Card Factory shares fall to all-time low

Card Factory, the retailer of greeting cards and gifts, experienced an all-time low in share prices this morning (25 September) since floating on the stock exchange in 2014.

The Wakefield-headquartered company saw shares fall by 9.7% to 166p alongside reporting its results for the half year mark.

In what Card Factory CEO Karen Hubbard described as a “weak consumer environment particularly challenging footfall across the high street,” the retailer reported a 3.2% rise in total revenue to £185.3m, compared to the £179.6m achieved in the previous year.

Despite this, underlying pre-tax profit dropped 13.9% from £26.3m last year to £22.7m. Underlying operating profit also dropped 11.6% to £24.5m.

While Card Factory’s revenue jumped 3.7% to £178.6m, the firm’s Getting Personal business saw a 8.5% drop in revenues from £7.3m to £6.7m.

Shares at Card Factory previously dropped to its lowest back in August after the firm issued a profit warning.

The company, however, said it remained on track to open around 50 new UK stores in the current financial year, having opened a further six new UK stores since the half year point.

Russ Mould, investment director at AJ Bell, said: “Card Factory is one of those shops where there is always a queue of people waiting to buy items and the tills are constantly ringing. The low price point for its cards and celebration items helps to lure in people off the street; it has a proven business model and is a profitable company.

“Unfortunately there has been a reduction in the number of people shopping on the high street, which lowers Card Factory’s opportunity to sell goods to shoppers and thus its earnings have taken a hit.

“Consumers are also nervous about the state of the economy in the run up to the UK leaving the EU, thus they may be watching their spending closely. That means they may think twice about buying non-essential items like Thank You cards, when they can simply do the same job via text message or email.

“Another issue to consider with Card Factory is that many of its products simply too look cheap, quality-wise. Little mistakes like the fold of a card not being precisely in the middle, or card thickness that is so flimsy you could have done a better job of producing the cards yourself on your home printer.

“While there will always be a market for cheap goods, Card Factory now has a strong enough brand to warrant producing higher quality items and charging more for them, alongside a range of cheaper items for people who want them. Yet at the moment it seems the business is slashing prices to stay competitive – which may not be the right thing to do if the profit margin is getting squeezed.

“From an investment perspective, this trickle down of earnings means cash flow cover for the much-prized dividends is getting thinner, so the days of its special dividends on top of normal ones could be numbered. Investors were originally drawn to the stock as an income play and this attraction may soon disappear.”

Following the release of this morning’s results, Hubbard said: “We have delivered solid interim results with overall sales growth, despite the weak consumer environment and particularly challenging footfall across the high street, driven by various factors. Profitability was impacted by lower like-for-like sales, but we continue to largely mitigate the headwinds we face through various business efficiencies.

“As expected, trading in recent weeks has remained challenging given the weak consumer environment, but we have seen continued growth in average spend and improved performance of redesigned Everyday ranges. The Board is confident that the Group will continue to make further strategic progress on new initiatives.”

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