A fortnight ago, Card Factory (LON: CARD) shares were coasting along at 45p apiece. Then the retailer announced that it had agreed to restructure its debt, meaning that a previously proposed equity raise would no longer be required.

CEO Darcy Willson-Rymer hailed the revised terms as an ‘important milestone’ leaving Card Factory ‘well-positioned to continue our strategic transition from a store-led card retailer to a market leading omnichannel retailer of cards and gifts.’

Its share price immediately shot up by a third to 60p. And after optimistic FY22 results, it rose further to 62p yesterday.

Card Factory share price: FY22 results

Financials across the board made for excellent reading. Revenue increased by 28% year-over-year to £364.4 million, while pre-tax profit rocketed by a whopping 168% to £11.1 million, up from a £16.4 million loss in the prior fiscal year, and above prior corporate guidance of £7-10 million.

The company attributed the revenue growth to ‘a steady recovery in store performance following easing of lockdown restrictions, alongside an online performance significantly ahead of pre-pandemic levels.’ And it enthused that the profit beat was ‘ahead of management's expectations despite significant trading disruption and inflationary cost pressures.’

Accordingly, EDITBA rose by 87% to £85.6 million, and the company saw operating cash flow rose by 42% to a healthy £113.6 million, ‘driven by tight cost control and working capital discipline.’

Meanwhile, after the earlier debt restructuring, net debt including lease liabilities fell by £58.6 million to £194 million. And the retailer has secured a reduced debt facility of £150 million until September 2025.

While it ‘has no current intention of completing an equity raise,’ it cautioned that dividends would be restricted until the end of January 2024. CFO Kristian Lee believes the agreement ‘draws a line under the liquidity concerns and gives us sufficient headroom.’

Where next for Card Factory?

Encouragingly, Card Factory’s expectations for revenue and profit for the current FY23 remain unchanged, with trading ‘in line with expectations.’ And it still expects revenue to grow to £600 million by FY26.

The company’s strategy is seeing a revenue shift away from an overreliance on special days such as Mother’s Day and Valentine’s Day, and towards everyday ranges which now represent 70% of sales.

And it expects ‘performance through the balance of the year to increasingly benefit from the strategic improvements we are making including expansion of complementary categories, further roll out of our trial model stores and highly targeted price increases.’

In addition, the CEO said he would be ‘providing greater choice through complementary gifting and party ranges, opening up an access to a large market with GBP 44 billion per annum in the U.K., which will be targeting GBP 5 billion, which is between 4 and 5x larger than the card-only market.’

Online sales were a highlight of FY22, with online LFL revenue up 135% compared to FY20, ‘reflecting the expansion of our product range online and improved customer experience as well as an accelerated shift in consumer behavior.’

And Card Factory is merging its cardfactory.co.uk and gettingpersonal.co.uk platforms into a unified platform, ‘unlocking cost benefits and opportunity to significantly expand the gifting range.’

Moreover, despite a slight decline in online sales after physical shops reopened, Willson-Rymer remains ‘greatly encouraged that our Card Factory online sales were significantly ahead of pre-pandemic levels.’ It appears that physical shops are not cannibalising new online sales.

However, despite the CEO’s ‘pre-emptive action to help mitigate the inflationary pressures we are seeing across the business,’ Card Factory expects ‘significant inflationary headwinds’ through 2022.

Lee noted the impact of rising energy costs and the National Living Wage as key areas of inflationary concern. But he highlighted the ‘main inflationary as being freight,’ saying ‘one thing we looked up in a lot of detail is container flip.’ Container shipping costs from China to the UK are now around four times more expensive than pre-pandemic.

And the retailer still has substantial debt caused by extended lockdowns, while revenue is still significantly below pre-pandemic levels.

Moreover, Card Factory shares were worth their current 62p as recently as February, were changing hands for around 90p pre-pandemic, and are down 81% over the past five years.

But it’s a value retailer with a sustainable growth strategy in a country where 73% of citizens are regular card-givers. Card Factory’s share price has the scope for further recovery.

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