ii view: Card Factory shares struggle despite reopening stores

Shares of this retailer are down hard year-to-date. Can a pending strategy update reverse the decline?

Full-year results to 31 January 2020  

• Revenue up 3.6% to £451.5 million
• Pre-tax profit down 4.4% to £65.2 million
• Strategy update due on 28 July
• Not paying a final dividend

Chief executive Karen Hubbard said:

"We delivered a reasonable sales performance in a challenging year for the high street, growing both our volume and value card market share in the mature and stable UK greeting card market.  Our profitability was, however, impacted by a number of recurring cost pressures and other one-off operational costs which we were not able to fully mitigate.

"Since the year end, whilst we have continued to evolve our medium and longer term plans, a key focus has been on appropriately managing our business and protecting our staff through the Covid-19 crisis.  Our Board and management team have reacted rapidly to the very dynamic situation and I am confident that we will exit this crisis with an operating model and customer proposition that will make Card Factory the customers' first choice for greeting cards, everywhere and for all occasions, however the customer wishes to shop.”

ii round-up:

Greetings card retailer Card Factory (LSE:CARD) reported full-year profits to the end of January which matched City forecasts, with plans to reopen 10% of its stores on the 15 June also outlined. 

The group, which operates just over 1,000 stores across the UK, furloughed over 90% of its staff under the government Covid-19 lockdown. 

Online trading during the shutdown has jumped significantly. Sales for its cardfactory.co.uk site were up 153% year-to-date. Sales for gettingpersonal.co.uk on the same basis rose by 27%. 

But, given the degree of uncertainty in the outlook, management still feels unable to offer any financial estimates for the current year ahead. 

Card Factory shares, having rallied in early UK trading, were down just over 1% in the afternoon. Its shares are down by more than 70% year-to-date. WH Smith (LSE:SMWH) shares are down by just over 55% during 2020. 

Same-store sales for the year to the end January fell by 0.5%, hit by weak consumer confidence under Brexit uncertainty. Pre-tax profit fell by 4.4% to £65.2 million.

Card Factory is scheduled to outline a strategy update on 28 July.  Accompanying management comments appeared to hint at a potential expansion overseas. 

The card retailer previously scrapped its final dividend for financial year just finished under Covid-19 measures, along with successfully tapping the Bank of England’s Covid Corporate Financing Facility. 

ii view:

Headquartered in Wakefield, West Yorkshire, Card Factory employs around 7,000 staff across its 1,000-plus UK store portfolio. Just over two-fifths of sales come from gift dressings, small gifts and party products, a market it estimates to be worth between £2 to £3 billion. New store openings have averaged around 50 per year for the last 10 years. 

Plans to open 10% of its stores on 15 June, although welcome, compares poorly to Primark's (LSE:ABF) plans to have 79% of its floor space back operating by the same date. Although it plans to open more stores subsequently, social distancing measures for its often busy and relatively small outlets may be an early obstacle. 

For investors, its estimate of £1.4 billion for the value of the UK card market and up to £3 billion for accompanying products such as wrapping is not to be overlooked. A vertically integrated business model including design and print facilities, along with its focus on product value for wage squeezed consumers also adds shine. But greeting cards are ideal to choose and send online, while younger generations are often happy to post a message on social media. For now, investors are clearly happy to wait for management’s pending strategy update before assessing prospects further.  

Positives: 

• Growing online sales
• Reopening stores

Negatives:

• Offering no current year financial estimates
• Suspended the dividend payment

The average rating of stock market analysts:

Strong hold