The Card Factory unveils special dividend
SHARES IN budget greetings card retailer Card Factory jumped 13 per cent after the firm announced a special dividend despite a 12 per cent fall in annual profits.
The Wakefield-based firm has been hit by a double whammy from the weak pound and rising wage costs, which resulted in pretax profits falling 12.3 per cent to £72.6m in the year to January 31.
The group took a £14.6m hit, largely from the fall in sterling and higher staff costs due to the national living wage.
The company, which specialises in greeting cards, wrappings and gifts, said that earnings growth in the new financial year will be limited amid ongoing cost pressures, despite efforts to offset this with savings across the business.
Shares in Card Factory took a tumble in January after it warned over the impact of a margin squeeze on its profits.
But in its full year results on Tuesday, the firm reported a solid performance across its 915 UK stores in the face of tough trading conditions, with group likefor-like sales rising 2.9 per cent – an increase on the 0.6 per cent growth the previous year.
The group also cheered shareholders with the news of the additional dividend. It paid out a special dividend last December and said it plans to confirm another at the time of its half-year results, in the range of 5p to 10p a share.
The shares closed up 24p to 197p on Tuesday following the announcement.
Card Factory’s chief executive Karen Hubbard said: “From a profit perspective, we faced strong headwinds of £14.6m in the year, principally due to the combined impact of foreign exchange and national living wage.
“Our cost-saving initiatives during the year provided substantial mitigation and we have laid the foundations for further efficiencies to be delivered in the future.
“However, given the continuing headwinds, and, as previously stated, any EBITDA (underlying earnings), growth in full-year 2018-19 is likely to be limited.”
The firm expects the cost pressures from the weak pound and living wage to ease in 2019-20 as it delivers a raft of “significant” cost-saving initiatives.
It added that sales have continued to hold up well in the current year, saying it was satisfied with the start it has made and particularly pleased with the record seasonal performances from Valentine’s Day, Mother’s Day and Easter.
The group reported an increase in annual revenue as it sold more cards at a higher average selling price.
The company, which sells most of its products for under a pound, reported a 6 per cent increase in full-year revenue to £422.1m.
Card Factory raised its 2017 total dividend by 2.2 per cent to 9.3 pence.
The retailer, which opened 50 new UK sites in 2017, said it saw an increase in footfall at its sites, indicating its resilience against a broader trend of declining high street footfalls.
It plans to open further outlets and continue to grow its online arm, which saw sales jump 67 per cent over the year.
Analyst Adam Tomlinson, at Liberum, said: “Card Factory’s results have come in broadly as expected, but there contains little by the way of a positive catalyst in our view.
“Any underlying EBITDA growth for the current year is likely to be limited EBITDA and the expectations for a special dividend are now between 5p-10p versus 15p last year.
“This should not be a surprise , but could mean that some analysts’ forecasts may appear too bullish.
“We have reduced our target price to reflect the lack of profit growth, the challenging outlook but keep a ‘buy’ recommendation, reflecting the valuation and the high cash generative nature of the group which still offers 9 to 10 per cent dividend yield.”
£14.6M The hit taken by Card Factory from the fall in sterling and higher staff costs due to the national living wage.