Card Factory Regulatory News (CARD)

9 January 2020

Card Factory plc ("Card Factory" or the "Group")

 Trading Update

Card Factory, the UK's leading specialist retailer of greeting cards, dressings and gifts, provides the following update in respect of the eleven months ended 31 December 2019.

Business highlights

·; Group revenue year-to-date ("YTD") of +3.6% (2019: +3.4%) with like-for-like ("LFL") sales -0.6% (2019: -0.1%).

·; cardfactory.co.uk delivered +14.8% YTD revenue growth (2019: +59.1%) as a result of enlarged gift and party ranges and increased customer awareness.

·; New stores are performing well, with 47 net new openings YTD in the UK and Republic of Ireland bringing the total estate to 1,019, including 13 in Republic of Ireland. On track for approximately 50 net new stores with a solid pipeline of new opportunities.

·; Completed roll out of Everyday card range in 440 Aldi stores, performing in line with joint expectations.

·; Business efficiencies delivered and investment in operational initiatives year to date, helped to partially offset significant increased costs in FY20.

* Comparator data set out in this announcement is for the eleven months ended 31 December 2018

Trading performance

The Christmas trading period was challenging. The general election and weak consumer sentiment ensured that the long-running trend of declining high street footfall was maintained.

Management was able to offset the footfall decline, in part, by once again increasing average transaction value. This was achieved by making more sophisticated use of data to improve ranging decisions, as well as continuing to improve the quality of products offered.

Like for like sales for the eleven months to December declined by -0.6% year on year (FY19: -0.1%). Within this, cardfactory.co.uk continued to perform strongly with +14.8% growth (FY19: +59.1%) as a result of enlarged gift and party ranges and increased customer awareness. On-line growth is expected to continue with the new platform launch planned for FY21 which will enable click and collect and in-store ordering.

Including the benefit of new stores, overall Group revenue for the eleven months grew by +3.6% (FY19: +3.4%). During the period 47 new stores were opened, bringing the total estate to 1,019 stores. A solid pipeline of further opportunities is in place.

New retail partnerships

In November, Card Factory completed the roll out of its agreement with Aldi to supply a range of everyday cards to 440 of its UK stores. We continue to see no cannibalisation of sales in existing stores.

The previously announced trial with Matalan continues, now covering 15 stores.

Further afield, the Group will this month begin the roll out of its card offering to The Reject Shop's 360 stores in Australia.

Current Year Outlook

Reflecting the softer than anticipated Christmas trading period, the board now expects that FY20 Adjusted Underlying EBITDA (excluding adjustments in relation to IFRS 16) will be in the range £81.0m - £83.0m.

FY21 Outlook

The adverse external factors which have affected performance for a number of years are expected to continue in FY21: declining high street footfall, depressed sterling valuation and high cost inflation (especially wages).

To date there has been significant success in mitigating in large part the EBITDA impact of these external factors through a combination of offer improvements and business efficiencies. These efforts will continue, but the opportunity for efficiencies within the current business model is finite. Accordingly, the board anticipates that, on a business as usual basis, the net impact of market headwinds on FY21 Adjusted Underlying EBITDA is likely to be in the range of £5-10m.

Review of Strategy

Recognising the long-term nature of the external factors affecting business performance, management has been undertaking a comprehensive review of strategy. The review is not yet complete, but the board is confident that it will yield a number of attractive medium term growth opportunities across both new and existing channels, albeit there may be a requirement for additional strategic investment in FY21 to support this future growth.

Management will present the refreshed strategy alongside the Group's preliminary results on 21st April.

Dividends

The board remains committed to its previously stated dividend policy, returning surplus cash to shareholders via ordinary and special dividends whilst maintaining year-end leverage in the range 1.0-2.0x (current target 1.7x). 

The board does not anticipate that a special dividend will be paid in FY21.

The level of ordinary dividend in FY21 will be reviewed in the context of the cash flow profile associated with the refreshed business strategy. Further guidance will be provided in April.

Karen Hubbard, Card Factory's Chief Executive Officer, said:

"The Christmas trading period continued to be challenging given the general election and weak consumer confidence, the impact of which can be seen in the footfall decline experienced in the period. Our investment in our customer experience, operational efficiency and data to improve our ranges has helped us to mitigate some of the effects of the tougher retail environment and higher costs experienced in the year. We plan to invest further in the business, enhancing our ability to operate more efficiently, service new sales channels and increase our competitive advantage, enabling a return to profit growth after the next financial year."

ENDS

Enquiries

Card Factory plc via Tulchan Communications (below)

Karen Hubbard, Chief Executive Officer

Kris Lee, Chief Financial Officer

Tulchan Communications +44 (0) 207 353 4200

James Macey White / Elizabeth Snow / Amber Ahluwalia cardfactory@tulchangroup.com

Preliminary results announcement and strategy update

Preliminary results for the year ending 31st January 2020 will be announced on Tuesday 21st April 2020, together with an update on the Group's medium term strategy. There will be a presentation for analysts at 9.30am at the offices of UBS, 5 Broadgate, London EC2M 2QS. Those analysts who wish to attend are requested to contact Yasemin Balman of Tulchan Communications on the above number or at cardfactory@tulchangroup.com. A copy of the presentation will be made available on the day on the Card Factory investor relations website (www.cardfactoryinvestors.com).

Notes to Editors

Card Factory is the UK's leading specialist retailer of greeting cards, dressings and gifts. It focuses on the value and mid-market segments of the UK's large and resilient greeting cards market, and also offers a wide range of complementary products associated with card giving occasions. Card Factory principally operates through its nationwide chain of over 1,000 Card Factory stores within the UK and the Republic of Ireland, as well as through its online offerings: www.cardfactory.co.uk and www.gettingpersonal.co.uk.

Card Factory commenced operations in 1997 with just one store and has expanded its store estate primarily through organic growth into a market-leading value retailer with a nationwide presence. The Group's stores are in a wide range of locations including on high streets in small towns through to major cities, shopping centre developments, out-of-town retail parks and factory outlet centres.

Its vertically integrated business model differentiates the Group from its competitors, with an in-house design team, an in-house printing facility and central warehousing capacity of over 360,000 sq. ft, significantly reducing costs and adding value to customers in terms of both price and quality, underpinning the Group's motto: "Trusted for quality and value to help celebrate everyone's life moments".

In the financial year ended 31st January 2019, the Group achieved overall revenue of £436.0m (FY18: £422.1m) and adjusted underlying EBITDA of £89.4m (FY18: £94.0m) at a margin of 20.5% (FY18: 22.3%).

Cautionary Statement

This announcement is based on information from unaudited management accounts and contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Card Factory plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Card Factory plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.