Shares of Wakefield-based greeting card and gift retailer Card Factory fell almost 30% on Thursday after it said its Christmas trading period was “challenging” and it expects annual profits to be lower than expected.
Card Factory also said that “recognising the long-term nature of the external factors affecting business performance, management has been undertaking a comprehensive review of strategy.”
The company said it now expects FY20 adjusted underlying EBITDA to be between £81 million and £83 million, lower than £89.4 million it reported last year.
In its FY21 outlook Card Factory said: “The adverse external factors which have affected performance for a number of years are expected to continue in FY21: declining high street footfall, depressed sterling valuation and high cost inflation (especially wages).
“To date there has been significant success in mitigating in large part the EBITDA impact of these external factors through a combination of offer improvements and business efficiencies.
“These efforts will continue, but the opportunity for efficiencies within the current business model is finite.
“Accordingly, the board anticipates that, on a business as usual basis, the net impact of market headwinds on FY21 adjusted underlying EBITDA is likely to be in the range of £5-10m.”
Card Factory CEO Karen Hubbard said: “The Christmas trading period continued to be challenging given the general election and weak consumer confidence, the impact of which can be seen in the footfall decline experienced in the period.
“Our investment in our customer experience, operational efficiency and data to improve our ranges has helped us to mitigate some of the effects of the tougher retail environment and higher costs experienced in the year.
“We plan to invest further in the business, enhancing our ability to operate more efficiently, service new sales channels and increase our competitive advantage, enabling a return to profit growth after the next financial year.”
In a trading update for the 11 months to December 31, 2019, Card Factory said: “Like for like sales for the eleven months to December declined by -0.6% year on year (FY19: -0.1%).
“Within this, cardfactory.co.uk continued to perform strongly with +14.8% growth (FY19: +59.1%) as a result of enlarged gift and party ranges and increased customer awareness.
“On-line growth is expected to continue with the new platform launch planned for FY21 which will enable click and collect and in-store ordering.
“Including the benefit of new stores, overall Group revenue for the eleven months grew by +3.6% (FY19: +3.4%).
“During the period 47 new stores were opened, bringing the total estate to 1,019 stores. A solid pipeline of further opportunities is in place.”
Analysts at Peel Hunt wrote: “Card Factory’s Christmas update is truly shocking.
“LFL has collapsed in recent weeks, and management seems to have lost all confidence: forecasts are being decimated, the special will become a distant memory and the ordinary will also probably be cut.
“But it’s not all just down to structural issues: availability was poor through the key Christmas season as managementflexed the buy with disappointing results.
“The shares are clearly going to come under severe pressure today, but a high single-digit multiple is the best they can expect, and the yield support is essentially gone. Sell.”