Extreme weather conditions and ‘continuing uncertainty around the UK consumer environment’ are to blame for the latest round of downgrades at Card Factory, facing continued margin pressure and now needing to deliver a very merry Christmas showing in order to meet analysts’ new and reduced estimates.
WEATHER WOES, FRAGILE CONSUMER CONFIDENCE SHOWS
For the six months ended 31 July, Card Factory’s like-for-like sales fell by 0.2% versus 3.1% growth a year earlier, first half trading clobbered by a combination of consumer caution and extreme weather (bitingly cold conditions followed by a prolonged heatwave) which kept shoppers away from the high street.
Even a record Father’s Day season in the second quarter couldn’t keep the Wakefield-headquartered retailer’s half year same-store sales in positive territory.
Card Factory, which trades from 940 UK stores with seven trial stores in the Republic of Ireland, also warns the performance at its online gifting business Getting Personal ‘remains challenging, with increased price competition and rising costs of customer acquisition impacting the business.’
CEO Hubbard concedes ‘we continue to experience a weak consumer environment, made all the more challenging by the impact of this year’s extreme weather conditions on high street footfall.’
Yet she adds: ‘The performance of our seasonal ranges has been strong, with our best ever Father’s Day in terms of volume and value, although we recognise there has to be more focus on our Everyday ranges, which have lagged the seasonal performance.’
DOWNGRADES CYCLE CONTINUES
Following this challenging period and with all still to play for at Christmas, Card Factory guides down full year EBITDA to a range of £89m-to-£91m, which is below the £93.5m Bloomberg consensus and down from £94m last year, a haul that was itself 5% lower year-on-year.
‘Our key Q4 trading period will of course be critical in determining the final result for the year, but we believe we are well positioned to deliver a good performance in our important Christmas trading season,’ insists Hubbard.
Shareholders can seek some succour in the news they are still set to receive a special dividend in the 5p-to-10p range towards the end of the financial year. Card Factory insists it remains highly cash generative, despite the tough trading environment, ‘driven by our strong operating margins, limited working capital absorption and relatively low capital expenditure requirements.'
Liberum Capital cuts its price target from 210p to 195p on today’s setback and downgrades its full year EBITDA forecast from £93.9m to £88.2m. ‘Lowering our numbers today continues the cycle of downgrades we have seen, where at this point last year we forecast full year 2019 EBITDA at £103.9m, which suggests a circa 15% downgrade in 12 months, highlighting the direction of travel.'
Yet the broker maintains its ‘hold’ rating on the stock. ‘While the overall like-for-like performance for the first half is clearly disappointing, we note that in the wider context of the retail environment and reporting, this could have been worse,’ argues Liberum.