Panmure Liberum has downgraded Card Factory (LSE:CARD) to 'hold' after what it calls a shock profit warning that has damaged confidence in the near-term outlook.
The broker has cut its price target to 80p from 150p. The shares tumbled 23% to 74.4p on Friday, underlining the scale of dissatisfaction with the latest update on trading.
The alert came just as the business entered its key Christmas trading period.
Card Factory said weak consumer confidence and soft high street footfall have persisted for longer than expected, hitting UK store sales.
Assuming current trends continue, adjusted pre-tax profit for the year to January is now expected to be £55 million to £60 million. That compares with previous guidance for mid to high single-digit growth from £66 million last year.
Panmure Liberum says the scale of the downgrade has surprised the market. Before the update, consensus forecasts pointed to profit of about £71 million. The new guidance implies a sharp drop in second-half performance.
Panmure estimates second-half profit of about £42 million at the bottom of the range, compared with £57.8 million in the same period last year. It also suggests second-half sales could fall by between 2.5% and 5%.
The broker highlights the contrast with Moonpig, which issued a strong update earlier in the week and continues to report healthy growth in both cards and gifts.
While the two businesses have different models, Panmure says the divergence raises uncomfortable questions about why Card Factory is seeing such acute pressure from footfall trends.
There is also frustration with how the strategy is being communicated. The group continues to talk up its move into celebrations and gifting, but Panmure says there are few clear metrics to show that this is offsetting weakness in the core cards business.
That lack of clarity is now more damaging after such a large reset to expectations.
Financially, the broker sees no immediate threat to dividends. Card Factory remains cash generative and debt is described as manageable.
However, Panmure Liberum cautions that the share buyback referred to in the statement relates to the employee benefit trust rather than a programme to reduce the share count, which could confuse some readers.
After cutting its profit forecasts by 23% for the current year and 34% for the following year, Panmure says there are no near-term catalysts to rebuild confidence.