Card Factory plc

Welcome to our Interims Results Update for FY22. I'm Darcy, CEO of Card Factory, and joining me today is Chris Lee, our Chief Financial Officer. Chris and I will shortly provide the financial performance update for the half one of FY22. Then, as we stated in our prelims, we will provide an update on our future growth strategy, which has been the subject to review over the last few months since I joined the business. Looking first at the financial performance for the first half of FY22, we are pleased with how the business has performed. With sales of $116.9 million, card factories achieved a like-for-like revenues of minus 3.7%, that's split by stores at minus 72%, and online at plus 50.2%. This has led to a $6.5 million loss before tax. We've continued our strong focus on cash, and our net debt is now below $100 million. Store transaction levels continue to outperform the springboard high street footfall data, demonstrating the strength of the brand and the customer proposition. And in addition, increased average basket value across multiple categories is offsetting the reduction in transaction volumes. So what's important to note? Unlike other retailers, if you missed a birthday party because of lockdown, that event will not be repeated. However, if, for example, we look at the wedding category, what we are seeing is that as restrictions have lifted, we see volumes rebound. Similarly, with children's birthday parties, as schools return, assuming no further restrictions like wedding, we would expect to see that category bounce back. Looking at online, that channel is performing well and will continue with our planned investment to drive future growth. Online is one of the growth areas examined through the strategy review, which I will talk through in more detail later. The transition is underway to becoming an omnichannel retailer, allowing customers to shop whenever and however they want. The strategy will show an increased focus on complementary gifting and party categories to enhance the offer and substantially increase the addressable market. And importantly, we will shift the focus of Card Factory from being a product-led to a customer-led business. Chris will now take you through the financial performance.

