Shares in Card Factory (CARD) crashed 21.3% to an all-time low of 110.3p on Thursday after the budget greetings cards-to-gifts purveyor lowered full year profit guidance following a ‘softer than anticipated’ Christmas period.
The Wakefield-headquartered retailer also warned it won’t pay a special dividend in its 2021 financial year and will also review of the level of the ordinary payout ‘in the context of the cash flow profile’ associated with a ‘refreshed strategy’ to be unveiled with full year results (21 Apr).
CHRISTMAS DISAPPOINTS
For the 11 months ended 31 December 2019, Card Factory’s like-for-like sales declined by a disappointing 0.6%, Christmas trading falling flat with the tradition of sending Christmas cards by post seemingly in decline.
‘The Christmas trading period continued to be challenging given the general election and weak consumer confidence, the impact of which can be seen in the footfall decline experienced in the period,’ lamented chief executive Karen Hubbard.
Reflecting the poor festive showing, Card Factory now expects to deliver year-to-January-2020 adjusted underlying earnings before interest, taxation, depreciation and amortisation (EBITDA) in the £81m-to-£83m range, which will mark a third straight drop in the retailer’s preferred profit measure.
HEADWINDS TO PERSIST
Moreover for the year to January 2021, Card Factory warned the ‘adverse external factors’ which have affected performance for a number of years will continue, namely declining high street footfall, the weak pound (which increases imported raw material costs) and wage inflation.
The net impact of these market headwinds on 2021 adjusted underlying EBITDA is likely to be in the £5m-to-£10m range.
STRATEGY AND DIVIDEND UNDER REVIEW
Reflecting these and other headwinds Card Factory, which supplies everyday cards to 440 Aldi stores in the UK and will soon begin the roll out of its card offering to The Reject Shop’s 360 stores in Australia, is carrying out a comprehensive strategic review.
Management sounds confident this review will yield ‘a number of attractive medium term growth opportunities across both new and existing channels’, although Card Factory also warned ‘there may be a requirement for additional strategic investment in full year 2021 to support this future growth’.
Bulls may argue Card Factory continues to provide value to customers by selling affordable greetings cards, wrapping and gifts to its customers and developing online channels through its cardfactory.co.uk and gettingpersonal.co.uk websites.
However, Card Factory bears would point out that the simple art of remembering someone’s special day with a posted card or even a gift-wrapped present could be forgotten in the event of an economic downturn, or as a result of the rise of digital communication, with the result that profits will be gradually eroded with an impact on its dividend paying potential.
