Card Factory pledges more dividend gifts in future

Card Factory promised to keep gifting investors more dividends as the Yorkshire-based retailer posted full year results that showed growth in sales but smaller profits that are unlikely to improve much in the coming year.

The FTSE 250 greeting cards specialist lifted revenues 6% to £422.1m over the year to 31 January, with like-for-like sales up 2.9%. Underlying profit before tax fell 5.5% to £80.5m and was down 12.3% to £72.6m if including further forex effects, as the company had guided in its January profit warning.

A final dividend per share upped 1.6% to 6.4p meant the year's total ordinary payout was lifted 2.2% to 9.3p, plus the special dividend of 15p per share paid in December.

On the back of strong cash generation last year and a good start to the 2019 financial year, with a record seasonal performances from Valentine's Day, Mother's Day and Easter, chief executive Karen Hubbard said she currently expects to declare another special dividend alongside half-year results, "in the range of 5-10p per ordinary share".

Looking back at the past financial year, she felt it was a "strong" like-for-like sales performance "in a tough trading environment", with Card Factory selling more cards than the prior year at a higher average card selling price and total basket size.

"We also saw a record breaking number of customers shopping with Card Factory for both card and complementary non-card products, demonstrating our resilience against a backdrop of High Street footfall decline."

There were 50 new UK sites opened as part of her store roll-out programme, while the Card Factory online business saw further growth, with cardfactory.co.uk sales up 67% against a strong prior year and gettingpersonal.co.uk sales growth "disappointing" but still a profitable contributor to the group in a highly competitive gifting market. Online is seen as representing a clear opportunity for future growth.

Addressing the falling profits, Hubbard pointed to 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 growth in FY19 is likely to be limited."

But she said Card Factory's vertically integrated business model, whereby the products of an in-house design team are printed at its factory in Yorkshire and processed via a central warehousing facility, "remains strong" and will enable a continuation of the progressive dividend policy.

Shares in Card Factory were sent 5% higher on Tuesday morning, topping the FTSE 350.

Mike van Dulken, head of research at Accendo Markets, was impressed by the growth in the online channel but said the different story in terms of profitability wasn’t deterring income seekers nor bargain hunters.

"The former are attracted by 2018’s handsome 12%+ yield while the latter like the look of the bounce from 2018 lows."

Van Dulken said what was really exciting investors was management’s confidence in future cash generation and resilience to provide more special dividends. "This is less than the 15p of the last three years, but it is at least the promise of another special and, depending on what is paid, keeps the forward yield above 7% and possibly as high as 9.8% (consensus 7.7%)."

"Brand strength, greetings card market resilience and a product offering favouring physical presence looks to remain a tried and tested recipe at a time when so many retail peers continue to struggle. But is it enough to engineer a break that holds above 200p and eventually encourages a closing of the ugly gap-down in response to January’s profits warning?"