Budget greetings cards-to-gifts retailer Card Factory (CARD) clips ahead 3p to 196p on news of a better than expected first quarter sales performance.
Reassuringly in the context of weak earnings momentum and a tough retail backdrop, cash-generative Card Factory leaves full year profit expectations unchanged and expects to deliver ‘marginally positive’ annual like-for-like sales too.
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For the quarter ended 30 April 2019, the Wakefield-headquartered cards purveyor reports like-for-like sales growth of 2.3%, albeit against an easy-to-beat prior year comparator.
Broker Liberum Capital believes this reflects a boost from price, since many shoppers have been trading up and Card Factory has ‘kept its price points unchanged’.
Continuing to roll out new stores in the UK and Republic of Ireland, Card Factory also reports a 6.4% rise in total sales for the quarter.
Card Factory’s positive same-store sales showing is welcome given Brexit-related macro uncertainty, challenging consumer conditions and the retailer’s heavy store weighting towards the challenged UK high street.
MIXED BAG ONLINE
There’s a mixed picture in terms of the online channel however. Whilst CardFactory.co.uk has had a good start to the year with sales growth boosted by the success of new ranges and designs in both personalised and non-personalised products, the Getting Personal site remains at the sharp end of heavy discounting and rising customer acquisition costs.
Chief executive Karen Hubbard comments: ‘We have seen a good customer reaction to our seasonal card ranges over the quarter, with yet again record card sales in volumes and value for both Valentine’s Day and Mother’s Day. We continue to improve the range and quality of card and non-card options. Our store opening programme remains on track and we are pleased with the performance of recent openings.
‘Overall, Card Factory remains in a strong position, continuing to grow market share, with lessening cost headwinds and a platform for medium term growth.’
THE EXPERTS’ VIEW
Liberum Capital says first quarter like-for-like growth of 2.3% ‘should be seen as a good result against expectations of flat for the full year. There is some help from an easier comparator but we think credit is deserved for management’s self-help measures around range and quality.
‘Profit guidance of flat year on year is unchanged’ - the broker continues to expect underlying pre-tax profit of £73.4m for the year to January 2020 - ‘which we think reflects caution at this early stage in the year, but also that recent trading conditions across retail have been tougher. It is also likely that the easy-win “business efficiencies” have now largely been captured.’
Russ Mould, investment director at AJ Bell, says: ‘A lot of people would assume the greetings card industry has no future. The advent of email, text and messaging via the likes of WhatsApp theoretically could be the nail in the coffin for hand-written letters and cards.
‘However, Card Factory’s latest trading update shows there is still life in the act of sending a piece of card in the post, be it for birthdays, condolences or more.
‘A 2.3% rise in like-for-like sales is reassuring for a business operating on the troubled high street, hence why the share price has risen today. However, it must be noted that Card Factory had an easy set of comparative figures to beat as last year’s period was weak with a 0.4% like-for-like sales decline.
‘Card Factory has historically had a pile ‘em high, sell ‘em cheap approach, relying on high levels of sales volumes to help pay the bills and make a profit on the side. However stores do offer a range of pricing points and so the challenge for management is to get customers to trade up to the higher priced products.
‘It also needs to encourage customers to buy more than just cards, hence why you increasingly see space given to add-on items like drawing pins, sticky tape and balloons. Here the company estimates it has less than 10% of the UK market share for complementary non-card items, showing an opportunity for further growth.’
Mould believes the decision to continue opening new stores ‘underpins management confidence about consumer demand for cards and associated products’.
The AJ Bell investment expert adds: ‘Fundamentally the business knows its audience, it is offering products at the right price and it remains energetic with constant innovation. However, it is battling a negative retail backdrop and so earnings growth may remain a slog for the time being.’
