Card Factory still a winner

The first half of 2017-18 has been particularly impressive, with like-for-like sales growth at 3.1 per cent - the best growth rate since the shares were listed in 2014 and well ahead of the 0.2 per cent growth rate produced in last year's first half. Adjust for the same number of trading days, and group sales grew by 6.7 per cent. That was a substantial improvement on last year's underlying growth rate of 4.3 per cent and even better than the 6.1 per cent recorded in the first quarter.

These gains were achieved without the majority of price increases that management had considered towards the end of last year. They also came from both the card and non-card categories equally, with average transaction values rising in addition to strong overall volumes. This suggests that Card Factory's product range has been received well by customers.

According to City analysts, the group still has room for future price rises too, particularly as it establishes itself as the market leader. This would make like-for-like growth rates such as those noted above a more regular and predictable occurrence. True, there is the risk of downward pressure on profit margins this year because of both sterling's continuing weakness and higher wage costs, yet this might make price hikes all the more necessary. But that concern is unlikely to stop analysts upgrading their forecasts at the time of interim results later this month, particularly as Card Factory, like all retailers, has fairly high fixed costs so, as sales rise, more income flows through to profits. Analysts now expect their conservative forecasts for 2.5 per cent like-for-like growth in the second half to be outperformed.

Besides, there are other factors that could move the share price. The introduction of contactless payment methods in store should encourage a rise in transaction volumes as customers pay for smaller basket values more quickly. Then there are store openings - 30 stores, net of closures, opened during the first half and the full-year target is for an extra 50. This included a store in the Republic of Ireland and the pilot scheme over there is set to expand.

Finally, those still sceptical of the growth prospects on offer can take encouragement from the company’s track record for dividends – both ordinary and special. True, net debt as at 31 July 2017 was £146m against £122m a year earlier, but management continues to highlight strong cash generation and intends to keep returning surplus cash to shareholders. The company will update on the quantity and timing of the next special dividend at the interim announcement, but analysts expect the fat payouts to continue (see table).