Card Factory H1 2027 Earnings Call Transcript

Quartr
Provided by Quartr
September 29, 2026

Key Takeaways

  • Neutral Sentiment: Group revenue rose 5.3% to £260.8 million, driven by the Funky Pigeon acquisition and wholesale growth, while adjusted PBT declined to £12.7 million from £13.2 million due to planned investment in digital integration and brand marketing.
  • Positive Sentiment: The core store business improved profitability despite challenging U.K. trading, with product margins up 200 basis points, cost efficiencies from Simplify and Scale, and store EBITDA up 5.7% to £50.4 million.
  • Positive Sentiment: Cash generation remained strong, with £47.8 million of free cash flow over the last 12 months, leverage below 1.1 times, a 7.7% increase in the interim dividend, and 83% of the £15 million share buyback completed.
  • Positive Sentiment: Management reported encouraging early results from its broader celebrations strategy, including double-digit like-for-like growth in party sales and sales ahead of the estate average in segmented stores; the Republic of Ireland also delivered 5.6% like-for-like growth.
  • Neutral Sentiment: Management maintained full-year expectations and expects second-half profit growth, citing stronger Christmas ranges, sharper value messaging, improved stock availability, and recent U.K. store like-for-like sales returning to positive growth, although consumer sentiment remains uncertain.
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Earnings Conference Call
Card Factory H1 2027
00:00 / 00:00

Transcript Sections

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Operator

Welcome to the Card Factory FY27 interim results presentation. Please welcome to the stage CEO, Darcy Willson-Rymer.

Darcy Willson-Rymer
CEO at Card Factory

Good morning, and welcome to our interim results presentation for FY27. Thank you for joining us today, whether you are here in person at UBS or online. I also know that we have many Card Factory colleagues joining us today, so a warm welcome to you, and thank you as always, for everything you do. I am Darcy Willson-Rymer, CEO of Card Factory, and Matthias Seeger joins me here as our CFO. I will start with an overview of the first half before handing over to Matthias to take you through our financial performance in more detail. I will then return to provide an update on the strategic and operational progress we have made before covering our priorities for the second half and our outlook for the full year. Matthias and I will then take your questions at the end.

Darcy Willson-Rymer
CEO at Card Factory

The first half has seen further progress for Card Factory, despite continued and well-documented pressure on U.K. consumer sentiment. We are on a journey of transitioning from a specialist card-led retailer into a leading celebrations business underpinned by an established profitable store estate. Everything we are doing is putting in place the foundations to capture this. We have remained focused on strengthening the store business, while continue to capture a greater share of the celebration occasions market, and making progress unlocking our growth opportunities. As we enter the important second half, we have stronger plans in place for the golden quarter, informed by the learnings from Christmas and Halloween last year. Starting with our performance in the first half, group revenue increased by 5.3% with positive free cash generation across the group.

Darcy Willson-Rymer
CEO at Card Factory

While continued pressure on U.K. consumer sentiment impacted footfall and like-for-like sales, improved product margins supported increased U.K. store profitability, and we delivered positive free cash flow. Alongside this, the work delivered in the first half has strengthened the foundations for future growth. We enabled the rollout of our new party proposition, expanding our participation in the broader celebrations market. As stated at prelims, we have progressed our strategically important store segmentation program, and in addition, we continued with our program of targeted new store openings as well as further operational improvements that support a more productive estate. Progress with partnerships in international wholesale has continued alongside the integration of Funky Pigeon. Importantly, we enter the golden quarter with stronger plans in place.

Darcy Willson-Rymer
CEO at Card Factory

These include significant product newness and a broader, more joined up Christmas offer across cards, gift wrap, and party, supported by clearer value and stronger in-store execution, giving us greater opportunity to capture more of our customers' Christmas celebration spend. With the half one initiatives such as party proposition and store segmentation delivering encouraging early results, alongside our golden quarter plans, we are confident of delivering our full year expectations. For more detail on our financial performance, let me hand you over to Matthias.

Matthias Seeger
CFO at Card Factory

Thank you, Darcy, and good morning, everyone. I take you now through our financial performance for the first half. These are the key messages I would like you to take away. First, group revenue increased by 5.3%, reflecting the benefit of the Funky Pigeon acquisition and continued growth in wholesale partnership. Second, adjusted EPS increased by 1.6% to 2.9 pence, supported by the benefit of the share buyback program. Adjusted PBT was GBP 12.7 million, compared with GBP 13.2 million last year. This was mainly the result of the planned investment in digital during the Funky Pigeon integration and transition period, which balanced the improved performance in store. Third, our core store business improved profitability despite lower U.K. footfall and LFL sales. This reflects stronger product margin, continued cost discipline, and further benefits from Simplify and Scale. Fourth, the group continued to generate strong cash.

Matthias Seeger
CFO at Card Factory

Free cash flow over the last 12 months was GBP 47.8 million, an increase of GBP 9.9 million year on year. Lastly, we remain committed to predictable and progressive shareholder returns. The board has declared an interim dividend of 1.4 pence per share, an increase of 7.7%. The overall picture is one of resilient operating performance, strong cash generation with improved store profitability, funding continued investment in the future growth and efficiency of the group. Turning to revenue in more detail. Group sales increased by GBP 13.2 million to GBP 260.8 million, representing growth of 5.3%. The principal driver was digital, where sales increased by GBP 12.8 million, reflecting the full period contribution from Funky Pigeon following its acquisition last August and August last year, of course. Excluding the incremental contribution from Funky Pigeon, group sales were broadly flat year on year. Wholesale partnerships contributed a further GBP 2.2 million of growth.

Matthias Seeger
CFO at Card Factory

This included double-digit organic sales growth. Garvan Galana continued to perform in line with expectations. Store sales reduced by GBP 1.8 million to GBP 226 million. Within that decline of minus 0.7%, U.K. LFL sales were down 2.3%, reflecting lower consumer confidence and weaker footfall. This was partially offset by the contribution from net new stores and a particularly strong performance in the Republic of Ireland, where LFL sales increased by 5.6%. There are two important conclusions from this performance. The first is that the U.K. consumer backdrop has been challenging and has affected transaction volumes in stores. We cannot control footfall on the high street, but we can influence the shopping baskets of our customers when they are in our stores. The second is that our digital business, our wholesale business, our international operations, and the new stores are broadening the sources of growth beyond U.K. store LFL sales.

