Card Factory plc

Welcome to the Card Factory FY26 Preliminary Results Presentation. Please welcome to the stage, CEO, Darcy Wilson-Reimer.

Good morning, and welcome to our full year results presentation for FY26. Thank you for joining us today, whether you're here in the room at UBS or whether you're joining us online. I'm Darcy Wilson-Reimer, CEO of Card Factory, and joining me today is Matthias Sieger, our CFO. Following an introductory overview of the past year, Matthias will provide the financial performance update for FY26, and Matthias and I will then provide an update on the celebration occasions market and the progress we have made on our opening our new future strategy. Matthias and I will look forward to answering any questions that you may have at the end. Despite a challenging consumer backdrop in FY26, we continue to execute our strategy to transform Card Factory into a global celebrations group. While maintaining our position as the UK's leading card specialists, we continue to expand across occasions and categories. And this is reflected in the continued development of our gift in Celebration Essentials offer as we continue to increase our share of the celebration occasions market. At the same time, our focus on value and quality remains central to our customer proposition, ensuring we remain relevant and in this more challenging environment. On behalf of the board, I'd like to recognize the continued commitments of our colleagues across the group. I know we have a large number of colleagues on the call today, and I'd like to personally thank each and every one of you for your contribution throughout the year and over the course of our strategy today. So thank you, colleagues. FY26 reinforced that celebrations remain an essential part of everyday life with our customers continuing to prioritize key moments. This was despite the shift in consumer behavior as we approached the key Christmas trading season when we saw customers shopping less frequently but spending more, resulting in more challenging trading conditions as confidence weakens and football declines. Against this backdrop, group revenue increased by 7.4%, to 582.7 million, supported by new store openings and the annualization of prior year acquisitions. At the same time, we've strengthened our multi-channel capability through the acquisition of Funky Pigeon, which has accelerated our digital strategy, provided enhanced capability, and expanded our digital customer base, contributing 13.5 million pounds of revenue in the year. However, Like-for-likes store sales were broadly flat at minus 0.2% with higher average basket values driven by targeted pricing actions and ongoing victor shift offset by fewer transactions due to low consumer confidence affecting half-to football. Our adjusted PBT of 56 million reflects the impact of the weaker half-to trading across UK stores alongside ongoing cost inflation although disciplined execution of our Simplify and Scale program helped mitigate a significant proportion of these pressures and supported strong free cash flow generation of £40.7 million. The Celebration Occasions market remains resilient, with over 99% of the UK adults consistently shopping this category. Moreover, our addressable market within Gifts and Celebration Essentials continues the growth seen since our capital market strategy update in May 2023. Through the year, we've continued to invest in the business and strengthened the foundations for growth in celebrations. This continues with robust plans in place for FY27 to deliver against our strategic priorities and medium-term ambitions, which are focused on increasing participation across more occasions and categories through our channels and markets. Whilst we remain mindful of the potential implications of geopolitical developments on consumer sentiment, we expect to deliver adjusted PVT in FY27 in line with current market consensus. The Board remains confident in the profitable growth opportunity for the business and has recommended a final dividend of 3.7 pence per share resulting in a total dividend of 5 pence per share. In addition, the board has concluded that the group has surplus cash at the end of FY26, supported by our strong free cash generation in the period, and as a result, we will shortly commence a share buyback program with the intention to repurchase up to £15 million worth of shares during FY27. For more detail on this and our financial performance for FY26, I'm going to hand over to Matthias.

