One of the most seismic share price moves on a busy ‘Super Thursday’ for retail Christmas reporting sees Card Factory (CARD) crash 18.3% lower to 230.8p.

This follows a warning that full earnings before interest, taxation, depreciation and amortisation (EBITDA) will disappoint due to ‘continued margin pressure’.

Earnings growth for next year ‘is likely to be limited’ too due to foreign exchange and national living wage-related cost pressures.

The good news is the cut-price greetings cards-to-gifts seller’s solid Christmas performance took like-for-like store sales growth for the 11 months to December to 2.7%.

However, CEO Karen Hubbard downgrades underlying EBITDA guidance for the financial year ending 31 January to a £93-£95m range, below the £96.5m estimate of Investec Securities, which has placed its Card Factory forecasts under review on the news.

Investors may also be disappointed by Liberum Capital slashing its dividend forecast by 31% for the 2019 financial year, given that Card Factory has historically been a very generous dividend payer.

CARD FACTORY WAS STARTED IN 1997 BY FOUNDING CEO RICHARD HAYES AND CURRENTLY EMPLOYEES BETWEEN 5 & 6,000 STAFF IN STIRES ACROSS THE UNITED KINGDOM.©RUSSELL SACH - 0771 882 6138

MARGIN PRESSURE

This is due the fact that like-for-like sales growth has mainly been driven by lower margin non-card products such as gifts and dressings.

Hubbard comments: ‘The group has faced significant cost pressures in the year; these, together with the further change in margin mix given the ongoing out-performance of lower-margin non-card categories, are reflected in our expected out-turn.’

Cash generative Card Factory also reports a disappointing Christmas performance from its gettingpersonal.co.uk online personalised gifting business, where ‘broadly flat’ annual sales now look to be on the cards.

Card Factory - JAN 2018GROWTH LOOKING LIMITED

Furthermore, the Card Factory boss warns the combined impact of foreign exchange and wage inflation in full year 2019 will result in £7m-8m of additional costs.

Investors may find some succour in the comment that ‘looking further ahead, cost headwinds should ease unless there is a further dramatic shift in sterling’.

Hubbard also stresses ‘our market leading proposition, underpinned by our unique vertically integrated model, provides our business with significant competitive advantage’, although the market is understandably more focused on the downbeat growth outlook and downgrades today.


Issue Date: 11 Jan 2018