Card Factory promises it won't raise prices

The Wakefield-based company promised to find ways to cut costs rather than raise prices at a time when many producers are squeezing customers by reducing product sizes or raising the price as they try to deal with the weak pound.

Card Factory's CEO Karen Hubbard said: "Rather than putting prices up, we want to drive down the costs of getting products to our stores.

"We are worried about our cash strapped customers. Our job is to make sure we offer good quality at value prices."

Shares in the group fell 18 per cent to close at 290p following a 14 per cent drop in first half profit to £23.3m in the six months to July 31 due to the weaker pound and rising wage costs. Underlying pre-tax profit fell 5 per cent to £26.3m.

The Wakefield-based company reported strong revenue growth - up 6 per cent to £179.6m - despite the decline in footfall seen across the high street.

Ms Hubbard pointed out that like-for-like sales rose 3.1 per cent over the half year, a credible performance at a time when shoppers are cutting back on spending.

"We are a really strong Yorkshire business. Aldi and Lidl have raised awareness that you can get good quality at a sensible price.

"Card giving in this country is alive and well, but if you put prices up, people will stop sending cards to their Auntie or second cousin.

"Most of our cards are under 99p and you can still get 10 cards for a pound. You can buy a special handmaid card for Mum's 80th birthday and it will cost you £1.79 for a card that would cost upwards of £4 at some of our rivals."

The group is selling cards at 29p for cash strapped customers and its top end cards cost up to £1.99 and the most luxurious sell for £2.99.

"Looking at other retailers' results, we are very fortunate," said Ms Hubbard.

"We are only slightly down on footfall so we're really pleased. There is a general sense that consumers are being selective about where they spend their money and what they spend it on."

Whilst Card Factory makes 50 per cent of its cards in the UK, the other 50 per cent come from China so it has been hit by the pound's fall since the Brexit vote. All of its non-card products are made in China.

The group's CFO Kris Lee said he expects there to be a headwind from foreign exchange for the next couple of years.

"Underlying profits have gone forwards. We have seen £4.2m of headwind from foreign exchange and the national living wage," he said.

In November, the Chancellor raised the minimum wage to £7.50 per hour from £7.20.

Despite the tough trading environment, Card Factory has continued to invest in the business.

"We've got a really strong, capable team, but as the business expands, we have had to bring new people into the supply chain. We are investing in people and technology and are bringing contactless payments into stores," said Ms Hubbard.

Analysts said the group's shares have been over-sold and the company is on a much stronger footing than the share price fall suggests.

Analyst Jonathan Pritchard at Peel Hunt said: "Nothing that we have learned today changes our view on the long-term future of the greetings card industry, or of Card Factory.

"It has a peerless business model, which will put continued inexorable pressure on the competition. The news is that short-term profit progress will probably be harder than we expected.

"But given the choice of strengthening its long-term relative market position by investing in margin, or running the business essentially for cash and short-term distributions, we believe management is doing the right thing in dampening 'special' expectations.

"Of course it will be difficult for the shares to do brilliantly given that short-term forecast momentum is now flat, but Card Factory remains an excellent business and the current share price now offers a great opportunity."