Card factory profits hit by wage inflation

Card Factory shares plunged in early trading on Tuesday as the chain reported a sharp drop in first-half profit.

The greeting card retailer revealed its pre-tax profits fell 43.3 per cent to £14m in the six months to July, which it attributed in part to higher staff costs.

Britain’s national minimum wage rose by around 10 per cent to £11.44 from April for those aged 21 and over, while the national minimum wage for younger people and apprentices rose by between 12 and 21 per cent.

Card Factory said the pay rise for its employees caused store and warehouse wages to contribute to gross margins falling 4.2 percentage points to 32.6 percent.

It also said earnings were impacted by higher freight costs and the “phasing of strategic investments.”

Card Factory Shares fell 18.2 per cent to 117 pence, making them the biggest fallers on the FTSE All-Share index.

Despite the result, the company has maintained its full-year guidance after what it called “solid actions” to cushion cost pressures and a “strong revenue performance” in the first half.

Revenues grew 5.9 per cent to £233.8m, supported by strong demand for spring seasonal products such as Valentine’s Day and Mother’s Day, as well as gifts and celebration essentials.

Sales at Card Factory stores rose 6.1 percent despite lower footfall and a quieter retail environment amid poor weather and continued pressures on consumer spending.

Darcy Willson-Rymer, chief executive of Card Factory, said: ‘We continue to see strong performance across our growing store estate, with gifting and celebration essentials now a core driver of revenue growth.

“As we move into the second half of the year and the important Christmas trading period, our full-year expectations remain unchanged and we remain focused on managing inflationary pressures within the business.”

Since the beginning of August, Card Factory has observed that inflationary pressures are easing, while transactions remain in line with the first six months of the financial year.

The Wakefield-based company also said it had agreed a multi-year deal with Aldi to be the exclusive supplier of everyday greeting cards to the budget supermarket chain in its UK and Republic of Ireland outlets.

It has also entered the US market after agreeing a wholesale partnership with an unnamed retailer in time for the critical Christmas period.

Russ Mould, investment director at AJ Bell, said that if the company achieves its short- and medium-term guidance, then today’s announcement would likely be seen as a blip rather than anything more serious.

“The rise in sales at least suggests there remains strong demand for Card Factory’s range of gifts, balloons, cards and party supplies. Britons don’t seem willing to give up the card-giving habit any time soon.”