Card Factory shares tumble as analysts question growth prospects

Card Factory shares fell sharply on Tuesday, despite the group lifting profit expectations to the top-end of forecasts after enjoying strong festive trade. 

The greetings card and gifts company told investors it expects to deliver profit at the top end of market expectations for the full financial year on the back of strong sales growth during the 11 months to 31 December. 

Sales for the period increased by more than 10 per cent to £476.9 million, from £432.6 million a year ago, with the growth driven by ‘continued positive momentum across the business and the effective execution of our strategy’.

However, analysts have questioned the group’s ability to drive growth amid higher costs, weakness in its online offering and a tough trading environment. 

Card Factory boss: ‘Our value and quality proposition continues to resonate with customers at a time when value for money is as important as ever.’ 

But Card Factory shares tumbled 7.7 per cent, or 8.30 pence, to 99.50 pence on Tuesday morning. Over the past year, shares are up 8.2 per cent.

The FTSE 250 company said it saw growth over the Christmas period, with store revenue rising 7.8 percent in November and December, driven by increases in both the number of transactions and the average value of customer baskets.

Meanwhile, its seasonal and everyday card ranges saw sales rise by 5.5 per cent over the 11 month period, as sales of its gifts and celebration essentials ranges increased by 9.9 per cent.

CEO Darcy Willson-Rymer said: ‘Our value and quality proposition continues to resonate with customers at a time when value for money is as important as ever. ‘

Even during challenging times, consumers want to celebrate key life moments and this was reflected in the positive performance that we saw in the Christmas trading period and throughout the year to date.’

Commenting on the results, retail & supply chain partner at law firm Gowling Sara Riding said: ‘Given Card Factory’s core focus on domestic and international expansion in recent years, it is no surprise that the retailer is going well beyond investor expectations.

‘Indeed, its ability to closely align its in-store offering with customer needs identified from customer data is a tactic that’s fed into these results. 

‘Combined with its ability to offer cost-effectiveness within an increasingly premium store environment, Card Factory is competing far more readily with high street stalwarts that have traditionally cornered the competitive cards and gifts market.’

Analysts question growth prospects  

However, the firm’s online offering fared worse during the period, with sales falling almost 13 per cent.

This was a slight improvement on its half-year performance, however, and Card Factory said its sales improved during November and December.

But the decline helped drive more pessimistic commentary from the City, with analysts also highlighting higher costs and a tough trading environment. 

Saranja Sivachelvam, analyst at UBS, said that while the greeting cards market is historically ‘resilient during recessionary environment’, she questions Card Factory’s forecast that sales will grow from around £463million in 2023 to more than £600million by 2026.

She added: ‘[This] would require the company to grow at a 9 per cent compound annual growth rate, which is significantly higher than market and ahead of its pre-pandemic growth.

‘From a margin standpoint, in addition to freight (half of Card Factory’s costs) and energy, its growing online business could have an adverse impact until economies of scale are reached.’

UBS remains ‘cautious’ on Card Factory and maintained its 12-month target price of 107p with a rating of ‘neutral’.

Analysts at Peel Hunt: ‘Card continues to struggle online. With the likes of Moonpig and Funky Pigeon offering a fundamentally more personalised offering, it is difficult to see it ever being as competitive on this channel.

‘Much of the future growth looks to come from partnerships, which seems to have got off to a strong start from a domestic standpoint, but needs to show signs of growth internationally for us to become more interested in the equity story.

‘Long-term high street fundamentals do still concern us. We leave our forecasts unchanged, and reiterate our Hold rating and 125p target price.’