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Card Factory slides as it reports flat YTD sales and predicts “another difficult year” for 2020

In an update for the 11 months to 31 December, the FTSE 250 gift and card retailer reported that LFL sales had shrunk 0.1% while revenue growth had slowed to 3.4% from 5.9%
Greetings cards
The group blamed its weak performance on the general downturn afflicting the retail sector over Christmas

Card Factory PLC (LON:CARD) shares were lower in early trading Thursday after it reported flat sales for the year-to-date (YTD) and predicted 2020 would be “another difficult year” for the firm. 

In an update for the 11 months to 31 December. the FTSE 250 gift and card retailer reported that like-for-like (LFL) sales had shrunk 0.1% compared to 3% growth a year ago while revenue growth had slowed to 3.4% from 5.9% previously.

READ: Card Factory slides as first half profits shrink in latest episode of high street woes

The group’s Getting Personal segment, which deals with personalised gifts and cards, saw a revenue decline of 7.8% compared to growth of 1% the year before. saw better fortunes with 59.1% revenue growth which the firm said reflected “a strong Christmas trading period”, although this was lower than the 65.8% growth figure the year before.

However, despite the flat sales and slower revenue growth, the group reiterated its underlying earnings (EBITDA) guidance for the full year, which currently stands at between £89mln and £91mln.

The company added that it had opened 51 net new UK stores in the YTD and its business efficiency programme remained on plan.

Regarding the weak performance, the group blamed “continuing weakness in consumer demand experienced across the retail sector in the run-up to Christmas” while Getting Personal was facing “a market environment defined by heavy discounting and increasing cost of customer acquisition”.

Looking forward, Card Factory said that it expected a foreign exchange headwind to “dissipate” in the 2020 fiscal year, adding that it was continuing to mitigate “a large proportion of expected cost challenges” including National Living Wage and electricity wholesale prices that would result in around £5mln-£6mln of additional costs.

The group added that in light of the current consumer and macro-economic backdrop, 2020 would be “another difficult year” with expectations of flat EBITDA and “limited sales growth”.

Karen Hubbard, Card Factory's chief executive, said the Christmas period had been “challenging due to lower high street footfall” but a “robust” performance over Christmas had helped LFL sales to remain “consistent”.

"Although the Group has faced significant cost pressures in the year, these have reduced and we have been able to take mitigating action to maintain robust gross margins. Whilst we expect ongoing challenges from the consumer and macro backdrop, we continue to lead the market with our proposition, underpinned by our ongoing investment in our unique vertically integrated model which provides our business with significant competitive advantages."

The retailer has been under pressure of the last year, along with most of the UK high street, reporting a 13.9% fall in profits for the first half while LFL sales declined 3.3 percentage points to -0.2% from 3.1% growth the year before.

Guidance “disappointing” but dividend and cash generation remain positives, says broker

In a note to clients, analysts at City broker Liberum retained their ‘Hold’ rating on the firm saying the downgraded guidance was “clearly disappointing”.

However, the broker added that the company’s cash generation remained “a key positive, supporting a [free cash flow] yield of 9% [for the calendar year 2019]” and “a strong total dividend yield at 7.7% (CY19), which includes a special each year”.

Card factory shares were down 9.5% at 176.1p.

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