Card Factory, the British specialist retailer of greeting cards, gifts and dressings, has announce its trading update covering the period from 1 February 2014 to date.
The Group remains highly cash generative and it expects to report a significant reduction in net debt at the year end to a level lower than the current range of market expectations
In the 11 months ended 31 December 2014, revenue increased by 8.1%, driven by a combination of like-for-like sales growth, new store roll out and further growth in the retailer’s online business, Getting Personal.
The like-for-like performance since the half year reflects, in part, investment in localised pricing strategies adopted during the year, particularly in the final quarter. The retailer will continue to adopt this approach to strongly defend its market leading position, whilst maintaining focus on delivering best-in-class margins.
In total, 51 net new stores have been opened in the year to date, bringing the total estate to 764 stores as at 31 December 2014, with plans to continue its “historic opening rate of approximately 50 net new stores per annum.”
Card Factory has consistently delivered extremely strong margins by leveraging its vertically integrated model, and continues to balance the driving of economies of scale and business efficiencies with ongoing investment in the business in anticipation of future growth.
A key focus for this investment has been the continued roll out of a new EPOS system which is now installed in over 50% of the store estate and Card Factory anticipates a number of business efficiencies will flow from this system over the medium term.
The greeting card chain responded to the threat of online-only operators such as Funky Pigeon and Moonpig with its Getting Personal Brand, which experienced continued double digit revenue growth since the half year stage.
Joseph Robinson, Research Director at Conlumino, comments:
This is a strong update from Card Factory, which continues to outperform the wider cards and wrap market. The retailer boasts 16 years of unbroken revenue growth and an increasingly high profile presence on UK high streets, as more consumers are attracted to its wide choice and high quality ranges at prices that undercut its direct rivals such as WH Smith and Clintons. Its attractiveness to consumers and subsequent rise to prominence can be directly compared to the growth of the discounters in food and grocery. Shoppers across the demographic and social spectrum are showing greater willingness to shop at previously un-fancied value operators that bring high quality products to market at highly competitive pricing.
Above all, Card Factory’s key competitive strengths are facilitated by its vertically integrated business model, which allows it to keep costs down and offer products that undercut its competitors on the high street. Allied to this has been a focus on bringing to the market both high quality and wide ranges. Improving product quality is a central part of Card Factory’s growth strategy to improve LFLs in existing stores. A strong design team with the creative talent to devise successful new ranges and the nous to refresh old ones is key to this process and is certainly one aspect where Card Factory can outshine the competition.
At the same time, its operational model inevitably also helps it to deliver strong margins. To this end, investments in its supply chain, together with the ongoing rollout of its electronic point of sale system should stand Card Factory in good stead going forward.
Looking ahead, the grocers will continue to represent a threat, as will the growth of value general merchandisers such as Poundland and 99p Stores. As well as Card Factory’s continued focus on operational efficiencies and product quality, it is increasingly employing localised pricing strategies to directly counter these threats.