Card Factory has delivered an unwelcome early Christmas surprise for investors by issuing a shock profit warning during the greetings card retailer’s peak trading period, which sent shares plunging by more than a fifth.
The retailer, which also owns the online card and gift brand Funky Pigeon, said economic pressure on shoppers has hit confidence in its most important trading period of the year.
“Over recent months, the pressures facing the UK consumer have been well publicised,” the company said in a trading update. “It is an inescapable fact that these pressures have impacted consumer confidence and shopping behaviour, contributing to soft high street footfall.
“Those conditions have persisted as we moved into our most important trading period, leading to a UK store sales performance which is lower than our previous expectations.”
The company said that, assuming current trading trends continue for the remaining seven weeks of its financial year, it expects annual adjusted pre-tax profits of between £55m and £60m.
It had forecast mid to high single-digit percentage growth on last year’s adjusted profits of £66m. Its shares fell more than a quarter in early trading, before recovering marginally, down 23%.
The company said that its long-term strategy, including a productivity and efficiency programme to mitigate “ongoing high inflation”, continues to progress.
“The well-documented impact on consumer spending pre-budget has hit store footfall and sales, with the trend continuing into December,” said Kate Calvert, an analyst at Investec. “[Card Factory] does not feel it can make up ‘lost’ sales in the remainder of the year.”
The company is also facing pressure from the long-term shift in shopping habits away from buying and posting physical cards.
Royal Mail delivers about 6.6bn letters annually, down from 20bn two decades ago, with the postal regulator, Ofcom, forecasting the number to drop to 4bn in the next few years.
Meanwhile, the cost of stamps has risen sharply – the price of a first-class stamp rose to £1.70p in April, the sixth increase in little more than three years. A second-class stamp costs 87p.
In July, Ofcom gave Royal Mail permission to end second-class post on Saturdays and reduce the service to alternating weekdays from Monday to Friday.
Card Factory said that the poor performance in its UK business was not reflected in its other operations, including those in North America and the Republic of Ireland, which “remain in line with our expectations”.
The integration of Funky Pigeon, which it bought from WH Smith in July for £24m to boost its web offering, remains “on track”.
The company said: “The board remains confident in the group’s long-term strategy.”
On Friday, WH Smith said it was delaying the publication of its annual results again amid the fallout from accounting failures to give its auditor, PwC, more time to complete its procedures.
The results were originally meant to be released on 12 November but were delayed to 16 December and have now been pushed back to 19 December.
Last month, Carl Cowling, the WH Smith chief executive, stood down after an investigation found accounting failures in its North American division.
The accounting errors first emerged in August, and an independent investigation by Deloitte found “shortcomings” in the travel shop chain’s North American division that exaggerated supplier income, leading the group to overstate profits at its US business by as much as £50m.
The Financial Conduct Authority is in the process of assessing whether the company has breached UK disclosure rules for listed companies but has not launched a formal investigation.
In March, WH Smith agreed a deal to sell its 480 high street stores to the Hobbycraft owner, Modella Capital, which has since rebranded the chain TG Jones.