Thank you, Darcy, and good morning, everyone. I'll take you through our FY26 financial performance and the outlook for FY27. The key message is that we deliver good revenue growth, strong cash generation, and disciplined capital allocation, while managing through a more challenging UK consumer backdrop in the second half. For FY26, revenue grew 7.4% to $582.7 million, with continued progress across stores, wholesale partnerships, and digital. We delivered adjusted PVT of £56 million in line with our updated guidance. With inflation being largely contained through the benefits of the Simplify and Scale program, profitability was impacted by soft footfall in the UK due to the challenging consumer environment. Cash was the standout. Adjusted free cash flow of £40.7 million, equivalent to 99% of adjusted earnings. We maintained a strong balance sheet, net debt close at £67.9 million, and an adjusted leverage was just below one times at the end of January. Excluding the funky pigeon acquisition, debt would have reduced by close to £19 million. We are also returning cash with discipline. 92% of FY26 free cash is being returned to shareholders with a progressive 5B dividend, the completed £5 million buyback in an intention to commence a £50 million buyback shortly. Turning to revenue in more detail. Group sales increased from £542.5 million to to 582.7 million. Stores contributed a growth of 7.8 million, supported by state extension, while like-for-like sales were slightly down at minus 2% for the year, reflecting softer UK footfall in the final quarter. The UK was impacted by lower consumer confidence and softer footfall, while the Republic of Ireland delivered like-for-like growth of plus 4.8%. Wholesale more than doubled to 47.2 million, supported by organic growth and the initialization of the Garvin and Galana acquisitions. Digital sales increased to 20.6 million, increasing by more than 50%, reflecting the acquisition of Funky Pigeon, partially offset by the closure of Getting Personal, with the focus now on integration and delivery of synergies. The core store estate continued to grow, and our strategic growth channels made a larger contribution through acquisitions and partnerships. That gives us a broader and more diversified profile than we had historically. It is important to be clear on the challenging UK consumer backdrop in the second half, and especially in the last quarter. As consumer sentiment weakened and disposable incomes came under more pressure, footfall and transactions in the UK stores softened. Due fall consumer confidence was at minus 11 points and 60% of households were worse off year on year on disposable income. December footfall was down 2.9%. As a result, our life-for-life store sales were down 1.7% in half two, leaving total UK store sales flat year-on-year in half two. In a store-led model, when sales soften, profits are disproportionately impacted because the business loses operational gearing while still carrying inflationary pressures. In our case, lower sales reduced our ability to absorb cost inflation through volume by around £4 million. We also saw related non-cash accounting provisions for stock and store impairment charges of around £4 million. Despite PVT declining year on year, fewer than 2% of stores made a negative contribution, which underlines the resilience of the estate. Looking ahead, in FY27, we are focused on growing average basket value by sharpening the value offer, strengthening in-store value communication, and continuing to broaden our celebrations range. At group level, the main pressure came from UK stores, reflecting the consumer dynamics we saw in the second half. Our strategic growth areas continue to make good progress, benefiting from year-on-year profit improvement for both digital and wholesale partnerships. Digital performance includes the closure of Getty Personal and the acquisition of Funky Pigeon. Profit growth in wholesale partnerships was underpinned by both Garvin and Galana, with both businesses performing in line with acquisition economics. We also maintain close control of operating costs, and the benefits of simplifying sales help improve operating cost efficiency year-on-year. At the heart of the business remains a highly profitable and cash-generative core store estate. Total store sales increased to 514.6 million, an improvement of 1.5% in FY26. We added 27 net new store openings, taking the store estate to 1,117 stores. Average basket value increased from £5.07 to £5.26, up by a higher share of gifting and celebration essentials and targeted pricing actions. The share of gifting and celebration essentials increased to 52.5% from 51.8%. which is further evidence that the broader range is resonating with shoppers and that we are continuing to grow as a celebrations retailer. We have a strong pipeline to sustain net new store growth, supported by our proven low-cost, low-capital model. We have also strengthened how we manage the estate with enhanced data capability, enabling segmentation of the full store estate so that ranges and space can be tailored more precisely to shopper behaviors. Initial rollout has shown positive like-for-like sales versus control stores, particularly in gifting and celebration essentials. One of the reasons that our business has remained resilient through a highly inflationary period is the progress on simplifying scale. Over the last three years, we have absorbed annual inflation of 4-5% and offset more than 60 million of cost inflation. In FY26 alone, we delivered 21 million of actions, mitigating the significant majority of inflationary pressures in a year. These benefits came from store-hour optimizations, warehouse efficiencies, restructuring