Retailer’s share price tumbles as it warns of lower profits

Card Factory has endured its traditional biannual January share slump after it revealed economic headwinds and strategic investment will add £30m to its cost base.

The retailer’s share price slumped 16% on Thursday to record its fifth-worst day’s trading since it went public nearly eight years ago. Two of the other bad days also followed its post-Christmas trading updates, in 2018 and 2020.

This time shareholders reacted badly to the retailer’s guidance of lower profits in the financial year that begins next month.

Card Factory told investors that that while it “remains confident in delivering year on year revenue growth…margins are expected to reflect significant inflationary headwinds”.

The headwinds include the increasing cost of freight, staffing and utilities, but it also needs to invest in headcount, IT and development of its online platform to support the delivery of its strategic plan.

The company said it had increased prices and had “a renewed focus” on business efficiencies, but the result will still be lower-than-expected profits.

Card Factory’s chief executive Darcy Willson-Rymer said: “Our vertically integrated model has put the group in a strong position to partially mitigate the supply chain challenges and inflationary pressures that have been seen across the wider market to date.

“Whilst we expect to be able to offset inflationary pressures to an extent through price increases across our ranges, we do anticipate some margin pressure during the next financial year, as the forecasted inflationary headwinds continue.”

The news took the shine off an upbeat trading update for the 11 months to the end of December, which saw trading ahead of expectations as Covid restrictions eased.

It enjoyed “strong trading” in December, as like-for-like sales returned close to December 2019 levels.

It now sells through its 1,000 stores, as well as more than 500 Aldi stores and a handful of Matalan shops.

The retailer had been hit badly by the pandemic because while it is dominant on the high street it struggles to compete against the high-profile online-only brands.

But it was already facing challenges before the arrival of Covid. Its share price had halved in two years to Christmas 2019, then dropped another 40% in January 2020.

Although Card Factory’s share price has improved from the lows seen during store closure periods, it remains around two-thirds below the levels at the end of 2019.