Moonpig squeezed by strikes, falling consumer spend

Online gift and greeting card retailer Moonpig (MOON) has found itself caught between the UK’s cost of living crisis and widespread industrial action. Customers have been “trading down to lower gifting price points” as inflation hits discretionary spending. Meanwhile, strikes at Royal Mail have made it more difficult to get cards through letterboxes at all.

For Moonpig, the result is a downgraded revenue forecast for its full financial year. Analysts at Peel Hunt report that management is not “flustered” by the slower pace of sales, “but it is realistic to know that lower consumer confidence and the Royal Mail strikes will have a short-term impact at a crucial time”.

Total orders dropped by 13.3 per cent in the six months to the end of October, which the company said was partly due to industrial action. The fact that Covid lockdowns inflated the previous year’s figures made comparisons difficult and also contributed to falling orders.

The company is, however, standing by previously issued cash profits guidance, thanks to year-on-year gross margin growth of five percentage points to 54.1 per cent. Management has also vowed to take a “disciplined” approach to cost management in light of the current trading environment.

The lower sales forecast meant the shares fell by more than 14 per cent in the first few hours of trading on the day of these half-year results. But prospective buyers should assess whether external factors have pushed the stock down to the bottom of a valuation trough. 

Given that the cost of living crisis looks unlikely to be resolved quickly, and that strikes at Royal Mail are planned for the critical Christmas period, Moonpig shares could have further to fall yet. Hold.

Last IC view: Buy, 227p, 29 June 2022