Trading Statement

RNS Number : 2665Y

Card Factory PLC

13 January 2022

 

Card Factory plc

("Card Factory" or the "Company")

Trading ahead of Board expectations for FY22

Card Factory plc, the UK's leading specialist retailer of greeting cards and complementary products, announces a trading update for the eleven months ended 31 December 2021.

Performance overview

-  Trading for the FY22 period was ahead of the Board's expectations with performance recovering from April 2021, as Covid-related restrictions eased

-  Restrictions resulted in the full closure of the store estate for approximately 20% of the available trading days in the period (compared to approximately 40% in FY21). Stores were closed from the start of the period on 1 February 2021 with a partial re-opening from 12 April 2021, and the entire estate trading from 17 May 2021

-  From April, like for like^{1, 2} ("LFL") store sales and transaction volumes showed an overall upward trend towards pre-Covid-2019 levels during the year as consumer confidence returned with the Group's stores outperforming high street averages

-  Trading recovered particularly strongly through December, with LFL store sales in the run up to Christmas returning to similar levels to those delivered in December 2019

-  Total sales of £337.3m were ahead of the Board's expectations, yet below the £424.5m for the pre-Covid eleven months to 31 December 2019, primarily due to the trading restrictions outlined above

o  Store sales of £310.0m, represented a LFL decline of 5.4% on a two year basis, and a decline of only 0.8% compared to the prior year ¹

o  Online sales increased 23.3% on a two year basis to £22.2m, of which cardfactory.co.uk revenue increased 130.3% and gettingpersonal.co.uk revenue declined 11.4% following the decision to focus on  higher margin sales

o  Cardfactory.co.uk revenues increased by 1.1% on the comparable period in FY21, offset by a 20.7% decline in gettingpersonal.co.uk revenues. The 12.1% decline in online sales overall compared to the prior year was as anticipated, given both the focus on higher margin sales in Getting Personal, and the sales impact of  non-essential retail stores being permitted to trade for a larger proportion of the period in 2021

o  Sales from retail partnerships increased by 24.0% to £4.0m on a two-year basis and 22.0% compared to the comparator period in the prior year

-  Store transaction volumes over the period exceeded high street footfall averages following the end of the national lock-down, demonstrating the strength of the brand and continued customer loyalty (Source: Springboard national footfall data)

-  Strong cash generation during the period, resulted in a significant reduction to net debt to £60m (excluding lease liabilities of £130.1m) at 31 December 2021, compared to £87.0m (excluding lease liabilities of £148.0m)   at 31 December 2020

¹ The LFL calculation is based on Stores that were trading in both the current year and the comparative period.

 ² Unless stated otherwise, LFL comparator data used in this announcement is data for the 11 months to 31 December 2019

Trading Update

Performance for the period was ahead of the Board's expectations, driven by a good recovery through the easing of Government restrictions and strong trading in December, as LFL sales returned close to December 2019 levels.

As expected, and in line with the wider market, sales for the eleven months to 31 December 2021 were significantly impacted by store closures at the start of the year and the ongoing impact of reduced consumer confidence following the easing of formal restrictions. Springboard data shows full year retail footfall nationally down c. 19% and December footfall down c. 18%, compared to 2019. It has been encouraging to see that Card Factory transaction numbers outperformed the market footfall data in December, demonstrating the enduring strength of the brand, with a recovery in trading since stores re-opened. For the period overall, LFL sales and transaction volumes trended up towards 2019 levels as the period progressed. In December 2021, two-year store LFL sales and transaction volumes were -1.4% and -16.4% respectively, compared to -3.0% and -21.0% for the three months to 31 October 2021.

Online sales performed satisfactorily compared to the eleven months to 31 December 2019. Revenue increased by 23.3% with net transactions up by 48.1% offset by a decrease in Average Basket Value ("ABV") of 17.1%. As a result of stores being open for a larger proportion of FY22 compared to FY21 and the consequences of the Getting Personal focus on driving increased profitability, revenue against prior year declined by 12.1%.

Trading during the Christmas period reflected the more stable customer and market conditions compared to last year and, overall, we were pleased with performance as LFL store sales returned to near December 2019 levels.  Christmas card sales performed particularly well, and whilst certain complementary categories were affected by global supply chain issues in late November and early December 2021, the Group managed the disruption well, with only a modest impact to sales overall.  Cardfactory.co.uk sales over the Christmas trading period overall were consistent with the prior year and significantly higher than two years ago.  Getting Personal performed broadly in line with plan over the November and December trading period.

The Group delivered strong levels of cash generation through the period, retaining tight control of costs and management of working capital. As a result, the Group delivered a significant reduction in net debt, with net debt at 31 December 2021 of £60m (excluding lease liabilities of £130.1m), compared to £87.0m at 31 December 2020 (excluding lease liabilities of £148.0m) and £119.0m at 31 December 2019 (excluding lease liabilities of £143.0m).  During the trading period deferred rents of £14.0m and VAT of £19.0m carried over from FY21 were paid. As of 31 December 2021, £7.0m of deferred rent was outstanding.

Outlook

Assuming that there are no additional restrictions implemented before the end of the financial year, the Board expects the outcome for the full year to be ahead of its previous expectations. Revenue for the full year is expected to be in excess of £360.0m, EBITDA for the full year is expected to be in the range of £71.0m - £74.0m] and profit before tax ("PBT") for the full year is expected to be in the range of £7.0m - £10.0m.

The Board remains confident in the growth potential for the Group and the achievability of the long-term guidance set out in September 2021 at the interim results, with revenues in excess of £600m for FY26.

The Board remains confident in delivering year on year revenue growth in FY23, towards the level delivered in FY20; however, EBITDA margins are expected to reflect significant inflationary headwinds. Whilst actions have been, and will be, taken to mitigate these headwinds, including price increases and a renewed focus on driving business efficiencies, the pressures will not be fully offset, resulting in lower profits than previously anticipated by the Board. The Board expects that the combined impact of unmitigated headwinds; predominantly the increasing cost of freight but also the impact of inflation on staff costs and utilities; plus investment in headcount, IT and development of the online platform to support the delivery of the strategic plan, will add approximately £30m to the pre-Covid FY20 cost base net of mitigation. Looking further out, the Board expects a number of these cost headwinds to subside, and the Company to be able to further mitigate certain cost pressures.  In addition, the Company should realise the benefits of the growth investments.  Further details will be provided at the time of results.

Darcy Willson-Rymer, CEO, commented

" We continue to see improved trading performance across all channels, with transaction volumes in our stores outperforming high street footfall recovery, demonstrating the loyalty of our customers and strength of the brand. The customer response to our Christmas ranges was particularly strong, across both card and complementary product ranges.

" Our vertically integrated model has put the Group in a strong position to partially mitigate the supply chain challenges and inflationary pressures that have been seen across the wider market to date. Whilst we expect to be able to offset inflationary pressures to an extent through price increases across our ranges, we do anticipate some margin pressure during the next financial year, as the forecasted inflationary headwinds continue.

"I remain hugely excited by the opportunities available to Card Factory as we focus on the implementation of our strategy and the transformation of the business to a full omni-channel retailer ".

Note: Numbers are unaudited. EBITDA numbers are post-IFRS. On a pre-IFRS basis, EBITDA for the full year to 31 January 2022 is expected to be in the range of £30.m - £33.0m

 

END

 

 

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