I'd just like to give you the financial performance for the first half of FY22 for Cardfactory. So just turning to the financial summary, overall sales were £116.9 million against £100.5 last year. Overall there was 60% of the year where the stores were allowed to trade this year against 48% in the prior year. That in terms of like for likes on a two-year basis against pre-pandemic levels was minus 7.2. Online and multi-channel was plus 50.2 with a net card factory like for like revenue of minus 3.7 delivering a loss before tax of 6.5 million which was an improvement on the loss of 22.2 million in the prior year. Net debt has been well controlled at 96.5 million down from the 143.9 in the prior year. And including the lease liabilities, that is £238.9 million. Just moving to a little bit more detail around the like-for-like sales performance in terms of how card factors outperform footfall trends in terms of what we've seen in terms of springboard data. I'll turn straight to the graph on the right hand side, which effectively shows in the top line where the average basket value within our stores has been since reopening in April. As you can see, the ABV was put over 30% up at the start. And in terms of transactions, the bottom line, the green line, were negative 30%. The middle line, the yellow one, is effectively the like-for-like two-year sales performance. And as you can see on the line, there's been a steady underlying recovery in transactions and therefore in terms of the like-for-like performance in that period. So just turn into the divisional analysis for Card Factory. Overall, in terms of store revenues, those were 102.7 million. Again, reflecting that 10 plus weeks at the beginning part of the year, we were in lockdown. Overall, the store transaction levels are still pre-pandemic levels. However, we have seen that strong recovery and demonstrating the strength of the Card Factory brand. We continue to review the estate of just over a thousand stores and to make sure they're in the right locations to maximise the sales and we increased the net store estate by three during the period. It's fair to say we're seeing in terms of retail parks much stronger performances in terms of the footfall and like for like sales. Moving to the online performance, even though year on year the online grew by 4.8%, we should bear in mind that actually the close down period in FY22 in terms of the stores was lower and therefore that is a pretty strong performance. Getting personal was down 20.7% but this was an internal decision within the business to go after more profitable sales and we're certainly seeing that within the bottom line where on pay-per-click transactions we're back in where we can see there's return on investment of them keywords. And in terms of partnerships, we've seen strong year-on-year growth at plus 17.8%, up to 2.3 million. Total retail locations have increased as well from 894 to 908. We've seen strong performance from Aldi and we've also agreed a contract renewal with them. The Reject Shop and Matalando were impacted by COVID restrictions in the period. I'd just like to turn to the margins of the business during the period. Overall, the costs of goods in the year were pretty much in line with the prior year in margin percentage terms and a slight improvement of 0.8 percentage points being driven by how we've managed to utilise a lot of the aged seasonal stock from prior seasons into the new year. Also store wages, even though store wages are up at £30 million against £23.7 million. This reflects really just the time in terms of less utilisation of the CGRS scheme. And store property costs down at £4.5 million from £6.9 million. Again, this relates mainly to the timing in terms of government support in terms of business rates. And then turning to direct expenses and operating expenses, you can see that year on year we've managed to keep them costs flat or slightly down. The only other point bridging down to the operating loss of 6.5 million is the net financing expenses that are slightly up at 6.5 million, reflecting the blended average of the financing that's in place now of just sub 5%. One other important call-out on the sheet is the other income, a one-off income of £8 million in the P&L. This reflects the government grants that's been received in terms of government support and non-essential retail closures. Just turning to the free cash flow, we've seen a continued improvement in the cash generation of the business and largely driven by the improvement in sales and the profit performance overall. Two further call-outs in terms of the cash flow is one on the networking capital, where we've seen that 4.7 million negative. This is purely down to the deferrals that we managed to negotiate with landlords on rents and with HMRC in terms of VAT. Further down the cash flow you'll see lease liabilities that again it's £1.7 million negative. This again is being driven by just the timing and deferral of payments on rent into the current year. So overall a very positive free cash flow plus £14.5 million against £1.1 million last year. One further important point on the free cash flow is the note at the bottom. You might remember at the year end, I mentioned that there was 21 million of rent deferrals that we negotiated and there was a further 19 million of VAT payment deferrals also. As we sit here at the half year, we've now got 26 million of rent deferrals as we've had further lockdown periods and we've negotiated further rent deferrals there and the VAT liability deferrals are now 7 million. I expect by the year end that into FY23 most of the payments will have unwound in 22, but by 23 there could be between 6 and 12 million of them deferral payments hitting that year's cash flow. So I'd just like to move to the liquidity update. You'll remember in May of this year we gave an announcement in terms of the securing of 225 million. of financing facilities for the business. This was with replacement covenants until March 2022. Other important terms that were mentioned in the agreement in May was that we have the requirement to either raise 70 million net equity by July 2022, or to prepay 70 million using funding from other subordinated sources. It's fair to say as a business, the capital investment has been tightly controlled to preserve cash whilst at the same time investing in the long-term strategic objectives. The focus is on maintaining a capital structure that is conservative yet efficient in providing long-term returns to shareholders. And the group's capital policy continues to be under review as trading conditions become clearer and as we see the transactions on the high street recover. I'll now pass back across to Darcy to give an update on the refresh strategy.