activity, and improvements in range and pricing. In FY26, the program delivered around 9% improvement in store efficiencies through operational optimization, alongside broader sourcing and supply chain improvements. Importantly, this is not just about mitigating one-year inflation. The program continues to structurally lower our cost base into FY27 and beyond, as we expect inflation to be 3-4% this financial year. Turning to cash generation. Cash performance was very strong and a standout in FY26. We converted 99% of adjusted earnings into free cash and generated $40.7 million of free cash. which was a very significant improvement on the prior year due to lower working capital. Capital expenditure in FY26 was £19.4 million, including investment in new store tilt systems, enhancement to our SAP-based ERP platform, and store openings. Capital spending in FY27 is expected to be at the higher end of our guidance range of £20 to £25 million. By 2027, capital expenditure will include one-off investments to deliver synergies from the acquisition of funky pigeons and to deliver cost savings from investments in manufacturing capability. As a result, free cash conversion is therefore expected to be at the lower end of our target range of 70% to 80%. CardFactory's strong free cash generation translates into balance sheet strength and flexibility. Main uses of cash in the year included dividends, the $5 million buyback, and the funky pigeon acquisition costs. The acquisition of funky pigeon was funded from extending existing debt facilities. Net debt excluding the acquisition of funky pigeon decreased by $18.4 million. Adjusted leverage at the end of January was just below one times, which remains comfortably inside our 1.5 times maximum target range. Total revolving credit facilities now stand at 160 million. And available cash and committed headroom in the facilities at the end of January were 92.5 million. Our capital allocation framework remains clear and unchanged. We prioritize maintaining a strong balance sheet, investing to deliver our plans, supporting sustainable and growing dividends, and returning surplus cash to shareholders where appropriate. The guardrails are equally clear. Maximum leverage of 1.5 times during the year, investment behind strategy at attractive returns, progressive dividends with cover between two and three times adjusted earnings, and disciplined use of surplus cash such that total returns to shareholders do not exceed free cash generated. These principles are underpinned by medium-term targets of mid-single-digit sales growth, free cash conversion of 70% to 80%, and mid-to-high single-digit profit per tax growth. Delivery of these targets is supported by store-like-for-like growth, new store openings, online and partnership growth, continued benefits from simplified and disciplined capital investment, as well as strong working capital management. Turning to shareholder returns. Our objective remains a sustainable and progressive approach. Total cash return to shareholders for FY26 is 37.5 million pounds. That includes a total progressive dividend of five pence per share for FY26 equivalent to 17.5 million pounds. This dividend is up from 4.8 pence from last year and is equivalent to a dividend yield of 7% to 8% at the current share price. Dividend cover on adjusted EPS moves from three times to 2.4 times. In addition, we completed a 5 million share purchase program in December with 5.7 million shares. These shares are held in treasury to settle future employee share scheme issuances and offset dilution. In addition, we will return a further 15 million surplus cash to shareholders through a share buyback. This buyback will commence shortly and the purchased shares will be canceled, subject to the usual approvals at this year's AGM. Total group sales through the first three months have been in line with prior year in the same period. This excludes the incremental benefit of funky pitching. We remain optimistic. mindful of the Middle East conflict and its potential impact on input costs, inflation, and consumer sentiment. For FY27, the Board expects adjusted PPT to be in line with current market consensus. This reflects anticipated sales growth, further simplifying scale benefits to offset wage growth and general inflation, and our assessment of the possible impact of incremental costs arising from the ongoing conflict in the Middle East. Our FX requirements are 100% hedged, and our energy requirements are 80% hedged for the remainder of the year. As in recent years, profit delivery is expected to be weighted towards the second half. We remain confident in Card Factory's ability to deliver mid- to high single-digit percentage adjusted PVT growth year-on-year over the medium term. Let me turn the page and talk about our strategy update. We would like to update you on progress that we have made on our opening our new future strategy. It has been three years since the launch of our strategy. We have made significant progress building our market share and expanding across all our growth channels. We therefore felt that it was the right time to discuss in more depth the markets we operate in, reflect on the progress we have made, and outline how our strategy will continue to deliver growth over the medium term. For nearly three decades, CardFactory has helped millions of customers celebrate life's moments, initially through great value greeting cards and increasingly through a broader offer of spanning celebration essentials and gifts. As customer expectations have evolved, so has the scope of the UK celebrations occasions market, now consisting of three core categories. First, greeting cards, which includes the traditional everyday occasions