Greetings cards-to-gifts retailer Card Factory’s (CARD) income credentials have weakened following a warning (11 Jan) full year earnings will disappoint due to ‘continued margin pressure’.

We mentioned Card Factory, which pays a big chunk of its shareholder rewards as special dividends, in an article spelling out the dangers of such an approach in last week’s issue.

Given subdued footfall, earnings growth for next year ‘is likely to be limited’ amid foreign exchange and wage-related cost pressures.

While like-for-like sales grew 2.7% in the 11 months to 31 December, this was driven primarily by lower margin non-card categories such as gifts and dressings, with card sales being stable.

Given margin pressure, Liberum Capital has cut earnings forecasts again and dramatically reduced its dividend estimates for the historically generous dividend payer.

‘Aside from what was a secure dividend we did not view Card Factory as a growth stock but an income play and until we gain more confidence that margins have troughed then the dividend outlook is less clear,’ writes Liberum, trimming its year to January 2018 dividend per share (DPS) estimate by 3% to 23.9p, with its 2019 and 2020 forecasts slashed by 31% to 17.7p.

‘We cut our DPS by 30% in full year 2019 and beyond as we move to a covered free cash flow (FCF) position and a declining debt profile which we feel is much more appropriate when both top-line and cost pressures persist’, explains the broker, paring its price target from 260p to 240p. A ‘hold’ rating is retained in light of a sharp share price fall to 220p that leaves Card Factory trading on a 10.9% prospective dividend yield. (JC)

‹ Previous2018-01-18Next ›