Shares in high-flying Card Factory (CARD) crashed 14.3% to 74p on Friday, despite the greeting cards-to-gifts retailer completing a £225 million refinancing and assuring that in-store trading has exceeded management’s expectations since non-essential shops reopened.
Yet the retailer also spooked investors by conceding that initial strong demand ‘has been satisfied’, with store like-for-like sales for the first five weeks since the reopening ‘marginally down’ versus the comparable pre-pandemic period in 2019.
£70 MILLION RAISE ON THE CARDS
Also weighing on sentiment was news of a potential £70 million equity raise designed to fund debt pre-payments under Card Factory’s newly agreed financing arrangements.
They provide an extra £25 million of headroom and incentivise Card Factory to materially reduce net debt of £150 million to below £100 million, potentially by the end of this year, through a best effort £70 million equity raise.
Liberum Capital thinks this would ‘bring an appropriate structure to the balance sheet, reduce the market’s concern around the elevated debt level and give flexibility to accelerate the progress of the five year plan set out in July 2020’.
As expected, online sales have fallen with customers now able to shop in its brick and mortar stores, though Card Factory stressed online sales are ‘still exceeding pre-pandemic levels, with performance in line with management expectations’.
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould said Card Factory’s numbers offer ‘a snapshot in microcosm of what retailers can likely expect in the coming months with shoppers visiting less frequently but buying more when they are there.
‘This probably reflects some continuing nervousness about being in crowds too frequently, a degree of pent-up demand and the fact some people have lockdown savings to spend.’
Mould believes that the savvy retail operators ‘will take note and adapt accordingly, ensuring good stock management so that people aren’t disappointed by not being able to find what they want when they make that more selective trip to the high street, shopping mall or retail park.
‘A greater share for online is here to stay given the convenience factor and the prime retailers will want to ensure they don’t neglect their web-based offering just because they can now trade from physical outlets.’
