Card Factory shares fall amid margin, profit concern

Shares of Wakefield-based greeting card and gift retailer Card Factory fell about 16% on Thursday after the firm published a positive trading update for the eleven months ended December 31, 2021 — but warned that “significant inflationary headwinds” could hit future margins and profits.

Card Factory said sales for the eleven months of £337.3 million were ahead of its expectations “yet below the £424.5m for the pre-Covid eleven months to 31 December 2019.”

It its outlook, Card Factory said: “Assuming that there are no additional restrictions implemented before the end of the financial year, the board expects the outcome for the full year to be ahead of its previous expectations.

“Revenue for the full year is expected to be in excess of £360.0m, EBITDA for the full year is expected to be in the range of £71.0m – £74.0m and profit before tax for the full year is expected to be in the range of £7.0m – £10.0m.

“The board remains confident in the growth potential for the group and the achievability of the long-term guidance set out in September 2021 at the interim results, with revenues in excess of £600m for FY26.

“The board remains confident in delivering year on year revenue growth in FY23, towards the level delivered in FY20; however, EBITDA margins are expected to reflect significant inflationary headwinds.

“Whilst actions have been, and will be, taken to mitigate these headwinds, including price increases and a renewed focus on driving business efficiencies, the pressures will not be fully offset, resulting in lower profits than previously anticipated by the board.

“The board expects that the combined impact of unmitigated headwinds; predominantly the increasing cost of freight but also the impact of inflation on staff costs and utilities; plus investment in headcount, IT and development of the online platform to support the delivery of the strategic plan, will add approximately £30m to the pre-Covid FY20 cost base net of mitigation.

“Looking further out, the board expects a number of these cost headwinds to subside, and the company to be able to further mitigate certain cost pressures.”

Card Factory CEO Darcy Willson-Rymer said: We continue to see improved trading performance across all channels, with transaction volumes in our stores outperforming high street footfall recovery, demonstrating the loyalty of our customers and strength of the brand.

“The customer response to our Christmas ranges was particularly strong, across both card and complementary product ranges.

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.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.