Card Factory: Deleveraging

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).




Inditex: Back to normal

What were the last results of Inditex ($ITX)?

On June 8th, Inditex released its first-quarter results, where basically, they disclosed a significant rebound due to the increase in traffic in its stores.

In the report, first of all, they remind us of the three main strategic pillars that guide their operations:

  • Store & online integration
  • Digitalization
  • Sustainability

Even being quite schematic at this point, I like that they refer to them. It helps clarify and emphasize the culture the management wants to impress in the organization.

During this quarter (from February 1st to April 30th), the revenue has grown by 36%, reaching €6.7 billion. The online business decreased by 6% year over year due to the high watermark achieved last year when it grew by 67%). They expect online revenue to increase further and surpass 30% of total sales by 2024.

In terms of geography, they highlight that the strong growth continues in the US (which is good news due to the size of this market) and that apart from the close of stores in Russia in Ukraine, 67 stores were locked down in China during this period. By the date of this release, only four remain closed.


What is the outlook for Inditex ($ITX)?

About the outlook, they now expect to come back to pre-pandemic growth. Currently, 90% of the 6,423 stores they own are open.

Concerning the next quarter, Spring/summer collections were well received during May and June with a growth of 17%.


The capex for 2022 is expected to be around €1.1 billion.


What is the Capital Allocation of Inditex ($ITX)?

The approval of a regular dividend of €0.93 for this must be added to the €0.40 to be paid with charge to 2021 results.

Both types of dividends make a total of €1.33, which at the current market price of €22.8 would give us a return of 5.8%.


What is the Intrinsic Value of Inditex ($ITX)?

Given the financial history of Inditex, we cannot argue that we are talking about quality. Currently, according to TIKR, it has a Return of Capital of around 20%, but historically it was more frequently above 30%.

The big question is if they will be able to maintain their level of growth. They have increased their revenue at a compound annual average rate of around 10% from 2005.

Given the geographical spread that they currently have, it doesn’t seem easy to grow in that dimension. But we must consider the current growth in the online business and the possibility of widening their offer. Recently they introduced cosmetics and sports apparel in some of their shops, and these are only a couple of examples of the different products they could add to their successful model.

The role of the new CEO, Óscar García, is also a concern. Although after working in the company for years, we can expect similar direction and hopefully similar outcomes.


Looking at the organic traffic for estimated by Ahrefs, we can see that the number of searches that finish in the online store grows, not spectacularly but steadily. Organic Online Traffic according to Ahrefs




Considering these points, I am confident in using a multiple of 20 with this company. If we multiply this figure by the estimated FCF by the analysts in 2024 (€4,886), remove the Net Debt expected by this year (€-10,707), and divide by the current number of shares (3,112,430), we get a target price of €34.8, which would give us a potential of more than 50% in two years.






What is Inditex ($ITX) doing in digitalization and sustainability?


Apart from the first strategic pillar, which is self-explanatory, building a platform that integrates physical stores with the online business, what is doing Inditex in the other two ones: digitalization and sustainability?




They don’t talk explicitly about digitalization, but on my last visit to the newest flagship shop in Madrid, I was able to see it in real life.


For example, below is a picture of some customers paying themselves directly for their purchased items and removing the safety tokens.



Consumers unlocking pieces of apparel in Zara new store

Consumers unlocking pieces of apparel in Zara new store


Apart from this feature, they could buy them online in advance and come to the shop to collect them on their own.


There were also QR labels where you could read with your cellular to see online the shop map and some additional info.


Finally, about sustainability, in the last results press release, they disclosed that apart from working on this subject with different start-ups, they have already committed to purchasing 30% of the production volume of Infinna, which recycles their fibers from used clothes.


There were also bins for dropping down used clothes in the new shop. Organic Online Traffic according to Ahrefs


Zumiez: Results Q1 2023

On June 2nd, Zumiez published its results for the 13 weeks ending on April 30th and held the correspondent conference call.