As previously stated, I would like to use today to provide an update on our future growth strategy. We've undertaken a review of the five-year strategy, which was originally announced at the Capital Markets Day last July. We needed to understand the impact of COVID on the strategy, but I also wanted to ensure that it could deliver the growth that shareholders expect and contained enough ambition to seize the opportunities that exist both within the markets we serve and the markets we could exploit to create maximum shareholder value. Working at pace, we have stress tested and evolved the strategy. And for reasons I will explain, there's still more work to be done in some areas. However, what we have is a strategic approach that will build on our market leading proposition in cards while positioning the business to access broader market opportunity. So let me start by clearly outlining our vision for CardFactory, where we will be by the end of FY26, and when we've delivered on our opening, our new future strategy. Over the next five years, we will transform Card Factory into the first omnichannel brand in our space to help customers celebrate each and every special occasion. We will become the number one UK destination for all customers seeking unrivalled quality, value, choice, convenience and experience. and we will broaden our international footprint, putting more cards and gifts in the hands of more customers around the world. Delivery of the strategy is expected to drive an acceleration in revenue growth and margin expansion, growing revenues to over 600 million pounds by FY26, with approximately 20% generated from online and multichannel and retail partnerships. while creating a business with a low cost base and a highly scalable business model. We expect the delivery of the strategy to result in a shift in product and channel mix alongside investment resulting in PBT margin trending towards 17% over the long term. By building on our existing quality and value heritage, we will take CardFactory on a journey that provides our customers with more convenience by providing greater access to our products wherever they are and wherever they want them. More choice by building upon our leading card offer to expand into complementary ranges and an exceptional customer experience that makes Card Factory a destination brand for more customers. If we want to make best use of our nationwide store estate and respond to today's customer needs, then we need to transform the business from a predominantly store-driven retail model to a full omnichannel offer that uses existing and invested infrastructure to become the first card and gifting retailer to provide a seamless physical and online customer experience. This will provide access to all categories, anytime, anywhere, including our personalized products by app or website at home or on the move. We believe that Omnichannel provides the opportunity to leverage our brand, store estate, vertical integration, quality and value proposition, as well as our investment in our online channels to materially increase our market share of the online market. The UK online market for cards was estimated to be worth $550 million in 2020. That's up from $177 million in 2019. We are therefore targeting circa 10% of group revenues from online by FY26, up from 2% today. The budgeted omni-channel capital expenditure will include near-term investment with areas of note including enabling our customers to access our brand and offer at home, on the move via our apps and in-store through web access. This will allow our customers to access our extended range in-store and will test options to understand appetite and investment return. increasing the range of shipping options to home or store that meets every budget, increasing our fulfillment capacity, accuracy, and speed to deliver against our customer service promise, and enabling customers who want to self-serve throughout the journey to be supported by an AI experience focused on recommendations, personalization, notifications, and live chat. The store portfolio will be optimised to ensure Cardfactory has profitable stores in high footfall locations, with 100 new stores added to our existing portfolio of 1,000 stores across the UK and Republic of Ireland by FY26. These new store openings will be focused on under-penetrated areas including London and areas of high footfall including retail parks. The store optimization program will continue with locations selected based on profitability and returns. And our stores will remain a vital route to market and are not simply legacy assets. Store revenues will continue to grow in their own right, but will simply be a smaller proportion of the mix as our online growth accelerates. Initiatives such as targeted pricing and an increased gifting range are expected to improve in-store sales, increase average basket value, and offset the structural trend of minor year-on-year footfall decline. As part of our omnichannel transformation and through continued platform investment, we expect to increase our share of the online market from 2% to 10%. Our new business development director, Syed Kazmi, joined in late August, and over the coming months, we will have designed and started delivery of our new partnership strategy. This will allow CardFactory to reach more UK customers for modest investment in additional convenient locations that meets the growing demand for impulse buying. Internationally, we will use the group's expertise, including card design and customer insight, to expand into new territories through partnerships into markets that show attractive characteristics for entry and disruption. While continuing to be a card-led retailer in a stable market where 76% of adults are card givers, we will meet customer demand by providing greater choice through complimentary gifting and party ranges, opening up access to a large market worth 40 billion per annum in the UK, capturing more customer spend and increasing average basket value. We are already leaders in party and balloon categories. And for stores, we will be looking at expanding into additional categories such as stationery and confectionery with other categories also being explored. This will not come at the expense of cards in store. It's about making smarter, more agile choices about the space dedicated to complimentary categories. The card range will be broadened in terms of introducing more modern and contemporary choice and a clear focus on the proposition in store to help shoppers. However, we expect the SKU size will remain the same. Online will have a far broader offer more across complementary categories. And at all times, our vertically integrated business model will remain a unique point of difference, affording us the flexibility to respond to market changes and enabling efficient, high quality production at attractive margins, supporting online growth with lower costs per unit. Providing a new omnichannel service, Card Factory will improve the customer experience and access to its offer by being the first card and gifting brand to bridge digital with its store estate. This will be supported by an improved customer understanding from new data capabilities, including through the rollout of the group's new RP platform in Q4 this year. This will allow us to understand and respond to changing customer habits and preferences, including insight on price elasticity, enabling us to evolve our pricing approach while maintaining high levels of customer satisfaction. We will continue to invest in our brand based around quality and value to increase customer awareness and improve trust. Lastly, we will develop our ESG strategy to be recognized as a socially and environmentally responsible business, building on the wide range of existing initiatives that we already have in place. These include the recently introduced foil balloon recycling that is available to any customer visiting our store. We also are proud to have increased our store recycling to 87% of all store waste. And we will be a positive contributor in the communities we are present in. And we continue to be proud of our association with Macmillan Cancer Support, for which we have raised 7 million since the start of our relationship. So in summary, Our opening our new future strategy is built upon using our market position, customer loyalty and vertically integrated model to provide a platform for our new omnichannel strategy. Expanding into the gifting segment which is highly complementary to the card giving market where we are market leaders and which is highly resilient. Our refreshed growth strategy will deliver sustainable revenue and profit growth and we will be making further investments and development across channels to improve convenience, choice and experience for customers. Now, with the Christmas season upon us, I want to provide an update on our preparations. We are well positioned with stock intake brought forward and car factories in-house printing capabilities covering 70% of the range. We've brought forward recruitment to mid-September, supporting the challenging market we face, and system changes mean we can provide a smooth and speedy onboarding process to retain successful Christmas candidates. Almost all Christmas and everyday ranges will move to auto replenishment. This will ensure the right stock is in the right stores and we free up colleague time to focus on customer service. Our product ranges have been planned and built around three new key design trends this year, including our character of the year, the Yeti, which is an amazing character and I'd encourage you all to go out and buy it. This is supported by lots of great value for money offers throughout the entire store, including cards from 29P, fabulous gifting ranges from soft toys to monogram gifts to festive books, and even amazing chocolate character decorations for the tree, all for only one pound. Across our single Christmas card range, we've worked hard to significantly reduce the amount of glitter used throughout the range. In addition, we're pleased to have been able to remove all plastic from our box card range, saving the equivalent of six and a half million plastic bottles. So in summary, Cardfactory is now well positioned for growth, targeting over 600 million of sales by FY26. We will open 100 net new stores, adding to the existing portfolio of over 1,000 stores across the United Kingdom and the Republic of Ireland by FY26. We will transition towards 20% of sales expected to come from online and omnichannel and retail partnerships by FY26. Our PBT margin will trend towards 17% in the longer term, reflecting shift in product and channel mix. And we will have completed our transformation to a full omnichannel offer. Thank you for your time today. We now look forward to answering any questions that you may have.

