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LONDON (Alliance News) - Card Factory PLC on Tuesday reported strikingly higher profit in its recently-ended financial year, boosted by revenue growth in both card and non-card offerings, but said operating margins face pressure going forward from the recently-introduced National Living Wage and unfavourable foreign exchange rates.
Shares in Card Factory were trading up 3.8% at 342.00 pence, the third best performer on the FTSE 250 on Tuesday afternoon.
The card and gifts retailer said pretax profit in the year ended January 31 almost doubled to GBP83.7 million from GBP42.7 million the year before, as revenue rose by 8% to GBP381.6 million from GBP353.3 million.
Like-for-like sales grew by 2.8%, an improvement on the 1.8% growth achieved the year before, which Card Factory said was driven by improvements in the quality and range of its products, new merchandising initiatives, and further market-share gains as stores mature.
The performance from the non-card category, which typically has a lower gross margin than the card category, was particularly strong, Card Factory said, as a number of new ranges were introduced into store. This helped to generate incremental sales and increase the non-card sales mix to 41% in financial 2016 from 35% in financial 2012, a trend which the retailer expects to continue.
In the card category, single cards and Christmas boxed cards performed well.
Also helping to drive sales growth was the contribution from Card Factory's new store roll-out programme. During the year, 50 new stores were opened and 10 stores were closed, taking the total estate to 814 stores. Card Factory plans to open a further 50 new stores in the current financial year.
Liberum said it views the store roll-out programme as "key" and expects it to contribute to around two-thirds of group revenue growth going forward.
Online sales, meanwhile, grew by nearly a quarter to GBP19.2 million from GBP15.7 million. Getting Personal, which currently represents the majority of the group's online operations grew sales by 18%, although this was lower than the 23% growth it reported in the prior year. Card Factory said it continues to target double-digit revenue growth at Getting Personal although this will be at a lower level than that achieved in the past two years due to tough comparatives.
The new Card Factory transactional website also continues to progress well, Card Factory added, having been relaunched during the year. Revenue from this website grew to GBP1.0 million from GBP0.2 million and Card Factory said it is optimistic the channel has significant growth potential over the medium term.
"We remain confident in the group's future prospects, and in its ability to continue to grow sales profitably over the medium term. Our clear value proposition, underpinned by our unique vertically integrated model, remains highly differentiated and I believe that our retail offering and market position will be further strengthened in the years ahead," Chief Executive Richard Hayes said in a statement.
Pretax profit in financial 2015 was also hit by costs relating to Card Factory's initial public offering in London, but even excluding exceptional costs, underlying pretax profit in financial 2016 was still 25% higher at GBP82.0 million from GBP66.5 million, beating Liberum's GBP79.6 million estimate.
Card Factory will pay a total dividend of 8.5 pence per share, up from 6.8p a year earlier, including a final dividend of 6.0p, up from 4.5p.
Liberum said it was encouraged by the "ongoing robust organic growth" across the business, adding that it sees scope for frequent additional cash returns to shareholders.
Card Factory did note, however, that the retail sector is facing significant cost pressures resulting from foreign exchange rates and the new National Living Wage, which will slightly reduce its operating margin in financial 2017.
It estimates that in each year over the next five years, the National Living Wage will increase store wages by approximately GBP2.5 million over and above the cost increase it was anticipating from the minimum wage. Card Factory said it has identified initiatives to mitigate around GBP1 million of the increase in financial 2017 and is targeting a similar level of mitigation in future years.
In addition, "as sterling currently remains significantly below levels achieved historically", Card Factory expects foreign exchange margin pressure to remain an area of concern for financial 2017 and possibly beyond, with particular uncertainty arising from the debate around and potential outcome of the European Union referendum.
"This has been another excellent year for Card Factory. We have continued to expand our store portfolio and grow our market share, and our complementary online sales channels are progressing very well. We have maintained our industry-leading margins and believe that we are better placed than most to manage the increased cost pressures that our sector is facing," Hayes said.
Hayes is stepping down from his role at the company at the end of June. He will be replaced by Karen Hubbard who has been chief executive designate since February 22.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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