- Greeting cards seller upgrades earnings guidance again
- Value-for-money offer resonates over Christmas
- Retailer coping well with inflationary pressures
Shares in Card Factory (CARD) firmed 5.7% to a fresh one-year high of 92.2p after the greeting-cards-to-gifts seller upgraded its full-year pre-tax profit guidance by 28% as a result of strong Christmas trading.
Wakefield-headquartered Card Factory’s second profit upgrade in as many months was delivered despite back-to-back postal strikes and confirmed the retailer’s value proposition is most definitely resonating with cash-strapped consumers.
FESTIVE CHEER
In an earlier than expected update, Card Factory highlighted very strong Christmas trading with like-for-like store sales up 7.1% in the 11 months to 31 December 2022.
This performance reflected ‘continued good momentum’ within the business alongside the shift of customer spending back towards the high street, with bumper festive sales supported by merchandising improvements and Card Factory’s value for money offer across cards and gifts.
And while sales for the online cardfactory.co.uk business were impacted in December by the Royal Mail strikes, performance remained comfortably ahead of pre-pandemic levels.
Card Factory’s total revenue for the 11 month period was £432.6 million, a bumper 28% above the prior year.
28% PROFIT UPGRADE
Having delivered impressive sales over the key festive period, Card Factory’s management now expects earnings before interest, tax, depreciation and amortisation (EBITDA) for the year to January 2023 of ‘at least £106 million’ and pre-tax profits of ‘around £48 million’, the latter representing a 28% upgrade on guidance given in November.
Chief executive Darcy Willson-Rymer commented: ‘We’re pleased and encouraged by the continued strong performance of the business. With delivery of our growth strategy progressing well, it is great to see some of the benefits from this work starting to come through in our financial performance.’
Willson-Rymer added: ‘There is still more work to be done but we are very excited by the opportunities ahead and have confidence in our Opening Our New Future growth strategy.’
EXPERT VIEWS
Liberum Capital insisted Card Factory is ‘a top-pick for 2023 as continued trading momentum, very high cash conversion and falling debt levels are some of the characteristics that will drive share price outperformance’.
The broker sees ‘little reason why the group cannot return towards the free cash flow generation of the past (£55 million-to-£60 million per annum) which would put the shares on a free cash flow yield of circa 20%’.
AJ Bell investment director Russ Mould remarked: ‘In an environment where every penny matters and the UK’s postal service has become completely unreliable due to back-to-back strikes, it’s a surprise to see a retailer of greetings cards do so well.
‘However, Card Factory has been on a roll for quite some time, suggesting its value proposition is resonating with cash-strapped consumers. When times are tough, sending a card and/or a small gift to someone can seem even more special than in “normal” times.’
Mould continued: ‘Also playing to Card Factory’s strengths is the fact it is coping well with inflationary pressures including energy costs hedged until September 2024. It is one of the few retailers with genuine momentum.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.
