Card Factory boosted by high street footfall

Card Factory's (CARD) shares fell 6 per cent despite sales at the greeting cards retailer outstripping pre-pandemic levels as customers returned to the company’s high street stores after a comparative period of closures. The market reaction came against a backdrop of a 70 per cent share price uplift over the last 12 months, however, helped by increases to guidance which included last week’s profit beat confirmation from management.  

Stores are the company’s revenue driver and took 95 per cent of total sales in the year as high street footfall improved. Online sales fell by almost a fifth, year-on-year, as Royal Mail strikes took their toll but these were still up 86 per cent against pre-pandemic levels on a like-for-like basis. Post-year-end deal making, meanwhile, will support future revenues - a new franchise agreement with Liwa Trading Enterprises heralds market penetration in the Middle East, while the acquisition of SA Greetings gives a "foothold into [the] target South African market". 

The balance sheet looks more resilient after an operating cash conversion rate of 96 per cent in the year helped to cut net debt (excluding lease liabilities) by £17mn to £57.2mn. On the return of capital, however, investors must wait until at least the 2025 financial year for the resumption of dividend payments given that certain loan repayments must be completed first under the terms of the company's financing facilities.

Investec analysts argued that the company “has recovered well from Covid with its strategic initiatives delivering better profitability”. As the board works towards targets of annual revenues of £650mn and a pre-tax profit margin of 14 per cent in financial year 2027, we think that is accurate. The shares trade at a consensus 10 times forward earnings, according to FactSet, slightly above the 5-year average of 9 times. Hold.

Last IC view: Hold, 46p, 27 Sep 2022