Results were in line with the guidance and with the results being reported for the rest of discretionary consumer businesses with significant exposure to the US. The sales were down 20.9% concerning the same period last year, and they incurred a net loss of minus $0.4 million.

The main reasons for the decrease in sales are the comparison with a period when consumers had more available cash due to the pandemic stimulus and the inflation, which restricts the amounts destined for Zumiez’s types of products.


In terms of capital allocation, Zumiez fully completed the repurchasing program. It bought back 1.9 million shares at an average cost of $43.51. There is no current authorization for more share purchases.


During the call, Rick Brooks, CEO of Zumiez, pointed out that if we skip the pandemic, they grew revenue at a cagr of 8% and EPS by 15% from 2011 to 2021. He expects to continue returning value to shareholders based on the strong brand and culture of the company. This quarter, despite the challenging conditions, it is remarkable that they could sell at full price, maintaining margins. It is also important to note that Zumiez carries a strong financial position with cash and equivalents of $173 million.


For 2022, they expect an EPS in the range of $3.55-$3.80. With a capex in the range of $30-$32 million due to the plan to open 34 new stores (15 in the US, 14 in Europe, and 5 in Australia).


My take on Zumiez

It is important to note that the International segment, where they plan to open more shops this year, has grown 13% from last year. This means that, as they say, one of the main reasons is the US stimulus due to the pandemic, but also that its business model and products are being recognized in the international markets where they are operating. So we can expect that this growth can be sustainable there.


What is the intrinsic value of Zumiez?

Analysts’ consensus tells us we can expect an FCF of $94 million for 2024. If, for rough estimation, we apply a multiple of 15 and divide it by the current number of shares (19.46 million), we would get a target price of $72.62 (137% of potential gain).

It might be 



Cranswick: Preliminary Results 2022

On the 24th of May, Cranswick plc announced its audited preliminary results for the 52 weeks ended the 26th of March 2022.

Revenue increased by 5.8%, while ROCE was 16.9% (lower than the previous year in which it was 17.2%).

What I like about Cranswick is the steady growth it has achieved over long periods. The compounded average growth of revenue since 2005 is around 11%, and it achieved it with all the years growing except one (2019).

The ROCE does not seem typical of a commodity business. And it is in a defensive and strategic sector. In fact, we see that it was able to maintain its growth even in this challenging macro-environment as it did during the pandemic.

Shareholders also benefit from this growth. With the announcement of increasing the dividend by 8% this year, it will achieve 32 years in a row of increases.


Cranswick's Growth


What is the strategy of Cranswick?

Cranswick targets its growth in two different directions. On one side, it is widening its offer. Poultry production revenue is now 20% of total sales, with an increase of 30% during last year. Apart from that, two of the three acquisitions during the previous year were in Mediterranean products, diversifying its offer further.

On the other side, it aims a vertical integration to control the total supply chain better. The third acquisition, in the Pet foods sector, will also help this aim.


What is the Intrinsic Value of Cranswick?

It isn’t easy to put the quality of a company into numbers, especially when it also grows and still has future opportunities in the same sector.

To reflect these key factors, we could either use a higher multiple or increase the expected cash flows in the future.

In my case, and just for rough estimation, I assume that within 3-5 years, it will get an EBIT of GBP160 million. With a multiple of 15, we get GBP 2,400 million, which, divided by the number of shares (53.21 million), gives us a target price of GBp4,510.

Citi Trends: Q1 2022

What were the last Citi Trends results?

On May 24th, Citi Trends published a press release with the results for its first quarter of 2022. In it, they confirmed their previous guidance, disclosing a decrease of revenue of 27% versus the first quarter of 2021. Comparable store sales were also down 29.2%, as well as the rest of the primary metrics.

As with the rest of the retailers, the macro environment, especially the high inflation, hurts sales. In addition to that, the strength of last year’s first quarter, with significant stimulus in the US, does not help. In fact, total sales grew 1.6% if we compare them to the first quarter of 2019 (before the pandemic).