Matthias Seeger
CFO at Card Factory

That diversification is important. It increases our customer reach and creates additional platforms for future growth. While our core store estate continues to be the engine and operational foundation for the group. Moving from revenue to profitability, adjusted PBT was GBP 12.7 million, compared with GBP 13.2 million last year. The movement reflects two contrasting dynamics within the group. The first is a strong underlying improvement in U.K. and Republic of Ireland store profitability. Higher product margins and lower operating costs more than offset the impact of negative U.K. like-for-like sales and inflation. This demonstrates the benefit of the actions we have taken on range, pricing, sourcing, and operational efficiency. The second dynamic is the planned investment in digital. The mission was clear when we acquired Funky Pigeon about a year ago, to create one digital business and rebuild the iconic Funky Pigeon brand.

Matthias Seeger
CFO at Card Factory

As we discussed, this year is therefore an integration and transition year for Funky Pigeon and cardfactory.co.uk. During the first half, we invested in brand-building media for Funky Pigeon, organizational integration, and the operating capabilities required to bring the two businesses together. That investment reduces current period digital profitability, but it is creating the foundations for a simpler and more scalable digital business. Within wholesale partnerships, Garvan and Garlanna continued to make a positive contribution and performed in line with their acquisition economics. SA Greetings was behind our expectations. We are taking actions to improve its performance. To summarize, store profitability improved despite the difficult macroeconomic backdrop. This stronger underlying profitability provides a solid foundation for delivering our second half plan. At the same time, we deliberately invested in integrating and the future growth within digital. Darcy Willson-Rymer will talk more about the future growth later in his section.

Matthias Seeger
CFO at Card Factory

Looking more closely at U.K. stores, the key point is that the profitability improved despite lower sales. That improvement was driven by a 200-basis point increase in the product margin rate, together with store efficiencies and benefits from Simplify and Scale. This more than offset the impact of lower sales and continued inflation. U.K. store sales declined by 1.4%. Like-for-like sales were down 2.3%, partially offset by a 0.9% growth from net new stores. The principal issue was footfall. Weak consumer sentiment, hot weather, and pressure on disposable incomes among our core customer groups resulted in fewer store visits and transactions. External industry data indicated that footfall in the locations in which we operate reduced by around 3.5% during the first six months. Consumer confidence remained below the prior year level in the first half, with reported signs of improved consumer sentiment over the last three months.

Matthias Seeger
CFO at Card Factory

Average basket value increased again in line with our strategy, partially compensating for the lower number of transactions, with our card market share remaining in line with last year. This tells us that the customers who visit our stores continue to respond positively to the expanded range and value proposition. Building on this foundation, our plans for the second half will further strengthen our offer. We are sharpening our entry-level value offer, making value more visible in-store, broadening the celebrations range, and improving store standards and executions. We also continue to manage margin and operating costs carefully. The result in the first half demonstrate that these self-help actions protect and improve profitability even when the external environment remains difficult. Our core store estate remains highly profitable and cash generative. Store EBITDA over the last 12 months increased by 5.7% to GBP 50.4 million.

Matthias Seeger
CFO at Card Factory

That improvement reflects higher profit margins, optimized store operations, and efficiencies that more than offset inflation. Store revenue was GBP 226 million. The U.K. performance reflected the consumer pressures I have just described, while the Republic of Ireland delivered strong like-for-like growth. Average basket value is now at GBP 5.13, having increased by 16.5% over the last three years. Importantly, gift and celebration essentials now represent 55.4% of our in-store sales, compared with 53.4% last year. This continued change in mix supports our strategy of moving from a card specialist towards a broader celebration occasions retailer. It also gives customers more reasons to shop with us and provides further opportunities to increase basket size and share of wallet. The estate now consists out of 1,126 stores across the U.K. and the Republic of Ireland.

Matthias Seeger
CFO at Card Factory

We added 23 net new stores over the last 12 months, including nine net additions in the first half of this year. The low capital nature of our store model allows us to continue expanding selectively, and our pipeline of potential openings remains strong. We continue to assess the performance and future potential of every location, including underperforming stores. Our objective is therefore not simply to create a larger estate, it is to create a better and more productive estate with the right range, space, and customer proposition for each location. The improvement of in-store profitability is closely linked to the continued delivery of Simplify and Scale. As discussed, we expect full-year inflation of between 3% and 4%. Against that, our plans are on track to deliver close to GBP 10 million of efficiencies and structural cost reductions this year, with around 40% delivered in the first half.

Matthias Seeger
CFO at Card Factory

The benefits come from a broad range of initiatives. Store hours have reduced by 7% year-on-year through better optimized store operations while maintaining the focus on service and store standards. In the warehouse, the introduction of voice picking is improving efficiency. Within the support center, we are simplifying and automating activities, including the use of AI. We are also securing lower purchasing prices and bringing selected third-party manufacturing activities in-house. The importance of the program is not limited to offsetting inflation in the current year only. Each initiative is intended to remove complexity or structurally reduce the cost base. The benefits therefore support profitability this year and provide a stronger operating platform for future growth. Turning to cash. The group's cash generation remains a significant strength. Over the last 12 months, we generated GBP 47.8 million of free cash flow.

Matthias Seeger
CFO at Card Factory

In the first half itself, we generated positive adjusted free cash flow of almost GBP 1 million. That may appear modest in isolation, but it represents a significant improvement given the normal seasonality of the business and the cash investment typically required ahead of the key peak Christmas trading period. It is also noteworthy that this is the first time in the last 10 years that the free cash flow was positive in the first half. Continuous progress on working capital management was the key to this improvement, alongside a tax refund in relation to previous years. Capital expenditure in the first half was GBP 11.8 million, compared with GBP 7.6 million last year. This included investment in additional manufacturing capability and the new HR information system, as well as expenditure associated with the digital integration. This year, we expect free cash to again exceed GBP 30 million.

