Management said increased cost and margin pressures will mean "limited" EBITDA growth in FY18.
Companies: Card Factory Plc
Card Factory (LON: CARD) shares have tumbled today as Management warns on profits due to increasing costs such as forex headwinds and inflation, as well as increasing margin erosion.
Management felt it had a " solid" Christmas trading period which has helped its 11-month sales to the end of December jump 6%, up from the 4.3% growth experienced in the prior year.
It also opened 48 net new stores, with a further two expected before its fiscal year finishes at the end of January.
Management warned, however, that the impact of foreign exchange and wage inflation in FY19 will:
"...result in £7-8m of additional costs."
Despite the growth in Sales, Management has warned on profits for the year after LFL sales growth was driven by lower-margin products. As a result of this plus its increased costs it now expects:
"...underlying EBITDA for the year to be in the range £93-£95m."
This is down from the reported £98.5m the previous year.
The stock took a blow this morning off the back of today's profit warning, which is the second in four months, trading down 19% to 229p at the time of writing.
Karen Hubbard, Card Factory's Chief Executive Officer, said:
"As we have reported previously, the Group has faced significant cost pressures in the year; these, together with the further change in margin mix given the ongoing out-performance of lower-margin non-card categories, are reflected in our expected outturn.
"We anticipate that the combined impact of foreign exchange and wage inflation in FY19 will result in £7-8m of additional costs; whilst we have plans to mitigate this impact as far as possible, we recognise that against this backdrop, any EBITDA growth for the year is likely to be limited. Looking further ahead, cost headwinds should ease unless there is a further dramatic shift in sterling."
Today's price drop means it trades at a two-year low.
The Company has a forecast dividend yield of almost 6% with an average operating margin of c. 20%. It does, however, had a Net Debt position of £145m.