Thank you very much. We've had quite a few questions on the webcast. Just as a reminder, if you'd like to submit a question, please use the toolbar at the bottom of the screen. Our first question comes from Vikram. He's got a few questions here. First one is, In the May Trading Update, an annual report, the company intended to use best efforts to raise equity net proceeds of £70 million. But in the latest update, the wording has been changed to the company is permitted to facilitate these payments through the issue of new equity or through debt. The wording has been changed to exclude best efforts for equity raise. Why is this?

Yeah, just to be clear, there's no change there at all. Best efforts is still the case on the equity raise or to prepay through subordinated debt. So that's just an update on the presentation. There's no change in terms of the best efforts requirement.

Thank you. And another question for Chris. That's from Vikram again. He's got two questions. He's got three questions here. I'll ask them all at the same time. First one is, what is the due date? the term loan and CLBIS debt? Second question is how much is in prepayments do you need to make by July 2022 to avoid paying the five million pound penalty? And his last question is what conditions do you need to meet to be able to extend the RCF loan to 2024?

So the first question, what was the due date for the term loan and CL bills debt? That is effectively September 23 in the agreement. How much in prepayments do you need to make by July 22 to avoid paying the 5 million penalty? So the way that works is effectively if we raise 70 million net equity by November, then we pay none of the 5 million penalty. So after July, we pay the full 5 million penalty, and then there's a ratchet in between. If we come short of the 70 million, then the 5 million is effectively prorated on that amount. In terms of the extension through to September 24, that is basically based on us doing a successful exit raise of 70 million or the subordinated day of 70 million.

Thank you and our next question is from Harvey Jones. What progress has been made on growing partnership revenues and how close is Cardfactory to agreeing any new deals?