Matthias Seeger
CFO at Card Factory

This is at the lower end of our target cash conversion range, primarily due to the one-off capital investment required to deliver Funky Pigeon synergies and enhance our manufacturing capability. These are deliberate investments. They increase expenditure in the current year but are intended to reduce future operating costs, improve control of the value chain, and support future growth. From next year on, we expect capital expenditure to return towards the lower end of our GBP 20 million to GBP 25 million guidance range. The central message is therefore that the underlying cash generation of the business remains strong, even while we fund the investment required to improve the future operating model. Cash generation continues to translate into balance sheet strength and flexibility. Net debt increased by GBP 8.5 million to GBP 87.4 million.

Matthias Seeger
CFO at Card Factory

This increase was after funding the acquisition of Funky Pigeon, as well as shareholder returns of GBP 28.5 million, by way of dividend and share buybacks. Net debt, excluding the Funky Pigeon acquisition and associated transaction costs, reduced by GBP 18.9 million. This demonstrates the underlying cash generative capacity of the group. Adjusted leverage was just below 1.1 times at the half year. This remains comfortable inside our maximum target of 1.5 times. The group has total revolving credit facilities of GBP 160 million, providing material liquidity and financial flexibility. We therefore retain the capacity to invest behind the strategy and support progressive dividends while maintaining conservative financial guardrails. Our approach to capital allocation remains clear and unchanged. The first priority is to maintain a strong balance sheet. This provides resilience through economic cycle. The second priority is to invest in the delivery of our plans.

Matthias Seeger
CFO at Card Factory

This includes investment in new stores, digital integration, manufacturing capabilities, systems, and the operating efficiencies required to support long-term growth. The third priority is to support sustainable and growing dividends. Finally, where the group has surplus cash after meeting those priorities, we intend to return that cash to shareholders over time. The financial guardrails remain equally clear. We target adjusted leverage below 1.5 times, free cash conversion of between 70% and 80%, and dividend cover of between two and three times adjusted earnings. Over the medium term, we continue to target mid-single digit group revenue growth and mid to high single digit adjusted PBT growth. The drivers of that growth are diversified. They include store like-for-like growth, new store openings, digital growth, and wholesale partnerships, benefits from Simplify and Scale, and operational leverage from our vertically integrated model, disciplined capital investment and working capital management that converts growth into cash.

Matthias Seeger
CFO at Card Factory

It is this combination of growth, cash conversion, and disciplined allocation that underpins the potential for attractive shareholder returns. We intend to maintain that discipline. Returns will be supported by the strength of the business, not by increasing leverage beyond our stated guardrails. Turning finally to shareholder returns, our objective is to provide predictable, sustainable, and growing cash returns. The board has declared an interim dividend of 1.4 pence per share, equivalent to approximately GBP 4.6 million payable in December this year. This represents an increase of 7.7% compared with last year. The interim dividend is based on our expectation of a progressive full year dividend and a dividend cover ratio consistent with last year. We have completed 83% of our GBP 15 million share buyback announced with our full year results. Shares purchased under that program are being canceled.

Matthias Seeger
CFO at Card Factory

These returns have been funded from the cash generated of the business while maintaining leverage comfortably inside our maximum target. Following last year's GBP 5 million anti-dilution share purchase program, we intend to launch another GBP 3 million anti-dilution share purchase program upon completion of the current GBP 50 million share buyback. Those shares will be held in treasury to satisfy future employee share scheme awards and to prevent shareholder dilution. Looking forward, we expect to generate more than GBP 30 million of free cash flow in FY27 and expect the group to pay a progressive dividend in line with our policy. Our approach is consistent, disciplined investment, conservative leverage, and the return of surplus cash when it is appropriate. Darcy, back to you.

Darcy Willson-Rymer
CEO at Card Factory

Thank you very much, Matthias. Let me provide you with an update on the strategic and operational progress we've made during the first half. As we outlined previously, our growth opportunity is to build on our leadership in card to capture a greater share of the broader celebrations market. We already serve millions of customers across a wide range of celebration occasions, giving us the opportunity to extend our relationship with them across gift, celebration essentials, and party, both in store and online. By reaching more customers through our stores, digital and partnerships, both in the U.K. and internationally, we have significant headroom for further growth. This is the opportunity our strategy is designed to capture. As we outlined in our full year results, the celebration occasions market represents a significant opportunity for Card Factory.

Darcy Willson-Rymer
CEO at Card Factory

It is a growing market underpinned by resilient customer demand, with our opportunity broadening as we extend our offer and capture more of the spend around each celebration. We can build on our leadership in cards using cards as the gateway into complementary categories and increasing the value of each occasion. This gives us significant opportunity to capture a greater share of the celebration spend our customers are already making. Our priorities for FY27 are focused on delivering against that priority in three ways. First, increasing our share of the celebration occasions market. That means maintaining our leadership in cards through compelling value and range while expanding into areas such as gift, celebration essentials, and party.

Darcy Willson-Rymer
CEO at Card Factory

A birthday, for example, extends well beyond the card and the balloon to the wider party occasion, from tableware and decorations through to party bags, giving us the much broader opportunity to participate in that celebration spend. It also means continuing to optimize the space within our stores alongside our store segmentation program so that we can better reflect the different missions of our customers. Second, reaching more customers. We continue to selectively expand our store estate into under-penetrated locations whilst bringing together the best of cardfactory.co.uk and Funky Pigeon to create one digital business and build the capability to acquire and serve more customers through an omni-channel experience. We are also developing a new loyalty proposition, which we intend to launch by the end of FY27, designed to deepen customer relationships and support greater engagement and frequency over time. Third, unlocking our international opportunity.

Darcy Willson-Rymer
CEO at Card Factory

Here, our focus remains on expanding our wholesale sell reach in our identified international growth markets with our international businesses providing the platform to support that expansion. In North America, we continue to make progress in moving from the current test and learn phase through to wider activation. This includes ongoing discussions with potential retail partners and integrating card capability into Garvan. Let me now turn to how we are translating these priorities into action, starting with the work underway to drive greater performance and productivity across our core profitable store estate. Our store segmentation program is a multi-year test and learn approach that builds on the work that we've done in recent years to optimize space in our stores. Enhanced use of customer and basket data tells us that different stores serve different customer missions.

