant at 6% above the prior year.
This resulted in overall demand revenues 40% higher than 2021 and up 35% compared with 2019. Key metrics of customer acquisition and retention rates remain ‘above expectations’.
WHAT IS DRIVING MOMENTUM?
The company pointed to stable gross margins and consistent productivity combined with operational leverage as key factors in the earnings upgrade.
Firms with high fixed costs relative to their variable costs get an operating margin boost from higher revenues. However, it is difficult for analysts to model the precise effect without an accurate picture of the split between fixed and variable costs.
Strong year-on-year revenue growth of around 40% and a tight control on costs could explain why analysts have consistently underestimated full-year earnings.
Over the last few months analysts have revised up their earnings estimates by over 100% while 2023 earnings have moved up by around 15%.
At mid-morning on Friday the shares were up 6% to £37.85, taking the year-to-date gains to 30% and approaching the August 2022 all-time highs near £40.
Shares has previously highlighted the phenomenal success of the 4imprint business with the shares notching up a 20-fold increase over the last decade. It is often the least exciting businesses which go under the radar.
4imprint sells promotional products such as pens and t-shirts in North America, the UK and Ireland to help customers build their brands and ‘make lasting connections’ with their own clients.
