Shares in Card Factory drop 15%, wiping £190m off market value

Shares in Card Factory dropped 15% in morning trading after the retailer’s profits were hit in the first half of the year.
£190m was wiped from the company’s value as investors reacted to the impact of foreign exchange movements, the national living wage and the cost investments in the business.
The share price fall has handed back the gains it has made in the last three months, and reduces Card Factory’s market value to just above £1bn.

Revenues for the six months to the end of July rose by 6.1% to £179.6m – up 6.7% on an equivalent number of trading days – with like-for-like sales up 3.1% despite a decline in footfall across the high street.

Underlying EBITDA fell by 4% to £32.8m and operating profits were down 13.9% at £24.6m.

Russ Mould, investment director at AJ Bell, said of the share price drop: “Despite the obvious headwinds, the share price plunge could be an over-reaction.

“Chief executive Karen Hubbard, and the Board, have shown confidence in the Wakefield company’s prospects – and above all its cash flow – by sanctioning a 3.6% increase in the interim dividend to 2.9p and offering the prospect of further special dividends.

“Assuming that full-year earnings per share fall by 14% as well, that would give a number of 17.0p – a figure that covers the consensus full-year dividend forecast of 9.37p by a relatively comfortable 1.8 times. That alone would be enough for a 4.2% yield.

“If Card Factory pays a third straight annual special dividend of 15p since its 2014 flotation the yield would be above 10% after today’s crunching share price fall, and such a prospect is not impossible, assuming the full-year profit decline matches that of the first half.”

Card Factory opened 30 new stores in the period, bringing total UK estate to 895 and it said there is a strong pipeline of opportunities, with plans to deliver around 50 new stores by the year end.

The Wakefield-based group, which declared an interim dividend of 2.9p per share – up 3.6% – and special dividend of 15p per share, a return of £51.2m to shareholders.

Karen Hubbard, chief executive, said: “We have delivered a solid set of interim results with strong growth in like-for-like sales and total revenue, despite the decline in footfall seen across the high street; however, profitability over the half year was impacted by foreign exchange, national living wage and some of the important investments we are making in the business for longer term growth.

“Our business model remains highly cash generative and we are pleased to be announcing another special dividend of 15 pence per share. Together with the interim dividend, this means we will have returned £246.5m to shareholders since IPO in May 2014. The board intends to retain its progressive ordinary dividend policy and to continue to return any surplus funds to shareholders whilst giving consideration to the leverage of the business.

“We are the clear leaders in the greeting card market, with a strong proposition which is resonating well with customers despite challenges in the wider consumer environment. Our unique operating model continues to differentiate us from the competition, allowing us to strengthen our market-leading position.

“Trading in recent weeks has been similar to the encouraging trends seen in the first half, with continued growth in average spend as customers respond well to our new and better ranges. The board is confident that the group will continue to make further strategic progress, although notes that the full year profit outturn will reflect a continuation of some of the headwinds identified in the first half.

“We remain as convinced as ever of the strong growth prospects for the business.”

Click here to sign up to receive our new South West business news...
Close