Darcy Willson-Rymer
CEO at Card Factory

We're using these insights to explore how we make the space we already have work harder to capture more of customer celebration spend by tailoring the space, range, and customer journey much more closely to local demand. For example, giving greater space to party and gifting in stores where we see stronger customer demand for those categories. Following a successful test and learn during the first half, we completed the rollout to 118 stores that we identified as a party and gift-led segment. These stores are where customers are focused on party and/or gift missions. Encouragingly for these 118 stores, sales performed 1.6 percentage points ahead of the rest of the estate. We have also recently completed testing of the cross-category format, which is designed around customers who see Card Factory as the destination for all their celebration needs.

Darcy Willson-Rymer
CEO at Card Factory

In 20 stores, in the trial 20 stores, sales performed 1.9 percentage points ahead of the rest of the estate. Further rollout is planned for FY28. While this is a multi-year program, the early evidence is encouraging, and we'll look at further segment tests next year. Turning to digital. FY27 is an important transition year as we bring Funky Pigeon and cardfactory.co.uk together into one digital business. The future growth opportunity for our digital channels is compelling. The acquisition of Funky Pigeon has given us an established customer base, stronger technology capabilities, and the platform we need to grow our share of online cards and attached gifting while creating greater opportunities to connect our own digital and store propositions over time. We have a clear differentiation between our two digital brands.

Darcy Willson-Rymer
CEO at Card Factory

Cardfactory.co.uk is focused on value and the broader celebration, while Funky Pigeon is centered on personalization and attached gifting. On Funky Pigeon, the integration program remains on track, as does delivery of the GBP 5 million of expected synergies from FY28. And we've made good progress operationally during the first half. Our fulfillment optimization is well underway, with parcel orders now fulfilled from Beldon and card fulfillment moving to Guernsey during the second half. We've completed the integration and restructure of our teams and agencies, and we're making good progress towards moving both brands onto a single technology platform. Alongside this, in half one, we prioritize reinstating brand marketing for Funky Pigeon, supported by improved performance marketing, which has helped drive an 11% year-on-year increase in new customers during half one. At the same time, we continue to improve the customer experience.

Darcy Willson-Rymer
CEO at Card Factory

We delivered more than 50 test and learn experiments on the site during half one, while also evolving our search capability and improving the delivery proposition to give customers greater choice between speed and cost. We are seeing stronger engagement from existing customers with Funky VIP membership growing 46% year-on-year and now representing 16% of the active customer database. Taken together, we are making continued progress across customer acquisition, proposition, and customer experience as we build the digital business. The Republic of Ireland continues to reinforce the strength of our established U.K. approach, delivering disciplined and profitable growth in an under-penetrated market. We entered the market in 2017 and had 49 stores at the end of July. Those stores continue to perform strongly, with total store sales increasing by 24.3% in the first half and like-for-like sales increasing by 5.6%.

Darcy Willson-Rymer
CEO at Card Factory

We see further white space potential with the opportunity to grow that estate by around 50% over the next five years. Our approach remains disciplined. Selective site expansion, flexible leases, and the same focus on low-cost operation that underpins our U.K. model with new stores targeting a 24-month payback. Alongside our directly operated stores, Garlanna provides us with an established wholesale platform from which we can extend our reach across the Republic of Ireland. During half one, we introduced Card Factory seasonal and everyday products into Garlanna, bringing together cards, bags, wrap, and gifting to create a broader and highly attractive celebration solution for our wholesale customers, as well as an an important point of differentiation for them. This demonstrates the opportunity to leverage the group's portfolio through Garlanna and reach customers beyond our own store network.

Darcy Willson-Rymer
CEO at Card Factory

In Ireland, we have two complementary and successful routes to market, a growing store estate, and established wholesale capability, providing a strong platform for growth. Let me now turn to the operational progress we've made during the first half and how this is supporting our performance as we move into half two. Our store estate remains the sales engine of the business. When combined with our omni-channel proposition, continually strengthening its performance is central to delivering growth. We look at store estate improvements through four areas of focus. The first is range. As we mentioned, we're introducing significant product newness across the Golden Quarter alongside a broader offer designed to capture a greater share of celebration spend. A major step forward has been the development and rollout of our new party proposition in mid-July.

Darcy Willson-Rymer
CEO at Card Factory

This broadens the range of customer needs we can serve across the celebration and creates further opportunities to capture celebration spend beyond cards. We're encouraged by early response, with the party sales up double digits on a like-for-like basis since rollout. Alongside this, we're increasingly using customer insight and local demand to inform our ranges and bring categories together more effectively, such as increasing the space given to party and gifting in stores where we see stronger demand for those categories. This has been supported by improvements in forecasting, replenishment, and stock allocation to ensure that we have the right products in the right store at the right time. The second area of focus is value. Value is an important driver for our customers, particularly in the current environment. We've therefore made targeted investments in pricing, choice, and promotions, including sharper opening price points across key card lines.

Darcy Willson-Rymer
CEO at Card Factory

Third is how we optimize space and drive performance. We are continuing to make our store estate work harder, rolling out customer-led segmentation and optimizing space across cards, gifts, celebration essentials, and party. At the same time, we continue to extend our reach through targeted new store openings in under-penetrated locations. We are also continually improving the customer experience in store with new customer service framework being rolled out across the estate to embed a more consistent approach to customer engagement and service. This is focused on helping customers find what they need, discover more of our broader celebrations offer, and ultimately improve conversion and basket size. Our final area of focus is how we communicate and merchandise that proposition in store. We are being much clearer and more impactful in how we present our offer from value messaging through to cross-category signposting and seasonal merchandising.

Darcy Willson-Rymer
CEO at Card Factory

The aim is simple: make our stores easier to shop, help customers discover more of the celebration offer, and drive conversion and attachment sales by elevating our value messaging and our breadth of range. Taken together, these actions across range, value, space, and in-store communications strengthens the core business, driving traffic, improving conversion, and capturing more of each celebration mission. Central to our half two performance is, of course, the Golden Quarter, and this year we have made significant changes to our Christmas proposition. As you can see here, there is substantial newness across the offer for the Golden Quarter. In cards, 90% of the Christmas range has been refreshed over the past two years with more than 1,400 single cards alongside new formats and innovation. In Christmas box cards, around half of this year's range is new, and importantly, we are also bringing categories together much more effectively.

