Supply not keeping up with demand at 4imprint

4imprint (FOUR) has seen demand for promotional products recover to pre-pandemic levels. Total order count in the second half of the year was 101 per cent of 2019 levels, up from 79 per cent in the first half. The issue now is to manage supply chains well enough to keep up with demand.

Operating margin was a slim 3.9 per cent last year, down from 6.2 per cent pre-pandemic. The reason for the fall in margin is that both selling and admin costs have risen as a proportion of revenue.  

To try to mitigate the rising costs the company has focused on higher-margin apparel and invested in changing its marketing mix. Revenue per marketing dollar increased to $6.17 (£4.75) from $6.03 last year. However, last year marketing costs were slashed to $93mn so the comparators aren't overly useful. The benefits of marketing manifest over a couple years so it is not obvious yet how much more efficient the process has become.

Despite the cut in marketing spend, 263,000 new customers were acquired in the year compared with 173,000 in 2020. Broker Peel Hunt believes this bodes well for 2023 and has forecast adjusted EPS to rise 34 per cent to 154.9p.

Demand recovery looks promising but supply chain issues are resembling a never-ending problem – especially given the recent surge in the price of oil. Demand recovery may also slow if the macro headwinds drag on the wider economy. Printed t-shirts and bottles will likely be some of the first discretionary items to be cut. Sell.

Last IC View: Hold, 3,070p, 12 August 2021