of birthdays and anniversaries, as well as an increasingly diverse range of milestones, including graduations and pet birthdays. Seasonal occasions remain a key focus, with Christmas, Valentine's Day, Mother's Day, and Father's Day remaining dominant, while other seasons, such as Halloween, continue to grow in popularity. Increasingly, customers look to mark an occasion with a gift, either alone or alongside a card. This includes stationery, craft, small toys, books, candles, mugs, glassware, homewares, novelty gifts, and other small keepsakes. And finally, there are a broad range of celebration essential products that turn a moment into a celebration, including balloons, party ranges, gift wrap, and gift bags. It is a robust market. Even at times when consumer confidence weakens, The desire to celebrate remains consistent with data from last year showing that over 99% of shoppers continue to participate in celebration occasions. As such, we continue to see market growth at a steady compound annual growth rate of around 2% since 2022. Together, celebration occasions form a large, mature, and resilient market. Following updated market analysis, we estimate the UK celebration occasions market totalled at 22.3 billion in 2025, growing by 370 million versus the prior year. Looking in more detail at each category, gifting represents the largest component of the celebration occasions market at 19.2 billion with nearly a third purchased online. This category demonstrated robust growth of 1.5%, driven by both seasonal events, where Christmas remains dominant at 39% of seasonal spend, and everyday occasions, with birthdays accounting for 24% of everyday gift sales. Within that total market, we have an addressable market of £11.8 billion, defined by gifts that are predominantly card-attached. It's a growing segment, seeing 1.8% year-on-year growth in 2025. The UK Celebration Essentials market was estimated at 1.5 billion in 2025, with 26% purchase online. This entire market sits within our addressable market. Like gifts, the category is strongly seasonal and grew by 28 million pounds in 2025. Party products form the largest sub-segment at 42%, followed by gift wrap at 36% and balloons at 22%. Finally, the UK greetings card market reached 1.6 billion in 2025, representing 7% of total celebration occasions spent. As outlined in our capital market strategy update in May 2023, Our strategy expands Card Factory's role across the entire Celebration Occasions market. Progress has been consistent and robust, with good growth in initial target categories, meaning that today we have outright leadership in cards, gift bags, wraps, and balloons, with a growing presence in adjacent categories. This breadth is enabling us to progressively capture a greater share of consumers' annual celebrations spent. Since FY23, when we launched our Opening Our New Future strategy, we have grown our like-for-like sales at a combined annual growth rate of 4% to 5%, which is consistently ahead of the market. Looking ahead, we expect the celebration occasions market to continually grow at a consistent rate of around 1% to 2%. As we continue to develop a broader celebration offer, we expect CardFactory to maintain a similar level of growth to the past three years, increasing our share and growing ahead of the market at between 4% and 5%. We're well-placed to unlock this opportunity. Today, we serve over 24 million customers each year. And around 60% of UK adults who buy cards and celebration essentials shop with us. We have the reach which will translate into greater spend. The moment we kept around £22 per customer in celebration occasions. Yet we know that those same customers are spending close to £258 in total across the categories. So today they're capturing actually less than one-tenth of their total celebration spend, and that is the opportunity. On this slide, you can see the strong progress we have made executing on our strategy across all areas of focus. Our core growth engine remains our nationwide store state in the UK and the Republic of Ireland. Since FY23, we have added 85 net new stores, bringing our total store estate to 1,117 stores at the end of last year. This has increased our total sales by 6.6% over the three years as we bring our enhanced celebrations occasion offer to more people in more locations. You can see from the central chart the progress we have been making transforming CardFactory into a celebration occasion destination. From just 50% of our sales being non-card three years ago, today it stands at approaching 53%. With this sales shift, our average basket value has increased from £4.27 to £5.26 in FY26. At the same time, our strategy unlocks general growth, allowing us to reach more customers with greater convenience, both in the UK and internationally. Combined, our digital and international channels have grown by 63 million pounds over three years, accounting for more than half of our sales growth. Over the three years since the launch of our strategy, we have grown our sales by 26% in line with our strategic priorities. While profit growth in FY26 was impacted by external macroeconomic factors, we have made good progress over the three years against the backdrop of consistent year-on-year inflation totaling $16 million, as I mentioned earlier. Cash generation has been strong behind a robust business model with nearly $100 million of free cash generated. This, in turn, has enabled consistent cash returns to shareholders, through a progressive dividend and buyback while reducing that debt and investing in business growth. We are well-placed to continue this growth over the medium term. I will now hand over to Darcy, who will talk you through our strategy.