Darcy Willson-Rymer
CEO at Card Factory

The popular snowman range, for example, extends across cards, gifting, and celebration essentials. So alongside the card, customers can choose from a wide assortment of snowman gifts, including books, soft toys, blankets, as well as the gift bag, creating a much more joined-up Christmas shopping mission for the customer. We have significantly broadened our gifting and party offer too, with greater depth in licensed gifting, toys, Secret Santa, and Christmas party occasions. These include high-profile licenses such as Lego and Pokemon, as well as an expanded range of accessible gifting at key price points. There is also significant newness online. Funky Pigeon, we are expanding personalized gifting, including new licensed calendars, photo books, and mugs, while broadening our branded gifting offer through partnerships including Disney, Mars, and Candy Kittens.

Darcy Willson-Rymer
CEO at Card Factory

We have introduced balloons online using Card Factory's best-selling ranges and fulfillment capability, bringing the strengths of the two businesses together to create a broader offer for customers. Earlier, I mentioned the targeted investment we would be making in pricing, choice, and promotions to reinforce the value offer in store. This Golden Quarter value is much more visible through the proposition with sharper opening price points and compelling promotions across cards, gifting, and wrap. Together, that gives customers more reasons to visit Card Factory throughout the Golden Quarter, more reasons to shop across categories when they do, and gives us greater opportunity to capture more of their Christmas celebration spend. So this broader, fresher, and more clearly value-led Christmas offer, supported by stronger execution across our stores and marketing.

Darcy Willson-Rymer
CEO at Card Factory

So let me now turn to the second half, the priorities that will underpin our performance and our outlook for the full year. We enter the second half with more favorable comparatives and with a clear focus on execution. As usual, our sales and profit delivery is weighted towards half 2 and the key Christmas trading period. Notwithstanding the wider consumer environment, our outlook is supported by initiatives already underway across the business, including actions that will benefit performance through second half. There are 3 clear priorities to deliver year-on-year profit growth in the second half. First, executing our commercial plans to drive sales growth across our channels. Our golden quarter plans are now in place with significant product newness, broader ranges, targeted investment in value, supported by actions to drive customer traffic and conversion.

Darcy Willson-Rymer
CEO at Card Factory

We've been encouraged by trading since the half year with U.K. store like-for-likes improving from half 1 levels and returning to positive growth in recent weeks. While it is still early, this provides encouraging evidence that the actions we are taking are gaining traction. Second, driving stronger operational execution through improved stock allocation and availability. We've made good progress in half 1, improving our forecasting, replenishment, and stock management processes. These improvements are now embedded, and together with tighter inventory control, we're improving availability across key ranges and seasonal events, supporting stronger execution through half 2. And third, continuing to deliver efficiency and productivity improvements through Simplify and Scale. We remain on track to offset known annual inflationary pressures of around 3%-4%, with approximately 40% of the benefit delivered in the first half and the remainder expected in half 2.

Darcy Willson-Rymer
CEO at Card Factory

Since the program launched 3 years ago, we've mitigated approximately GBP 60 million of cost pressures, demonstrating the track record we have established in delivering efficiencies across the business. These priorities underpin our plans for delivering year-on-year half 2 profit growth, supported by a more favorable comparative period than we faced in the first half. As we look ahead, we recognize that the consumer environment remains uncertain. Our focus remains on strengthening our proposition, improving execution, and driving efficiency across the business. The actions taken through half 1 in these areas are providing a stronger platform as we enter half 2. At the same time, our golden quarter plans are in place and focused on product value and driving traffic. As always, our multi-year Simplify and Scale program remains embedded across the group and continues to deliver efficiency and productivity benefits.

Darcy Willson-Rymer
CEO at Card Factory

Together, these actions give the board confidence in delivering expectations for the full year. So let me summarize. We've delivered group revenue growth in the first half and improved the profitability of our core store business, despite the continued pressure on U.K. consumer. We've maintained our focus on strengthening the core while continuing to broaden Card Factory's role in the celebration occasions market. We are seeing tangible evidence from initiatives such as store segmentation, while the rollout of party enables us to meet more of our customer needs. At the same time, we're building the foundations for future growth through Funky Pigeon, our wholesale partnerships, and our international business. We've continued to deliver cash and shareholder returns with a progressive interim dividend and our previously announced GBP 50 million share buyback program well progressed.

Darcy Willson-Rymer
CEO at Card Factory

And importantly, as we enter the second half with stronger plans for the golden quarter and Christmas. So thank you once again for attending the results, and Matthias and I will now take your questions. Thank you. What we are going to do is take questions from the room first and then take questions from those joining online. For those in the room, if you could please use the microphone at your seat so the people online are able to hear you. I will go that way. Go ahead, Russell.

Russell Pointon
Analyst at Edison

Thanks, Darcy. It is Russell Pointon from Edison. A couple of questions. Encouraging signs on the store segmentation, the new product categories with the sales uplift. Could you just talk about what you are seeing in terms of gross profit from absent and cash basis, and perhaps talk about how is the cannibalization of how are sales on the core products that remain doing in those stores that you have. And how quickly will you actually roll out this store segmentation, and what really prevents you going a bit quicker on this? Final question on Funky Pigeon. You have seen a good uplifting customers in response to the marketing. Could you talk about the economics of those new customers now? Are you seeing good repeat purchases after they come in? Thanks.

Darcy Willson-Rymer
CEO at Card Factory

Thank you, Russell. Matthias, do you want to take the gross profit questions, and then I will come back on Funky rolling.

Matthias Seeger
CFO at Card Factory

Sure. Absolutely.

Darcy Willson-Rymer
CEO at Card Factory

and customer segmentation.

Matthias Seeger
CFO at Card Factory

And while that, you can rest your voice a little bit.

Darcy Willson-Rymer
CEO at Card Factory

Thank you.

Matthias Seeger
CFO at Card Factory

So your first question, if I understood correctly, was about U.K. store profitability and what drives U.K. store profitability, and does it come in at the expend, how does it interact with other channels that we sell our products through? So first half, U.K. profitability in stores increased versus the prior year, as we discussed behind the range of actions that we had taken during the first half. That they included actions to improve product margin by 200 basis points. And that is behind a range of actions, from looking at what the right product, what's the right price range to where can we price products, still providing good value for consumers, to making sure that our promotions are effective and provide value both for consumers and for us. And of course, through ways of making sure that we buy our products, and produce them at the lowest possible price.