It is true that inflation, especially in food and energy, is hurting more Citi Trends’ target customers, and it probably will go on doing it in the following months. But, even though Citi Trends is still profitable. So it is not clear if, at these market prices, it deserves such a high amount of short interest (39.4%).

What is the intrinsic value of Citi Trends?

In terms of outlook, the Management expects to finish the year with a range of total sales of $860-$880 million and an adjusted operating income of $23.8-$30.6 million.

With a midpoint of operating income of $27.2 million, if we use a multiple of 10, add the current net cash ($61.66 million) and divide it by the number of shares (8.44 million), we get a target price of $39.5, which would give us a potential revaluation of around 33% from the current price ($29.76).

What is the Citi Trends Capital Allocation?

A catalyst that can make Citi Trends close the gap with its value is the repurchase of shares it is currently doing.

During the first quarter of 2022, Citi Trends repurchased 170,000 shares at a total cost of $5.3 million. That makes an average price of $31, which we could consider a reasonable price from the Management perspective.

But at $29,76, and considering that they still have an approved amount of $54.7 million for this purpose, they could repurchase around 20% of the current market capitalization.

This repurchase of shares could create a short squeeze that catapults even higher its shares’ price.


CARS.COM: The Car Dealers Marketplace is basically an online marketplace that connects car buyers and sellers. It was founded in 1998 and is based in Chicago.

Their main customers are local dealers. According to the last quarterly results report released on May 6th, they account for approximately 88.7% of total revenue.

An old adage about brick-and-mortar business says the three most important factors are location, location, and location. We should replace them with traffic, traffic, and traffic in online businesses. Of course, there are other important factors. But usually, the revenue correlates to the number of visitors to a shop. And if these visits don’t require a significant expense in advertising, the business can have a big competitive advantage.

I think the best moat or competitive advantage of is being able to attract so much organic online traffic. This traffic usually comes from results from search engines. In Ahrefs, we can check through which keywords a potential buyer has searched and how each website ranks or in which position it appears in the search results. If we see the main keywords through which most users arrive at the website, we get this list:


As we can see, ranks first in promising searches. It is not only necessary it brings traffic to the site but also its quality. Somebody searching “cars for sale” is likely to be thinking about buying a car, so it is definitively the correct lead for a dealer. is aware of this, and they are even offering additional services to the dealers, such as the use of promotional videos for these visits with the FUEL program. You can check how it works in the site


As long as can maintain this position in the search results and these visits numbers, it will bring value to the dealers and continue achieving the constant free cash flows they have been getting in the last years.



The main risk I can find in this business, or at least the big drawback, is growth. Currently, is selling its services to around 19,500 dealers. In the call commenting on last quarter’s results, the CEO said they still have room to grow in 40,000 dealers.

Indeed this would imply multiplying by three the current number of customers and potentially the revenue. But looking to the long term, even talking as we are about a small company (around $680 million), we cannot expect a multi-bagger if they stick to the current business. Of course, they can expand geographically or to other adjacent businesses in the future.

Their current strategy of combining the increase in their customer base with adding more services to them, like the recent purchase of Accu-Trade (for valuating vehicles) or CreditIQ (for offering loans), makes a lot of sense. As more services are used from, the switching costs to another platform will be higher. In addition, to attract new dealers, they also increase the loyalty of their existing ones.



Capital Allocation

Due to the high free cash flow that the company generates, is in an excellent position to reinvest in its business, buying adjacent services providers as commented or returning capital to shareholders through buybacks.

In fact, they have in place a repurchase program to acquire $200 million in shares. At the current market price, this amount represents almost a 30% of the company. During the first quarter of 2022, they have repurchased 0.3 million at an average price of $14.78 (currently is trading at $9.8).

Finally, it is also a good signal that some of the company officers have been recently buying shares for $9.85.