- First half profits plunge
- First interim dividend in five years
- Full year guidance unchanged
Following a stunning run into the numbers, shares in Card Factory (CARD) cheapened 16% to 121p after the value-focused greeting cards-to-party supplies retailer delivered a drop in first half earnings and warned full year profits will be second half weighted.
While some investors took profits on the unnerving news, Card Factory actually delivered robust first half sales with all channels in growth.
And the resilient retailer also left its full year 2025 guidance unchanged and in a show of confidence, declared an interim dividend for the first time in five years.
INFLATIONARY PRESSURES BITE
Adjusted pre-tax profit slumped the best part of 35% to £14.5 million in the six months ended 31 July 2024, which Card Factory pinned on ‘substantial increases’ in the National Living Wage as well as freight inflation and the ‘phasing of strategic investments’.
Though the impact of inflation, especially from wage increases, was previously flagged, some investors were evidently disappointed by the profit decline and the news profit growth will be second half weighted due to the phasing of planned strategic investments and inflationary recovery actions.
RESILIENT OPERATOR
The encouraging news is that despite a tough retail backdrop, first half sales ticked up 5.9% to £233.8 million amid ‘continued positive momentum’ with Card Factory’s growth strategy.
The retailer’s quality value offering continues to resonate with hard-pressed shoppers and its strategy of diversifying beyond greeting cards and into gifts and celebration essentials is paying off, with the latter category delivering 6% like-for-like growth.
The continued expansion of Card Factory’s store estate and strong online sales also contributed positively.
Cash flow from operations did drop significantly, down 51.8% to £17.5 million in the half, yet management remains optimistic about cost-saving initiatives and a more profitable second half to come.
WHAT DID THE CEO SAY?
CEO Darcy Willson-Rymer said: ‘As we move into the second half of the year and the important Christmas trading period, our expectations for the full year are unchanged and we continue to focus on managing inflationary pressures within the business.’
He added: ‘Our strategic growth ambitions are underpinned by a robust balance sheet and strong cash flow, alongside our disciplined approach to managing working capital and focus on driving efficiencies and productivity across the business. Moving forward, we believe we are well placed with a strong proposition that resonates with a broad customer base and delivers an unrivalled quality, value and choice offering.’
EXPERT VIEWS
Edison’s Neil Shah pointed out that Card Factory’s new partnerships, including an exclusive UK deal with Aldi and entry into the US market, offer growth potential.
And while macroeconomic challenges persist, ‘Card Factory’s focus on cost control and a diversified revenue base positions the company well for a stronger second half of the year. The recommencement of dividends suggests confidence in the business’s longer term outlook.’
Russ Mould, investment director at AJ Bell, said that being a budget option has been key to Card Factory’s success, with the company also benefiting from the woes of rival chain Clintons, but there is now ‘an onus on the company to demonstrate it can claw back some margin in the second half of the year.
‘For now, management are sticking with both short and medium-term guidance and if this is achieved then today’s announcement will likely be viewed as a blip, rather than anything more serious. The increase in sales at least suggests there remains robust demand for Card Factory’s value offering of gifts, balloons, cards and party supplies. Britons don’t look to be going out of the card-giving habit any time soon.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
