At least one company is defying conventional wisdom and exploding popular myths. No one buys cards any more, they text, surely? Not true. Physical greetings card sales are growing by value, albeit slightly declining in volume. Moreover, 18 to 34-year-olds are buying more. Valentine’s Day and Thank You Teacher cards produce the biggest growth. Digital greetings cards just haven’t caught on.
Buying a card is a dull chore? No. Card Factory says that 50 per cent of all its store visits are planned and are the main reason for a shopping trip. Its customers take great pains and time to choose the most suitable card.
No one in their right mind would be expanding on the high street when everything is moving online? No, again. Card Factory opened a net 50 new shops this year, taking its UK total to 915. Moreover, it plans to expand.
Card Factory’s results yesterday showed a company in reasonably good heart after a difficult year. Pre-tax profits fell by 12 per cent to £72.6 million. The plunging pound pushed up the price of imported cards and merchandise such as mugs and balloons. The national living wage was a particular headwind, given its thousands of modestly paid shop assistants. The good news was that underlying sales accelerated. Like-for-like sales growth, which had slowed to 0.4 per cent last year, bounced back to 2.9 per cent.
Sales via the website soared by 67 per cent, up from 50 per cent in the previous year. Not bad, given the much weightier advertising budgets of rivals including Moonpig, owned by Photobox, and Funky Pigeon, owned by WH Smith.
Card Factory’s other website, Getting Personal, for personalised gifts, has been a disappointment, with sales little more than flat and profits below expectations, but it is too small to move the dial by much.
The high street is tough, but there are reasons to be cheerful. First, cost issues should ease this year, especially if the pound stays at its present level and if Karen Hubbard, chief executive, succeeds with efficiency improvements. Second, the company has — at last — the tools to crunch its sales data, which should produce big dividends in stock selection and control. It’s scarcely believable, but only now is it installing electronic point of sale systems, which other chain stores have had for decades.
Third, the group’s property needs are not too much of a drain. Unlike retailers in more prosperous places, Card Factory benefited from the business rates revaluation. The problems on the high street are also pushing down rents and making it easy to find new premises.
Fourth, the company has some insulation from any downturn because of its value philosophy. Its cards start at 29p.
The shares are not without risk. A few years ago Clinton Cards, now reborn, went bust. Card Factory has debt of £161 million, compared with £136 million a year ago. Leverage is up, with net debt now 1.72 times ebitda profits, up from 1.38 times. With profits expected to be flat this year, the shares, after yesterday’s 13 per cent increase to 214p, trade on around 11 times expected earnings, which looks relatively good value.
The real appeal lies in the income that they produce. Card Factory generates oodles of cash. There’s the ordinary dividend, up 2.2 per cent to 9.3p, but also the expectation of a special dividend on top. This has been 15p for the past three years.
The company is warning shareholders to expect a special of between only 5p and 10p this year. Yet even on that basis, the total payout should be at least 14p to 19p. That represents a yield of between 6.5 per cent and 8.9 per cent.
ADVICE Buy
WHY Generous income stock that should benefit from easing cost headwinds in the coming years
Hostelworld
What do the former boxer Chris Eubank, the rapper 50 Cent, the Hollywood actor Charlie Sheen and, as of this week, the singer Mariah Carey have in common? They all love youth hostelling. Or at least, all have been hired to front advertising campaigns for Hostelworld, the hostel booking website.
The celebrities may seem a strange choice for a business in which under-30s account for 75 per cent of its customers, but they appear to be working. Shares of the Dublin-based group, which floated at 185p in November 2015, jumped by 21p, or 5.7 per cent, to 387½p yesterday after strong full-year results.
Net revenues rose by 8 per cent to €86.7 million, a jump of 10 per cent at constant currency rates, while underlying earnings grew by 10 per cent on an adjusted basis to €26.4 million, up 13 per cent at constant currency. All of which produced enough cash to enable it to lift the final dividend by 15 per cent yet end the year with cash on the balance sheet of €21.3 million.
Hostelworld is tapping into the growing trend among millennials for a “social travel experience”. Most of the 16,000 hostels around the world on its books bear little relation to the perceptions of a youth hostel — hence the theme of the celebrity ad campaign — and technology is playing an increasingly important role in Hostelworld’s growth.
Guests can use its app to make a booking — more than half the 7.5 million last year, up 6 per cent, were made on mobile devices — and to search for local restaurants and bars, check a noticeboard of events at a hostel and look up a local weather forecast. It has added a “speak the world” translation tool to foster social interaction among its customers.
The company has created a new software development centre in Portugal and is testing different ways of working with its two types of customer — the hostels and their guests. Whereas most guests book late, those able to book earlier can get a lower, non-refundable rate. Its latest pilot scheme offers free cancellation on bookings to encourage more people to book, but at the full rate. Both appear to be boosting business.
ADVICE Buy
WHY Caution over uncertain markets in Europe and currency headwinds is offset by resilient growth prospects
