Trading Statement

RNS Number : 8552G

Card Factory PLC

11 August 2016

 

11 August 2016

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

Trading update

Card Factory, the UK's leading specialist retailer of greeting cards, dressings and gifts, announces its trading update for the six months ended 31 July 2016.

Key highlights

·      Total sales growth of +4.8% (H1 FY16: +8.0%)

·      Card Factory like-for-like sales growth of +0.2% (H1 FY16: +2.8%)

·      Continued store roll out with 34 net new stores opened (H1 FY16: 36)

·      Confident of delivering another year of approximately 50 net new openings

·      Getting Personal sales flat versus H1 FY16

·      Next return of surplus cash to be announced with interim results in September

·      Confident of delivering full year underlying profit before tax within the range of analysts' current expectations*

Recent trading performance

In the six months ended 31 July 2016, revenue increased by +4.8% (H1 FY16: +8.0%).  As referenced in our 24 May trading statement, first quarter sales growth was softer than levels recently achieved with variability in retail footfall impacting weekly sales patterns.  This trend continued in the second quarter, both in the lead up to and following the EU referendum, the wider impact of which remains uncertain.

Like-for-like sales growth for Card Factory increased by +0.2% (H1 FY16: +2.8%) with ongoing strong growth from the new cardfactory.co.uk website.  As expected, the website's rate of growth slowed in April as we reached the anniversary of its relaunch.  Excluding the website, like-for-like sales performance for our store network was broadly flat at -0.1% (H1 FY16: +2.7%) with consistently strong growth in average spend being offset by lower transaction numbers, as reported for Q1.  

In the first half we opened 34 net new stores (H1 FY16: 36) bringing the total estate to 848 stores as at 31 July 2016.  The contribution of net new store openings to overall Group revenue growth was slightly lower than the first half last year, partly as a result of openings being on average slightly later than in the equivalent period last year.  We remain on track to deliver approximately 50 net new stores in the current financial year with all expected to be open in advance of the important Christmas season.

Year-on-year sales performance at gettingpersonal.co.uk was flat with improvements in average spend being offset by lower visitor numbers.  Whilst gettingpersonal.co.uk faced very strong prior year comparatives in the first half (H1 FY16: +24.9%), the second quarter was particularly disappointing.  We continue to target like-for-like sales growth of at least 10% at gettingpersonal.co.uk and we are currently investing in a number of business improvement initiatives in pursuit of this aim.  

Foreign exchange

As disclosed in previous announcements, we have for some time been expecting foreign exchange gross margin pressure in FY17 and beyond due to the fall in the value of Sterling.  This margin pressure and uncertainty has increased significantly following the result of the EU referendum. 

At the date of this announcement, over 90% of the anticipated FY17 US Dollar cash requirement is covered at an average rate of c$1.50.  This average rate is significantly above the average spot rate for the period but approximately 8% below that achieved in FY16, with the weighted average rate delivered in H1 being greater than that expected in H2.  Additional hedging is in place for approximately one-third of the anticipated FY18 US Dollar cash requirement at an average rate of c$1.49.  The weighted average rates above assume all remaining structured options are exercisable, which would be the case with Sterling above $1.20.

A further update will be given with our interim results in September.

Return of surplus cash

The Group remains highly cash generative, driven by its strong operating margins, limited working capital absorption and relatively low capital expenditure requirements.

As at 31 July 2016, before deduction of capitalised debt costs, net debt totalled £121.7 million (31 July 2015:  £109.0 million), reflecting strong cash generation during the period offset by the June payment of the FY16 final dividend (£20.4 million) and the start of the normal working capital outflow relating to Christmas stock build. 

We will continue to return surplus cash to shareholders in line with our stated policy and will provide an update on the quantum and timing of the next distribution with our interim results for the six months ended 31 July 2016, due for release on 27 September.

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

"As highlighted in our Q1 announcement, the retail environment in the first half has been challenging and, as widely reported, footfall patterns in the first half have generally been soft.  Card Factory is not immune to these wider factors and our sales growth over the period was lower than our normal levels as a result. 

"It is too early to assess the precise impact on overall consumer sentiment and retail footfall from the result of the EU referendum.  However, we enter the second half with confidence in the quality and value of our offer, including our new Christmas range, and we will target improved sales growth in the second half.

"Despite the near term challenges, Card Factory remains the clear market leader in the robust and resilient greetings card market with a strong value proposition, a unique vertically integrated operating model, significant scale advantages, superior margin structure and a strong management team.

"We remain as convinced as ever of the strong growth prospects for the business, and of our ability to deliver strong shareholder returns over the medium term.  We are confident of delivering full year underlying profit before tax within the range of analysts' current expectations."

*     The Group believes that the range of analysts' expectations for underlying profit before tax for the year to 31 January 2017 is currently £80.9m to £86.7m.

ENDS

Enquiries

Card Factory plc                        via MHP (below)

Karen Hubbard, Chief Executive Officer

Darren Bryant, Chief Financial Officer

MHP Communications                [phone]

John Olsen                        

Simon Hockridge

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 other quality products, including small gifts and gift dressings, at affordable prices. Card Factory principally operates through its nationwide chain of approximately 850 Card Factory stores, as well as through its online offerings: www.gettingpersonal.co.uk and www.cardfactory.co.uk.

The Group's clear strategy is focused on four pillars of growth:

-       continuing to grow like-for-like sales in existing stores;

-       continuing to roll out profitable new stores;

-       continuing to focus on delivering business efficiencies; and

-       increasing penetration of the complementary online market.

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.

Since 2005, Card Factory has developed a vertically integrated business model with an in-house design team, an in-house printing facility and central warehousing capacity of over 360,000 sq. ft.  This model differentiates the Group from its competitors by significantly reducing costs and adding value to customers in terms of both price and quality, underpinning the Group's motto: "compare the quality, compare the price".

In the financial year ended 31 January 2016, the Group achieved revenue growth of 8.0% to £381.6 million (FY15: £353.3 million) and underlying EBITDA growth of +7.7% to £95.0 million (FY15: £88.2 million) at a margin of 24.9% (FY15: 25.0%).

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.

 

END

 

 

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