Thanks for the question. I think partnerships remains an important part of the strategy and we continue to make progress.

I think the biggest development is us hiring Said as our new business development director who is very experienced in this space. He joined us a few weeks ago and he's in the middle of reviewing the work that we're doing and the strategy. So more information to come in the future.

Thank you. Next question is from Richard Martin. Why are you not milking your state by extending hours, not only weekdays, but also on Sunday, specifically in areas that you're close to other longer opening stores? You can also, on most of your shops, open for longer on Sundays. That's more of a comment. Maybe Darcy can address that one.

Yeah, sure. So we have a program where we Um, we review the opening hours of all stores clearly, uh, given the low price point and the labor costs, uh, making sure that it's economic is important. Uh, and, uh, Steve, our retail director has a program where that gets reviewed, uh, frequently and we make changes, uh, as is necessary to the estate.

Thank you. Next question is from Peter Canlish, who's asking, please can you expand on why online revenue is still so slow in absolute terms? Or why is growth slow? What will make Card Factory's online market share grow over the next 12 months and coming years?

Yeah, so in terms of online, we were relatively late coming to online. The platform went in... about a year ago, then we've launched the apps. And also during lockdown, we had capacity challenges on fulfillment. So we continue to invest in the technology and continue to invest in fulfillment so that we can trade the peaks well. And we continue with the strategy that I've outlined, we've done a deep dive on online and we have a robust strategy and program of works that will help us grow that business significantly.

Perfect. Thank you. Our next question is from Adam Tomlinson from Leverum. And Adam is asking, can you please talk a bit about how you see the outlook for costs heading into 2022 and freight, wages, rents and utilities, etc. And what levers do you have to help mitigate pressure if they persist? Maybe that's a question for Chris.

Yeah, so just taking them in turn. So I suppose in terms of freight, everybody has seen in terms of increasing freight costs, there will be some headwind from that in the second half of the year. In terms of mitigation, one of the things that we're looking to do is to effectively try and flatten the intake so in terms of wages certain things like agency staff and things for covering Christmas trading period and obviously there's been a lot said in the market in terms of pressures in my area we've gone quite early in terms of recruiting those That's going well, but clearly there's still a bit of a runway in yet to go into Christmas. But so far, you know, we're not seeing any major sort of wage inflation there. But there's time to go. There could be some pressures on agency staff. In terms of rents, overall, we've been getting good rent reductions. Obviously, these ones where the leases are coming up for renewal. Most of the rents agreed where we did deferrals, were deferrals. Some were with some cash savings on them, but overall in the year, the ones that we've renegotiated, we've got good results on. There is some where we've tried to take advantage and bring some of the rent reviews forward. forward a little bit um and negotiate early while the market's where it is and then finally on utilities in particular obviously electricity and wholesale prices where they we're hedged out for the next three years, effectively, on electricity. So we've took steps to mitigate that cost. But yeah, I suppose the big one there is the freight piece. And as a business, we're looking at what levers we can pull in terms of offsetting that cost, as well as how efficiently we can bring the stock in.

Thank you. And there's actually another two questions from Adam. So we'll take them all now. This other question was, How are you looking at your headroom to increase prices? And can you give any more information slash updates on discussions you're having with potential new retail partners?

Thank you. I think from a pricing perspective, clearly we're putting some price increases last year, which we have seen no adverse effect on volumes. We are doing a piece of work around understanding pricing elasticity. I think the way we should be thinking of this is pricing's a lever for us to use to offset inflation as well as other things around productivity that we're working on. And we are focused on maintaining our value proposition at the same time making sure that appropriate inflation is passed on. In terms of partnerships, I've got nothing to update further beyond Sai joining and he is reviewing the strategy as we speak.

Thank you. Next question is from Toso, who's thanking you for the presentation and asks, what is the criteria used to choose between the capital raising mechanisms? He says, at the current market cap, a 70 million equity raise would cause an enormous dilution for current shareholders. What are less damaging options and why is this path not clear yet?

