Card Factory shares nosedive following margin warning
SHARES IN Wakefield retailer Card Factory plummeted yesterday after the company said profits will come in lower as it faces a margin squeeze.
It warned that annual earnings will be in the range of £93m and £95m – down from last year’s £98.5m, because of “continued margin pressure”.
Shares fell over 20 per cent in morning trading to 222p.
Chief executive Karen Hubbard
who took the reins two years ago, said: “As we have reported previously, the group has faced significant cost pressures in the year; these, together with the further change in margin mix given the ongoing out-performance of lower-margin non-card categories, are reflected in our expected out-turn.”
The company also warned that the weak pound and wage inflation would see it book an extra £7m to £8m in costs next year.
Ms Hubbard said: “Whilst we have plans to mitigate this impact as far as possible, we recognise that against this backdrop, any earnings growth for the year is likely to be limited.”
She signalled cost headwinds should ease, unless there is a “further dramatic shift in sterling”.
The pound’s plunge since the Brexit vote has hammered retailers, which have seen costs rocket.
The announcement accompanied a trading update for the 11 months to December 31, when total sales grew 5.9 per cent and likefor-like sales by 2.7 per cent.
Ms Hubbard added: “It is pleasing to report Card Factory has traded well through the Christmas trading period with customers again responding positively to our card and non-card ranges. As a result, like-for-like store sales have improved in the year to date.”
But broker Peel Hunt didn’t share her upbeat assessment, downgrading its recommendation from ‘buy’ to ‘hold’ and admitting “we got this one wrong”.
It said Card Factory’s Christmas trading statement gave “serious concerns about the state of the industry and the earnings potential of the business”.
It added: “The weakness in card sales at Christmas is disappointing, but worse still is the company’s view that this will persist.” ONLINE ELECTRICAL retailer AO World posted double digit sales growth in the UK during its third quarter, boosted by two weeks of Black Friday deals.
In a trading update yesterday, the group said revenue in its UK business grew by 11.4 per cent and ao.com revenue increased by 11.2 per cent year-on-year in the three months to December 31.
Overall group revenue, including its European business, was up 16.6 per cent for the quarter, yearon-year.
Chief executive Steve Caunce said: “We have performed well over our peak period delivering further sales growth across all our territories and are on track with our long-term strategy.
“We are particularly pleased with the double-digit sales growth in our UK business, which has been achieved against a fiercely competitive environment and normalised marketing expenditure. Our customers in the UK benefitted from our Black Friday deals this year over a twoweek period enabling us to manage demand more effectively and deliver an even better experience for customers.
“We are encouraged by the sales growth in our newer categories and we have continued to deliver excellent customer service throughout the period across the business.”
He added: “Although we need to be mindful of the uncertain economic outlook, as long as we are relentless in our focus on making things easy for our customers, we can be confident that they will continue to choose the AO way.”