Card Factory chief senses an opportunity

Shares in Card Factory (CARD) have rallied since midway through February, peaking at 97.8p on 11 May. Put another way, they’re up 225 per cent trough-to-peak within the past 12 months. Volatility aside, the direction of travel – downward – has been established for over five years. Yet newly appointed chief executive Darcy Willson-Rymer obviously senses an opportunity, having hoovered up around £50,000-worth of shares on 25 June.

Events over the past 15 months have presented a novel challenge to the business model, to put it mildly. The group’s store estate was closed for an average of five months in the year to 31 January, leading to a 37 per cent fall in sales. Cost-of-sales constituted a higher proportion of the top-line, while operating expenses were broadly static.

All this fed through to an adjusted pre-tax loss of £15.2m against a profit of £67.2m in the prior year. To make matters worse, the timing of the lockdowns coincided with some of the busiest historical trading periods, specifically Mother's Day and Christmas.

There is plenty of evidence that the lockdowns have acted as a spur for digital transition across a range of industries. So, it is unsurprising that the group decided to relaunch the cardfactory.co.uk online platform, while adding a new Card Factory app on iOS and then on Android. It’s early days, but online sales of £27.6m increased by 42 per cent on the prior year, though they still represent a relatively modest proportion of overall sales.

You could argue that one of the chief strengths of the retailer has been the positioning of much of its estate – areas of high consumer footfall. So, the move to digital channels, though necessary, may not act as a panacea for the business in the short-term. Indeed, the erratic share price performance of Moonpig (MOON) since its February admission shows that the market has grown slightly warier of certain areas where tech impinges on the retail space. Willson-Rymer will be praying for a swift return to normal festivities.   

Last IC view: Sell, 42p, 2 June 2020