Matthias Seeger
CFO at Card Factory

Alongside, there was a range of actions through Simplify and Scale that helped us to keep our costs controlled and at bay. That led to that increase of overall profitability and in the context of the overall U.K. profitability, and your question, I believe, was on cannibalization with other businesses. As we said before, we see a high level of complementary with other channels because other channels serve different shopper missions. A purchase in an Aldi store for a card is based on a different shopper mission than a purchase of a card in a Card Factory store or a purchase of a card at Funky Pigeon, where it is more for the personalized and direct-to-consumer purpose. Did I answer your question?

Darcy Willson-Rymer
CEO at Card Factory

Let me pick up the segmentation speed, as well as new customers on Funky. If I just start on Funky. In terms of those new customers, we are seeing conversion at the rates that we need. We are encouraged by that. I think in terms of the segmentation, there are a couple of things I think to think about. First of all, we did quite a big piece of space realignment a couple of years ago. That then followed what we called radical space trials. We said, "How far can we go?" So kind of almost sort of break the system. That then led to the analysis around segmentation. Because we are in the crown jewels, so the balance between space, range, display, it is very important that any decisions we make, we get right, because if you make mistakes, you can destroy value quite quickly.

Darcy Willson-Rymer
CEO at Card Factory

This sort of test and learn approach. First segment done. Second segment, we cannot roll out during Christmas, so we have to wait till January, and we have got test line for the other segment. It is a sort of test and learn methodology.

Matthias Seeger
CFO at Card Factory

Funky Pigeon was the last.

Darcy Willson-Rymer
CEO at Card Factory

Yep. Adam.

Adam Tomlinson
Adam Tomlinson
Analyst at Berenberg

Morning, Adam Tomlinson from Berenberg. Just a follow-up on the space allocation and the optimization there. If you could just give us a bit of an insight into practically how that works. I guess with 1,000 plus stores, just understanding how your investment into systems and infrastructure allows you to really localize versus, I suppose just a more general improvement across the estate. That is the first question. Second question is just, you mentioned investment into manufacturing capabilities in H1, so just a little bit of color on that would be great, please. And then also on your move to be clearer on your value proposition, if you could just outline any price investment that has been required there and also just, the reasons for that.

Adam Tomlinson
Adam Tomlinson
Analyst at Berenberg

Whether you have seen a change in the competitive landscape, whether it is more the consumer backdrop, or it is just ongoing improvements in terms of your marketing and how you message that value. Thank you.

Darcy Willson-Rymer
CEO at Card Factory

Yeah. So I think on the first piece, as part of our continuous investment in CapEx, we have done quite a lot of work this year to upgrade systems that relate to stock. So how we allocate stock, how we order, how we track it and monitor it. And what that should allow us to do is refine the next level of using the technology algorithms of getting the right stock to the right place. So if I take a simple example where we have regional differences on Grandma, Nanny, Nan, all of that, actually, the system allows us to be much more granular and get that stock allocation much better. So the stores in and around the Northeast that traditionally run out of mam cards close to Christmas shouldn't this year. So that would be an example. But that is across the range.

Darcy Willson-Rymer
CEO at Card Factory

It is continuous improvement in how we choose what stock goes into what store and how we allocate it. I think in terms of manufacturing, effectively we are investing in roll wrap manufacturing, so more paper, and we will see the benefit of that next year. That is in process now. Kai?

Adam Tomlinson
Adam Tomlinson
Analyst at Berenberg

Sorry, just on the value question.

Darcy Willson-Rymer
CEO at Card Factory

Yes. Okay. Yes. The majority of the value thing is leaning into where consumers are at the moment, and it is making sure that if you are worried about a lot of our customers who will live paycheck to paycheck, if you are worried about your spend, when you come in, you need to see that we are on your side and we have products that meet your budget. It is being more overt about it. We have more 99 pence cards this Christmas range, for example. Ultimately, it is about driving sales volume and supporting the consumer.

Matthias Seeger
CFO at Card Factory

Before we move on, may I just add to the second point, the manufacturing investment in roll wrap. We have sourced roll wrap from the Far East so far. We saw an opportunity to bring sourcing back to the U.K., which obviously gives us several benefits. One, we are more agile in responding to customer needs. Second, we will have lower inventory. Third, we will not be subject to volatility in container rates. Fourth, it is playing to our business model and our strength of having an end-to-end value chain and supply chain.

Analyst at UBS

Hi, Hyun from UBS. Thank you for taking my questions. I have a few. The first one is on, could you give us a bit more color on the recent uptick in the like-for-like growth? Is that a function of mostly your new proposition improving the mix and basket value, or do you see also signs of consumer footfall improving? An added bonus to that is your range comfortable with consensus GBP 54 million to GBP 59 million. Do you assume any recovery of consumer in that range, or you assume the consumers are where they are for the rest of the year? My second question is on market share dynamics for the first half. Footfall is down 3.5%, but within that, have you gained market share and do you see opportunities from TJ Hughes closing 150 stores and cutting card publishers?

Analyst at UBS

Have you seen that benefit already, or are you seeing future benefits from that perspective? My third question is a little bit more on Funky Pigeon. So 11% new customers, but when you frame it as a transition year, I assume that that means investments on both the potentially pricing and also marketing from the margins perspective. When do you see it being incremental or growth being incremental to the group? Is it end of the year or more of a next year story? Thank you.

Darcy Willson-Rymer
CEO at Card Factory

Matthias, do you want to?

Matthias Seeger
CFO at Card Factory

With respect to the recent trends, well, as we commented earlier on, or Darcy explained, we enacted a whole range of actions at the back end of the first half, including value in investing in price range, the launch of the party range, the in-store communication. All that sets the base, obviously, for a successful half 2. What we have also seen is that the overall footfall on the high street not being impacted anymore through the hot weather that we saw through the summer has, I would say, readjusted upwards. From our own trading point of view, we are very encouraged by the trading of the recent week, which brings to life, brings together these two factors. Clearly, we are looking forward to a successful second half.

Matthias Seeger
CFO at Card Factory

We do not require or count on a sharp uptick in footfall or change in consumer sentiment to deliver our plans for the second half. They are built around the elements that helped us drive average basket value in the first half. So yes, to your question, we are comfortable with the overall consensus. Want me to take?

