Card Factory (LON:CARD)) is a deep value retailer, offering a core product at 99p that retails for twice that at high street competitors. Despite the wide price gap, management is adamant that it does not need to raise prices to maintain profitability, with a range of actions in progress to optimise both top line and cost structure. The share price has fallen steeply, but this could present an opportunity as there are a number of potential catalysts.
Interim results: Coming to terms with cost pressure
Card Factory, while market leader, is coming to terms with higher costs. PBT is down 5% at £26.3m. Footfall declines have been compensated by higher average spend as it expands its non-card range, to leave a creditable 3% like-for-like sales growth. But gross margins have been hit by currency, down 1.3 percentage points at 27.0%. And after the National Living Wage, wage costs rose 10.7% against revenue up only 6.1%. This new cost structure is unlikely to reverse anytime soon.
Standing firm against price increases
Despite cost pressure, management is resistant to price rises, choosing to retain its deep value appeal. Its core price point is 99p, which gives it ‘clear blue water’ against high street competitors, though less against supermarkets and online players. Management believes that there are sufficient opportunities to be addressed, both on sales and costs, to make the price option unnecessary.
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