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Card Factory (LSE:CARD) experienced a significant decline of nearly 19% on Tuesday following the announcement of a sharp drop in first-half profits, primarily attributed to an increase in the UK’s national living wage. The company reported an adjusted pre-tax profit decrease of 34%, totaling £14.5 million for the six months ending in July.
This decline was largely driven by substantial hikes in the living wage, which rose by almost 10% earlier in the year, bringing it to £11.44 per hour for adults. Additionally, rising freight costs further impacted the company’s financial performance.
In response to these challenges, Card Factory outlined plans to enhance productivity and efficiency for the remainder of the year, noting that these improvements will be weighted toward the second half. Despite the profit downturn, revenue saw a 6% increase, reaching £233.8 million, fueled by growth in gift and celebration product sales.
Chief executive Darcy Willson-Rymer emphasized that as the company approaches the crucial Christmas trading season, its expectations for the full year remain unchanged. He also highlighted the focus on managing inflationary pressures within the business during this period.
Net debt rose by 4% to £74.9 million, partly due to £15.5 million in dividend payments made in the previous year. The company declared a dividend of 1.2p per share for the half-year, reflecting its commitment to returning value to shareholders despite the challenging operating environment.
The sharp decline in shares following the announcement underscores the market's reaction to the profit drop and the implications of rising costs on the company's profitability. As Card Factory navigates these challenges, it will be essential for the company to effectively implement its strategies to enhance efficiency and manage costs while capitalizing on seasonal sales opportunities.
