A disappointing Christmas update from Card Factory (CARD) spooked investors, sending the shares down 16 per cent on the morning of its release. Brokerage Peel Hunt said poor card sales over the festive period prompted “serious concerns about the state of the industry” as well as the “earnings potential” for the business.
Bosses said ongoing margin pressure was the result of the “outperformance” of lower-margin non-card products, which has only added to cost pressures inflicted by exchange rates, wages and rate rises. As a result, underlying cash profits for the year are expected to be between £93m and £95m, down on what some analysts had been expecting.
Analysts at Investec cut their pre-tax profit forecasts by 3 per cent to £79.8m following management's guidance. Meanwhile, brokerage Liberum said it was “disappointing to downgrade [forecasts] again”, moving pre-tax profit expectations for the 2018 financial year from £86.1m to £79.3m.
The retailer paid a special dividend of 15p in December for 2018. The question is to what extent this will be repeated from 2019. The consensus among analysts is that it can't, if the group is to maintain its target leverage of between one and two times cash profits. Based on Investec's leverage forecast of 1.7 times, it reckons the group will pay out a special of 10p in 2019. Meanwhile, Peel Hunt forecasts a 5p special payout for 2019 and 2020, based on an estimate of around 1.5 times.
