- Revenue still below pre-pandemic levels
- A slow shift online is emerging
Card Factory (CARD) is heavily weighted towards in-store purchases, which has made the pandemic a tricky time for the business. In its half-year results, in-store transaction volumes were still 21.9 per cent below pre-pandemic levels. The retailer still sees strategic value in its extensive store network, but the pandemic has forced it to focus on developing its digital offering. Over the long term, management may come to see this period as a blessing.
Total revenue increased 16.3 per cent to £117m from the first six months of 2020. The end of lockdown helped store sales increase 20.4 per cent to £103m, but this slightly cannibalised online sales, which dropped 10.3 per cent to £11.9m. However, on a like-for-like basis, revenue from its transactional website grew 168 per cent compared with the pre-pandemic level. Management is keen to build on this momentum and is aiming to “transform the business from a predominantly store-driven retail model to a full omni-channel offer”.
Despite lower transaction volumes, higher average basket value than before the pandemic has helped Card Factory to narrow its pre-tax loss. For the seven weeks to 19 September, like-for-like trading was just 6.3 per cent lower than pre-pandemic levels, which indicates a steady return of customer demand.
Management will be praying the government does not find an excuse to cancel Christmas again. Even if the pandemic doesn’t successfully play the role of Grinch this year, it is still doing its best to disrupt the labour market and supply chains. Card Factory cited shortage of staff, increasing freight costs and increased energy bills as potential threats to profitability.
Despite these short-term concerns, the group is still confident it can increase revenue to £600m by 2026. To achieve this, it is planning to add 100 new stores to its existing portfolio of more than 1,000 stores across the UK and Ireland by 2026. The magic ingredient for this growth will surely lie in driving its online sales – a possible symbiotic relationship. But even with the lockdown boost, online made up just 11.6 per cent of its total sales so far this year – for now, conventional footfall remains the critical determinant.
Digital rival Moonpig currently trades on a forward PE of 31.4 compared with Card Factory’s 9.8, which shows the value the market puts on online capabilities. There is big potential valuation upside from an online transformation, but so far there is little evidence of its emergence. Hold.
|CARD FACTORY (CARD)|
|ORD PRICE:||55p||MARKET VALUE:||£189m|
|TOUCH:||55-55.4p||12-MONTH HIGH:||98p||LOW: 30p|
|DIVIDEND YIELD:||NIL||PE RATIO:||33|
|NET ASSET VALUE:||59p*||NET DEBT:||117%|
|Half-year to 31 Jul||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £321m or 94p a share.|