So the process, obviously, we've been through, we did the refinances, as we said, in May. The board are considering all options. Clearly, we're taking into account all stakeholders, including shareholders. On the point there, if it was an equity raise option. but also there's other debt options that we're looking at as well. So there's nothing to update at the minute on that, but rest assured, myself and the board are actively looking at all options and we hope to bring clarity on this as soon as we can.

Thank you. Our next question is from Patrick Gerrard. who's asking, is there a forecast when the decision to increase the company's capital will be taken? Considering that the lockdown is over and the future prospect of revenue is at least equal to the pre-pandemic level, what is the probability that it will be necessary to raise more funds via the issuance of new shares?

On that one, I'd have to refer back to my previous answer, really. Like I say, we're looking at all the different options in terms of debt options and the equity raise options as per the agreement in the bank agreement.

Thank you. Perfect. Another question from Harvey Jones is, could Cardfactory consider a marketplace model for its website, i.e. allow complimentary retailer space on the website, but not to handle their own fulfilment?

example being flowers i'm not really sure if that's a question but maybe darcy can address that yeah i can take this one yes so as part of uh the strategy we talked about uh expansion and gifts in complementary categories and uh doing gifts uh fulfilled by third parties is definitely an option and something we're looking at thank you very much um next question is from ulrich um who's got two questions

First question is, is there any chance the loans to be repaid with 2022 could be financed by operative results without going for a capital increase and losing shareholders' capital? Have you maybe contacted your major shareholders if they can support you concerning organising a financing through subordinated loans? The second question is, concerning the international partnerships, which countries are you approaching now? And that is his question.

So yeah, a similar sort of line of questioning again. There's no further comment I can make really, apart from we have consulted with all stakeholders as you'd expect us to, but ultimately the decision will rest with the board on what their options are. The second point concerning international partnerships in which countries sort of laid out in the capital markets day which countries those would possibly be and as uh darcy mentioned said now being on board but only for a short period he's been with us clearly one of the key things he's assessing is the uk and internationally what the opportunities are thank you we have a question about the yeti um maybe darcy can take this one how invested is card factory and the yeti

Look, we have our products team, both the commercial team and the design team, I have great confidence in. And I think the Yeti we're excited about.

We think it'll be a good seller this year. And we have, you know, basically purchased appropriately. So, yeah, so we're excited about it.

Perfect. And next question is from Keith Calvert from Investec. She has three questions. First question is, is there an opportunity to take out cash rent going forward or given looking at ads circa 100 as a flat profile, more appropriate year on year? Second question is, views on pricing architecture with recent trials of higher price points and potential to stretch it. And our last question is on the partnership model, can you talk about where you're up to in developing a pipeline and should we expect news on additional contracts in the next year?

I'll take the first question. So I suppose just reiterating on rent, what we agreed during the lockdown periods is negotiated with landlords in terms of deferrals. Now there was options to maybe get cash reductions on then deferred rent, but only on the basis a lot of these deals were signed up to longer tenure. And one of the things we've always kept in the portfolio is to keep it as flexible as we can in that two and a half years, you know, reducing the lease lengths, which I think is even more important that we review that as the thousand stores and locations. Like I say, we are getting rents down in terms of the negotiations that we're currently having as leases are coming up for renewal. And in terms of the circa 100 um stores that we're looking to add on uh you know we still think 1 100 stores is is achievable um the the but the focus will be on making sure they hit the investment criterion um and hurdle rates you know that 18-month payback has always been something that we've looked at so that will still remain the focus when we're assessing you know adding that 100 stores but I think equally, if not more important, is more the thousand stalls, their location, maximising sales out of their locations.

Thank you. And we actually have another question from Kate as well. She says, can you give some detail on investment needed in manufacturing to deliver your refresh strategy?

Sorry, I don't think we answered the point.

Section two and three, you can answer the second part.

in terms of i think in terms of the other two questions around uh you know pricing architecture um i've answered a few questions look i know there's quite a lot of energy for us to be very specific about what headroom we think there are in prices. And that's a really difficult question to answer. I think I will say that historically, it's an underutilized lever in the business. And it's one that we do have at our disposal and we will use appropriately. But it is also about maintaining the balance

uh between value and uh and price we have recently done a full market uh competitor review of pricing um you know to to know where where we sit so i think it's just uh i don't think i have any more detail you know kind of other than that um and again partnership model i think i've addressed that question

Perfect. And yeah, just back onto Kate's follow-up question. Can you give some detail on investment needed in manufacturing to deliver your refresh strategy?

