RE: Times Buy Recommendation23 May 2021 15:05
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sunday may 23 2021
INSIDE THE CITY
The party’s not over for Card Factory
Sabah Meddings
Sunday May 23 2021, 12.01am, The Sunday Times
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The trouble with a birthday party or a virtual leaving do cancelled due to lockdown is that you are unlikely to receive a belated card three months later when life returns to normal. The pent-up demand for greetings cards is somewhat muted.
That was the problem for Card Factory last week, when it said that sales were a touch below those in April and May 2019, even as shoppers have begun returning to stores.
While online rival Moonpig benefited from shop closures, Card Factory makes most of its sales in stores — meaning it largely lost out on sales on Valentine’s and Mothers’ Day. It typically sells cards from 99p, or about £2.29 online including delivery.
The road to recovery for Card Factory could be slow. In 24 years it has grown from a single shop in Wakefield, West Yorkshire, to a chain with more than 1,000 sites in the UK and Ireland. Today it is run by the former Costcutter boss Darcy Willson-Rymer.
Card Factory has been consistently profitable since it listed in London in 2014. Last year it started offering personalised cards on its website — helping it compete with its newer rivals Moonpig and Funky Pigeon. It is also the largest operator in its category, with more than 30 per cent of the market by volume and 20 per cent by value. Rivals include Clintons, Paperchase and WH Smith.
Its model is based on being able to mass produce cards at a fraction of the cost of most retailers, allowing it to support strong margins. In the year before the pandemic, it reported underlying pre-tax profits of £65.8 million on sales of £451.5 million.
Last week it announced a £225 million refinancing — including £50 million from the coronavirus large business interruption loan scheme — and a “best efforts” plan to raise £70 million in equity to repay debts early. It can’t resume dividends until it has repaid the CLBILS loan.
The announcement solved a key problem: in January, the company announced it was about to breach the terms of its loan covenants due to the closures — although its lenders agreed to waive them.
At the same time it said like-for-like sales for the first five weeks were “marginally” down compared with the same period in 2019. It will report annual results on June 8, delayed due to Covid-related “logistical challenges”.
Friday’s announcement sent shares in Card Factory down 15.1 per cent to 73p, valuing it at £249.4 million. However, Card Factory is well-run with a profitable business model, at least pre-Covid anyway. It has also expanded its sales into Aldi and Matalan stores. It may be a long road ahead, but there is optimism. BUY
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