Card Factory Plc (LON:CARD), the UK’s leading specialist retailer of greeting cards, dressings and gifts, announced the following trading update for the six months ended 31 July 2018.
Key highlights
· Total group sales growth of +3.2% (H1 FY18: +6.1%)
· Card Factory like-for-like sales -0.2% (H1 FY18: +3.1%), due to weak consumer environment and extreme weather conditions
· Strong seasonal performance continued in Q2 FY19 with a record Father’s Day season
· Further expansion of our store network with 25 net new UK stores opened (H1 FY18: 30) – on track for target of c.50 openings for the full year
· Continued momentum in the Republic of Ireland with seven trial stores now open
· Getting Personal sales -8.5% (H1 FY18: +5.0%) in a highly price competitive market
· Continued strong cash generation with net debt comfortably within our policy range
· Expect a return of surplus cash towards the end of FY19 in the range of 5-10p per ordinary share
· Due to the weather impact and continuing uncertainty around the UK consumer environment, the Board expects underlying FY19 EBITDA within the range of £89m – £91m, dependent on the key Q4 trading period
Recent trading performance
During the first half, we delivered strong sales performances in our seasonal ranges, including a record Father’s Day for the Group in both volume and value terms. However, with extreme weather conditions impacting high street footfall and continued consumer caution across the UK, like-for-like sales for the Card Factory store network fell by -0.7% (H1 FY18: +3.0%), with a marginal improvement in Q2.
We have continued to expand and improve the range of card and non-card products available on our websites, both personalised and non-personalised, as we target a significant increase in our share of this attractive segment of the market. Including the strong growth delivered by the Card Factory website, with year-on-year growth in traffic, conversion and average order value, like-for-like sales performance of the Card Factory fascia was -0.2% (H1 FY18: +3.1%).
In the first half we opened 25 net new UK stores (H1 FY18: 30) bringing the total UK estate to 940 stores. We remain on track to deliver approximately 50 net new UK stores in the current financial year including a number of retail park stores, which continue to perform well.
We also opened one new store in the Republic of Ireland, meaning we now have a total of seven trial stores in the region. We continue to monitor performance and evolve our proposition as brand awareness improves.
We remain on track with our plan to deliver identified business efficiencies to offset a proportion of the cost pressures arising from wage inflation and other factors.
Trading performance at Getting Personal remains challenging, with increased price competition and rising costs of customer acquisition impacting the business.
Cash returns to shareholders
The Group 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.
As at 31 July 2018, before deducting capitalised debt costs, net debt totalled £159.8 million (31 July 2017: £146.0 million, 31 January 2018: £161.3 million), reflecting strong operating cash generation during the period, more than covering payment of the FY18 final dividend (£21.9 million).
It remains the Board’s policy to return surplus cash to shareholders. No change is made to the guidance given in the preliminary announcement for FY18, with a further return of surplus cash expected to be made towards the end of the FY19 financial year in the range of 5-10p per ordinary share. We will provide confirmation as to the quantum and timing of the next distribution at the time of our interim results announcement for the six months ended 31 July 2018, due for release on Tuesday 25 September 2018.
Karen Hubbard, Card Factory’s Chief Executive Officer, said:
“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.
“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.
“Taking into account the above, the Board’s current expectation is that EBITDA for the year will be in the range of £89m to £91m. 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.”