I mean, the manufacturing side and the vertical integration side has always been obviously a competitive advantage and something that we've always focused on investing in the right areas. So, you know, in the past, we've invested in the envelopes, how we... use foil which is quite an expensive commodity more efficiently and so that's constantly under review we don't think there's a there's an area where there's a a massive investment or any we think we need to make a big investment. We invested in a new printing machine last year or so, which was double the speed. So we've got quite a bit of capacity in there. So really the other investments we'll look at in the manufacturing side is where we still think we can do things to try and enhance the costs of goods, particularly obviously around cars.

Thank you. We have another question from Vikram. This one can be for Darcy. Can you discuss more about your competitive landscape in the gift market compared to pure online player or other card pure online only players?

So a few things on gifts. First of all, in the original strategy when we did the customer segmentation work, that work was done around cards. So we refreshed that work and we're looking at the customer segmentation based around gift. So we've got some data and we have some things in research for us to test around the gifting. So I think that's... One area. The second thing would be is I think we and most of our competitors do seasonal gifts very well. So it's Christmas, Mother's Day, Father's Day. I think there's an opportunity to us to do every day gift and to own that space. I think also the gift market is a 40 billion market. That is not the total addressable size for us, but it's a significant size market. And therefore, there are opportunities for us to exploit that. We know that 72% of customers or of people in the UK send gifts with cards. And again, that's why there's a great opportunity for us.

Thank you. Our next question is from Sir Ant. With the current increase in supply chain costs, how has that impacted your cost of goods sold? Approximately, how much of your cost of goods sold pre-COVID were made up from freezing costs and how much were year-to-date?

So I think you can see from the half year margin position that we've managed margin quite well, even with some of the freight issues. I think on the overall product margin, we still remain quite confident in maintaining that in the medium term. Certainly, I think second half of this year, we will see a little bit of pressure in there, like I say, on freight costs. I think, you know, That's sort of trebled, but we're looking what we can do to mitigate it. So I won't give a profit or margin forecast on that. But yeah, that's probably the one area of concern, I suppose, for the secondary.

Thank you. Another question from Harvey. To what extent have stores which saw closure of Clintons or other competitors benefited? Have these stores seen an improved LFL performance due to increased small area market share?

Yeah, I think to do with Clinton's, I think, and other competitors, I think it's always thought that once a Clinton's closed, we'll pick up all them sales. There is a slightly different customer that goes into Clinton's, but equally, I think we've eroded a lot of that customer base over the years. So we do see an uplift in the life-like sales. But, you know, in terms of locations, we know all the locations are Clinton's, Paperchase, et cetera, locations in the town and where we want to be. So we're pretty comfortable, you know, even Clinton's, if all the stores were to close, obviously they've been in a reducing portfolio and restructuring as is Paperchase. We're already in pretty good locations. There's fairly limited locations where we'd want to relocate where a Clinton store or Paperchase would.

The next question is from Richard Martin who is making more of a statement. He's saying extending shopping times do not cost that much more and where I see your stores they could be extended as they can sometimes be one of the first to close. What are your thoughts on that statement Darcy?

So I think, I'm not sure, Richard, you asked this question earlier and therefore you didn't think the answer was full enough or if it's a repeat. But we do look at footfalls by hour and we have a criteria by which we make decisions about what the shop opening hours are.

to effectively capture customer need, but also to make sure that the shops are profitable. It's something that we review frequently. Happy to take a specific look at it and feel free to get in touch if you have a particular point you want to discuss.

Thank you. That concludes our webcast Q&A today. So hand back to yourself, Darcy, for any closing remarks.

Great. Thank you very much for hosting. To everybody on the call, we really appreciate your time and engagement today. And we look forward to engaging again in the future at our next update. Thank you all.