Card Factory: Deleveraging

CARD-Card Factory, Stocks

What were the last results of Card Factory ($CARD)?

On May 3rd, Card Factory published its annual report for FY 2022.

The revenue went up by 27.8% year-over-year, reaching GBP364.4 million. But, this is not a good comparison because last year, several stores were locked down due to the COVID-19.

Like-for-like sales, considering locked-downs, decreased by 3.9%, but it is achieving its pre-pandemic level in a year without restrictions.

Online sales went down, but they are still higher by 30% than before the pandemic. According to the Management, this is due to three factors:

  • Expansion of product range
  • Improved customer experience
  • Change in customer behavior

The main message the Management sends is that despite the hard times of the retail closure, Card Factory has remained the leader in UK greeting cards sales. Its market share was reduced to 20% in 2020, but in 2021 it achieved 24%, and they expect to achieve its pre-pandemic level of 33% soon.


Card Factory Market Share 2021


Below we can see the revenue distribution among the different channels.


Card Factory Mix 2021


What is the primary Strategy of Card Factory ($CARD)?

The Management points out three main strategic lines:

  • Increasing breadth of product offering
    • It means adding additional products or complements used in greeting parties or given as presents.
  • Create a full omnichannel offer
    • This is a trend we also saw in Inditex. Integrating the physical stores with the online business can give Card Factory a significant advantage over its competitors.
    • They are also implementing features such as purchasing online and collecting in the stores.
    • Combining both worlds in a sector with so many references and at the same time with an enjoyable experience in the stores can increase loyalty and recurrent revenues.
  • A robust and scalable central model
    • Another strength Card Factory can use against the competition is its vertical integration.
    • Its cards and products are designed, manufactured, and retailed in-house, which gives them more control over the products and more information to exploit.


What is the Outlook for Card Factory ($CARD)?

The Management has confirmed its expectations of returning to FY2020 results (GBP451.5 million in revenue, an increase of 24%).



What is the intrinsic value of Card Factory ($CARD)?

The intrinsic value will vary widely depending on how much growth we are willing to input in the calculation. If according to the Management, CARD returns to FY2020 results, we would be talking of GBP76 million of Operating Profit.

Considering the expected growth and history, we could expect a multiple of 15. So multiplying the forecasted Operating Profit by the multiple, removing the current net debt (GBP192.3 million), and dividing it by the number of shares (342.37 million), we would get a target price of GBp276.81 (almost four times the current market price).




David Makuen, CEO of Citi Trends, highlighted the company’s achievements in the fourth quarter and throughout fiscal year 2022. He emphasized the following points:

  1. The company achieved a healthy gross margin of 39.1% in 2022 and reduced operating expenses by 9% compared to 2021.
  2. The company managed its inventories well and ended the fiscal year with a better-than-expected cash position of nearly $104 million and no debt.
  3. Citi Trends has been investing in enhancing the in-store experience and its infrastructure, and now 13% of their stores reflect the improved CTX experience.
  4. Despite a challenging economic environment, the strong balance sheet enables the company to invest in key product categories to continue delighting customers with fresh, exciting products at affordable prices.

For 2023, the company will focus on four main priorities:

  1. Driving comparable store productivity, focusing on opportunities to capture market share in areas such as footwear, beauty, kids’ apparel, and juniors and missy ladies’ apparel.
  2. Managing inventory and maximizing margin, expanding select categories, recouping sales in specific categories, and broadening the brand’s appeal to new multicultural families.
  3. Controlling SG&A expenses and leveraging the balance sheet, using analytics to eliminate unnecessary costs and establishing solid controls for spending decisions.
  4. Executing technology enhancements, continuing to develop the technology infrastructure to improve operational efficiency across the business.

However, the first quarter of 2023 has had a slower start than expected due to unfavorable economic factors affecting Citi Trends’ customers. The company remains cautiously optimistic and expects an improvement in the economic situation throughout the year.