Darcy Willson-Rymer
CEO at Card Factory

Yeah. Your next question around market share, I think over the last 12 months we have seen a modest improvement in or a modest gain in card market share. Then in terms of your question on Funky, I think that the expectation is that on a run rate basis by the end of the year, our digital business is profitable. What we are doing for the balance of this year is on the marketing investment, for example, we have been running a group of different test and learn initiatives. What we are trying to understand is what is the level of investment that we need to deliver profitable sales growth. We have been looking at the dynamics of how much needs to be TV, radio, outdoor, what more we could do on social or below the line, to basically find that sweet spot to drive new customers, to drive conversion.

Darcy Willson-Rymer
CEO at Card Factory

But do that in a profitable way. The actions between the marketing, the synergies, on a run rate basis, we expect to be profitable.

Matthias Seeger
CFO at Card Factory

Matthew.

Darcy Willson-Rymer
CEO at Card Factory

Matthew.

Matthew McEachran
Analyst at Singer Capital Markets

We are using a mic?

Darcy Willson-Rymer
CEO at Card Factory

Yeah, if you

Matthew McEachran
Analyst at Singer Capital Markets

Thanks very much. Matthew from Singer Capital Markets. Just coming back on one of those questions. It is clear the markets are pretty cautious/nervous about like-for-like growth being delivered in the golden quarter. You have got a lot of initiatives underway in the comps. You have had two year of being battered by labor government initiatives around the budget. Could you give any comfort in terms of the magnitude of like-for-like growth you require per your chart earlier, to deliver the full year PBT, kind of in the market that you have referenced today? Is there anything that you can give just in terms of comfort that you do not have to shoot the lights out, particularly after the gross margin improvement? That would be first question. Very helpful, please.

Matthias Seeger
CFO at Card Factory

You want to?

Darcy Willson-Rymer
CEO at Card Factory

I will do the other one.

Matthias Seeger
CFO at Card Factory

No. Okay. As I just indicated, we don't require a sharp upturn of sales. What is also true is that we won't have hot weather as a hindrance in half two, and that impacted certainly our like-for-like growth by a couple of percentage points. As such, we are very comfortable with the recent trading pattern and footfall. Again, through the initiatives that we have launched regarding range pricing and where we see the benefits all materializing now, we feel comfortable with the consensus.

Matthew McEachran
Analyst at Singer Capital Markets

Thanks very much. Just coming back to the party launch, that's some quite good numbers you've reported, I know, early trading. Does it have any influence in terms of card sales as well? Be that either positive or negative, that launch? It seems possible that you might actually generate some additional card sales where you've launched those.

Darcy Willson-Rymer
CEO at Card Factory

Yeah. I think from an overall, the majority of baskets will have a card in them. We are also starting to see people shop for party occasions, if you like, without necessarily buying the card. What's difficult to read in the data is if as part of my party proposition I want inflated balloons, then I have to come on the day or the earliest, the day before. In fact, that card purchase may have already taken place. It's all about capturing that sort of broader celebration. Just on a personal anecdote where some friends that I've got where we celebrate something every year with each other, I spent GBP 25 at Card Factory and completely decked out for their 40th anniversary in, it was a ruby anniversary. So we decked out the whole lounge.

Darcy Willson-Rymer
CEO at Card Factory

Our friends kind of came in and went, "Oh my God. Well, you've really knocked it out of the park." It was such a transformation just by decorating. It's that point about how you enhance the celebration that I think is the reason why it's resonating.

Matthew McEachran
Analyst at Singer Capital Markets

Yeah. Great. Thank you very much. Final question, just coming back to the digital and the integration synergies. Could you give us some idea as to what you expect the costs of those integration changes and realization of synergies to be for the full year? There were no exceptionals also in the first half. Would you expect all of those to be taken on the chin above the line?

Matthias Seeger
CFO at Card Factory

With regards to cost, there is a mix between, without getting too technical, capital investment costs, clearly, to bring the two platforms together and to establish the manufacturing capability to optimize the supply chain. In addition, there are some costs that are consistent with how we treated costs would be exceptionalized. It's not a significant amount. But yes, there are also some costs that are reflected in the adjusted PBT that are related to this one year transition. Overall, we'll get a really good payback on this investment, because it will provide the platform for our future digital growth, and will bring us into a position where we can operate as a true omni-channel retailer, offering our customers the benefits of a broad range of offer, irrespective in how they choose to shop.

Matthew McEachran
Analyst at Singer Capital Markets

Thanks. Just linking that back to one of the earlier questions around the reinvestment in marketing and the customer metrics. Do you think beyond the GBP 5 million, do you have line of sight into other things that you could do to realize synergies that could feed that marketing reinvestment?

Matthias Seeger
CFO at Card Factory

Well, listen, obviously, we said GBP 5 million is the benefit of bringing the two businesses together. But the reason why we thought the combination of Funky Pigeon and Card Factory was not just to create synergies, but to create a platform for growth, on which we haven't really commented yet what the benefits are. But we have indicated that we have 24 million unique customers, and being able to offer them the opportunity to buy from our digital platforms, whether that's cardfactory.co.uk or Funky Pigeon, they can, depending on the shopper mission, is a big opportunity. Ben?

Ben Hunt
Analyst at Panmure Liberum

Oh, hi there. Just a general question. Over the last 12 months, it feels like the footfall has obviously not been in your favor and volumes have obviously been down. You talk of holding your market share, but your volumes are down, as you say, so I am intrigued to know where those sales you suspect might have been going. As far as I am concerned, there has been the same number of birthdays this year as there were last year. Maybe linked to that is, and maybe it provides the clue, is there any disparity between the volumes of those cards at the entry price points and those that are perhaps higher up?

Darcy Willson-Rymer
CEO at Card Factory

Yes. Thanks, Ben. In terms of over the last 12 months of growing slightly market share, effectively it is growing our share of a slightly contracting market. That dynamic hasn't changed, and the strategy has always been designed to deal with that sort of long-term challenge. What we are doing is accelerating that celebration because, as you rightly point out, there are no fewer birthdays, there are no fewer kind of celebrations happening. Therefore, all of the work that we are doing is basically around owning that celebration. The opportunity is, the average U.K. consumer on the types of products we sell spends about GBP 258 per year. If you are a Card Factory shopper, we get GBP 22 of that, and between what we are doing in store with range expansion, online, omni-channel, and wholesale is designed to capture more of that celebration spend. So that is

Ben Hunt
Analyst at Panmure Liberum

Okay. As I said, have you seen any noticeable trends between differences in volumes in these periods of low footfall between the entry price points and the higher price points?

