Card Factory needs to breathe some fire into its sales growth and Burberry’s strategic shift is paying off

“A small rise in the value of the US dollar against the pound isn’t enough to lift the FTSE 100, which traded 0.2% lower at 7,336. Index weakness can be blamed on falling shares in Royal Dutch Shell, Lloyds and Vodafone.

“Hong Kong’s Hang Seng index had a bad day with a 0.9% decline to 26,323, extending sharp declines seen earlier at the start of the week amid ongoing violent protests in the region,” says Russ Mould, Investment Director at AJ Bell.

Card Factory

“The launch of John Lewis’ festive TV advert is seen as the start of the Christmas season for many people, getting them in the mood to start shopping for gifts and cards.

“Retailers such as Card Factory will no doubt be hoping that the sight of Edgar the dragon on the nation’s screens will put a festive spark among the public and encourage them to open their wallets.

“The tradition of sending Christmas cards by post seems to be in decline so Card Factory will have to push ancillary items more, such as wrapping paper, sticky tape and gift boxes, in order to keep driving up sales.

“It needs all the help it can get, given that like-for-like sales for the nine months to 31 October were only up by a mere 0.9%. Higher staff and storage costs are putting pressure on margins, meaning that Card Factory has to find ways to mitigate these rising costs elsewhere.

“Its third quarter trading shows a slowdown from the run-rate at the half year stage, with sales hit by weaker footfall to its high street shops.

“Fundamentally its prices are low and therefore attractive to a wide market but it has to work even harder each year to encourage people to buy its products, particularly as the market is already highly competitive.

“News that rival Clinton Cards is considering shop closures as part of a survival plan may provide a small benefit to Card Factory yet this is also an indication of how tough life is for many retailers.

“In January this year, Card Factor’s chief executive Karen Hubbard said lower high street footfall had made Christmas 2018 trading very hard. However, she also said the company ‘performed robustly’. A repeat of this situation in 2019 is probably the best that Card Factory can wish for.”

Burberry

“Chief designer Riccardo Tisci has built on his solid start at luxury brand Burberry. Thanks to the enthusiastic response to new collections the company was able to shrug off the big first half sales decline in one of its major markets in Hong Kong. Unsurprisingly political tensions are having a significant impact here.

“It looks like CEO Marco Gobbetti’s strategy of taking Burberry more upmarket since his arrival two years ago is beginning to pay off.

“This involved short-term pain as the company looked to transform its own stores and stop selling its handbags and trench coats in certain shops. The prize being to reach the level of brands like Gucci and Dior so it could charge higher prices and generate higher margins.

“Historically the company’s experiments in a more mass-market approach damaged the brand so heading in the other direction seems like an idea with some merit.

“Tisci’s predecessor Christopher Bailey, who successfully transformed the company into one of the world’s biggest luxury brands and even served a stint as chief executive, was a hard act to follow. The early signs suggest Burberry got this crucial decision right.

“The creative side might be the more interesting part but Burberry still needs to get the boring bits in order too. That means making sure its distribution is up to scratch and getting the right products stocked in the right locations to reach its customer base.”

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