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Card Factory special dividend under threat

The retailer suffered a disappointing second quarter, and some analysts fear the next special dividend could be its last
August 15, 2018

Any optimism generated at the time of Card Factory’s (CARD) full-year results announcement in April has been duly erased by the release of a less-than-inspiring second-quarter trading statement. While analysts at Peel Hunt described the update as “no disaster in sales terms”, a like-for-like contraction of 0.2 per cent in the top line contradicts management’s confident overtures about Valentine’s Day, Mother’s Day and Father’s Day – trading around which bosses described as record-breaking. Concerns are mounting about everyday trading, where volumes – particularly in store – appear to be under significant pressure. Getting Personal, the group’s personalised gifting service, performed particularly poorly, with sales there down 8.5 per cent.

IC TIP: Sell at 177p

Bosses have admitted to a weak consumer environment which, combined with extreme weather patterns, have forced it to guide to underlying full-year cash profit of between £89m and £91m, compared with consensus expectations of £93.5m for the year ending January 2019 and the £94m reported in FY2018. Management has added a caveat to that, too, saying those projections are dependent on the fourth quarter, which includes the all-important festive trading period.

For now, management seems confident in the group’s ability to generate enough cash to remain committed to paying a special dividend worth between 5p and 10p this year, but down on 15p for the year to January 2018. Confirmation of the exact amount and timing of this return will be given at the first-half results on 25 September 2018, but some analysts are already fearing the worst. Berenberg – which downgraded the group from a 'hold' to a 'sell' rating following the update – said it anticipates the special dividend would land towards the bottom end of the guided range, while Peel Hunt reckons it could be “the last for some time”. The implication is that if trading fails to find any real momentum, and pressure on profitability continues, the group will be forced to hoard any surplus cash.