Darcy Willson-Rymer
CEO at Card Factory

No.

Ben Hunt
Analyst at Panmure Liberum

Okay.

Darcy Willson-Rymer
CEO at Card Factory

Good. I think we should probably turn to online questions.

Matthias Seeger
CFO at Card Factory

Yeah. We have a couple of questions from online.

Darcy Willson-Rymer
CEO at Card Factory

Which room they're going to call out the online questions.

Moderator

Yeah. Thanks, Darcy. There's been a number of questions online, so we're going to group some of these together to try and get through as many as we can in the time that we've got left. Picking up on the piece around card volume and pricing, so a couple of questions here. In respect of the LFLs in stores, this suggests there's been a fall in card volume. How much of this fall in volume do you attribute to the increase in card prices over recent years? Are card price increases good to cover short-term profitability, but bad for long-term strategic positioning?

Matthias Seeger
CFO at Card Factory

Great question on our pricing. We offer strong value at affordable prices. When it comes to cards, card is still our core, is and will remain our core competence. Therefore, we offer the lowest price at entry price at 15p, but we also offer cards that offer additional value at higher price points. Over the last several years, we have introduced more value to our cards, which was reflected in different price points. When we compare the price of our cards to competition, we still are very competitive, and we offer the lowest price on key value indicators. Yes, we've been able to increase our average selling price, but that was not by increasing prices on a specific card. That was by evolving the range in a way that we order cards for higher value at price points that are still attractive.

Matthias Seeger
CFO at Card Factory

Regards to volume, we always indicated that the card market, the volume is declining, with value being somewhat resilient. What we have seen over the last several months is that clearly as footfall has been down and average basket value have been stable. The overall card volume has somewhat declined. Having said that hasn't impacted our market share. We have maintained our market share over the last 12 months.

Moderator

Excellent, thank you. We've got a number of questions now relating to the wholesale and international businesses. The first one, partnership revenue growth appears to be slowing. Do you have insight on what's causing this? Secondly, is the international businesses a distraction? It appears to generate limited EBITDA. Is there much working capital tied up in the wholesale business? Thirdly, what are the main findings that you've taken so far from your international expansion to date, and how is this informing your focus on the U.S.A., and is there a high risk to focusing on the U.S.A.?

Darcy Willson-Rymer
CEO at Card Factory

Thank you. I think, first of all, I think it's important to reemphasize that our strategy is to take a methodical, disciplined approach through test and learn, to make sure that if we do, when we expand internationally, we're doing it in the right ways and we're doing it profitably. In terms of the growth split, you will have seen in prior periods, we were benefiting from the full year effect of the acquisition in Garvan and Garlanna, and the good growth that we've seen in the first half is all organic growth based on the existing business. We're pleased with the progress that we've made, both in terms of renewing existing relationships, but also growing the like-for-like sales in those particular markets.

Darcy Willson-Rymer
CEO at Card Factory

I think the learning is really to make sure, particularly for the U.S., is that our tests have shown that what U.S. customers are looking for is for a full offer from us. So not just cards. So they're looking for cards, bag, wrap, so all of the celebration essentials. Effectively, Garvan, our U.S. business, that has all of that capability, and we are backing into Garvan the capability to be able to sell cards, build ranges, so that they have the full offer. So that will be the entity that effectively goes out and sells the proposition, so that everything we do is profitable from the outset. In terms of working capital, I mean, it's a capital light model. Do you want to

Matthias Seeger
CFO at Card Factory

Yeah, I mean, obviously there's working capital in investment with any new business, and so it is with the wholesale business. That's part of the operating model. I just wanted to come back to one point, I think that was mentioned about the partnership revenue to be appear slowing down. Well, the results that we just posted was that actually wholesale, our wholesale business is up by GBP 2.2 million or 13.6%. Also, as Darcy Willson-Rymer mentioned, we are taking a deliberately cautious approach to how we grow in international markets, and particularly in the U.S.

Moderator

Thank you. Couple more online ones to get through. Do you have any intention to bring financial debt down? From the same person, are you planning a new capital markets day?

Matthias Seeger
CFO at Card Factory

I'm not going to go again over the principles of our capital allocation policy. But I think we've been very clear that we have very strict financial guardrails and that we will not exceed the maximum leverage of 1.5 times. At peak, we will obviously increase the 1.1 that we've had at the end of July to about 1.3. That peak is coming fairly soon. It's part of our seasonal model. But I think the capital allocation policy is very clear on what we do with surplus cash.

Moderator

One further one that's come in. What is the target EBITDA margin for the online business, and how much additional investment is required to get there?

Matthias Seeger
CFO at Card Factory

Listen, we haven't really discussed any target EBITDA margin. What I can tell you is that we are creating the platform that helps us grow our digital business in a way that it will be accretive to the overall group, and moving away from the current position where it is dilutive.

Moderator

Okay, and a final question online. What are the main elements of the significant CapEx forecast?

Matthias Seeger
CFO at Card Factory

Well, for this year and for this year alone, we indicated that we will be at the higher end of our guidance range. We're still within our guidance range. The two additional one-off investments this year relate to the investment in the manufacturing capacity and capability that Darcy talked about, roll wrap. The second one is the one-time investment in bringing the two businesses together between Funky Pigeon and Card Factory. In that respect, particularly the investment in the one digital platform.

Darcy Willson-Rymer
CEO at Card Factory

Brilliant. Thank you very much, everybody.

Matthias Seeger
CFO at Card Factory

Thank you.

Darcy Willson-Rymer
CEO at Card Factory

Thank you for joining us today, and safe travels wherever you're heading. Thank you.

Executives
    • Darcy Willson-Rymer
      CEO
    • Matthias Seeger
      CFO
Analysts
    • Russell Pointon
      Analyst at Edison
    • Adam Tomlinson
      Analyst at Berenberg
    • Analyst at UBS
    • Matthew McEachran
      Analyst at Singer Capital Markets
    • Ben Hunt
      Analyst at Panmure Liberum
    • Moderator
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