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Cash generation and competitor store closures are reasons to pocket retailer
Thursday 09 Mar 2017 Author: James Crux

Weakness at retailer Card Factory (CARD) presents a screaming buying opportunity.

Although the outlook for UK retail is uncertain following the Brexit vote, Card Factory is among those shopkeepers best placed to cope with currency-driven cost pressures, while generating cash to grow the business and fund surplus returns to investors.


Wakefield-headquartered Card Factory is the UK’s biggest specialist greeting cards and gifts seller. A nationwide chain of over 850 stores, its store roll-out is on track with a strong future pipeline and the company also trades through the complementary GettingPersonal and Card Factory websites.

Card Factory’s vertically integrated model, spanning in-house design and printing, then retailing is a key point of differentiation. It reduces external costs which Card Factory can pass on to customers and enable it to maintain high margins and generate copious amounts of cash. The model will also enable Card Factory to keep prices low and the tills ringing, should the UK economy experience a downturn.

Festive winner

Investors greeted Card Factory’s latest trading update (26 Jan) warmly. The retailer reported a good Christmas period with like-for-like store sales returning to growth in the fourth quarter.

According to CEO Karen Hubbard pre-tax profit for the year to 31 January 2017 will be ‘slightly ahead’ of the £81.9m analyst consensus. Results will be published on 28 March.

Peel Hunt now forecasts adjusted pre-tax profits of £83m (2016: £82m), rising to £84.5m in the current financial year and £90.4m in the next year.

Holding all the cards

Bears will argue digital greeting cards are a long-term structural threat, yet the greetings card industry is in fact stable and Card Factory has an enviable position within it.

As Peel Hunt points out: ‘We can’t argue that it is flourishing but we see low, not no growth ahead and Card Factory’s position as market leader and only vertical-integrated player is absolutely key.

‘We expect Card Factory’s competition to continue to downsize (especially Clintons, where a property review is currently taking place) and that will add to Card Factory’s rediscovered like-for-like momentum.’

A buyer with a 400p price target for Card Factory, Peel Hunt adds: ‘This is never going to be a company that delivers big upgrades but the cash flow is exceptionally stable and that just gets more entrenched as the competition falls away.’ (JC)


Card Factory (CARD) 273.10p

Stop loss: 218.48p

Market value: £931.9m

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