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7. Bull, Bear & Beyond – Card Factory: executive interview
5 Plays1 year ago
In our interview with Darcy Willson-Rymer, CEO of Card Factory, we discuss the recently released H125 results, the progress the company is making on its ‘Opening Our New Future’ strategy (see our initiation note for more details) and the outlook for the rest of the year. We begin by discussing the growth drivers in retail, including the contribution from the product categories and store expansion. We also outline the progress of cardfcatory.co.uk, which has delivered two consecutive six-month periods of revenue growth and the recent developments in the company's Partnerships business. We then talk about the outlook for the year and the reasons why the phasing of expected profitability is more skewed to the second half of the year than prior years. We conclude by discussing the dividend that was declared with the interim results.
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About ‘Bull, Bear & Beyond’
Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets and 60-second pieces are a compressed summary of content designed to convey our message in a single, easily shareable hit.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
Original interview published on 04/10/2024 and reposted as a podcast
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Transcript
Introduction of Darcy Wilson-Reimer and Interim Results Discussion
00:00:07
Speaker
Hello, I'm Russell Poynton from Edison. I'm delighted to have with us yet again the CEO of Card Factory, Darcy Wilson-Reimer. Darcy, welcome back.
00:00:18
Speaker
Thank you, Russell. Very nice to see
Revenue Growth in Cards and New Categories
00:00:20
Speaker
you again. And so you've obviously just reported your interim results. and We'll talk about a number of areas. within the results as we go through. But can we can we start on the retail side of the business? um You've generally reported good revenue growth on top of a very tough comparative from last year really. You had a strong period last year.
00:00:43
Speaker
There was good growth in cards.
Retail Strategy and Market Redefinition
00:00:45
Speaker
There was even better growth in the newer categories. So could you just give some insight into what's driving that growth? Sure. So um overall, if i if we just talk about our stores, we had total sales growth of 6.1% in first half.
00:00:59
Speaker
in the first half And that's driven by a combination of new stores and driving like-for-like sales. So like-for-like sales were 3.5% in the first half. And as you said, that's that's over um you know strong growth ah last year. And really, what we've been doing is executing our strategy. So at the Capital Markets Day, we talked about how we redefined the market, but being cards, one and a half billion, gifting is a 10 billion market, and celebration is essential. So in total, we're playing in a 13 and a half billion market. And we've been still driving card growth, but disproportionately driving growth.
00:01:45
Speaker
are gifting and celebration essentials. And we've we've seen some yeah really good success as we've ah driven those categories. So last year we did all of the space reallocation. We've entered into new categories, so we're seeing good growth in in in
Store Space Reallocation and Growth Impact
00:02:03
Speaker
gifting. We're seeing good good growth in ah in in the party categories as well. And so of ah overall, it's the strategy in action and we're seeing the results off the back of that.
00:02:15
Speaker
And you mentioned that the store ah space reallocation refurbishment that what you went through last year. and had Has that gone as planned? Are there things, you know, what's gone well, what has gone less well? So I think from a store perspective and and the growth that we're seeing, in actually, i think we did the the team have done an outstanding job. And I think the work last year was probably more catch-up, where we had to reallocate. We reallocated 7% space away from CARD,
00:02:45
Speaker
into gifted celebration essentials. And that space translated 7% of decreases in car space actually translated into a 60% increase in space in the other categories just to because of the way the the fixtures work. Now where we are is we're continuing to grow those categories, we'll continue to innovate and bring in new
Strategic Plan for Store Openings
00:03:07
Speaker
products. And I would say now it's much more a business ah as usual, as well, whilst we're refined at every at every season, what is the right space for for each category and even the subcategories, you know how much space are we allocated to the subcategories within gift or within the celebration essentials. So it's it's now an ongoing process.
00:03:30
Speaker
And if we look For example, we're just about to enter to the golden quarter and we look at Christmas. I'm really excited about Christmas. We've done a lot of range development. 80% of all the products that we're putting in front of customers this year is is is new. um and And we've got newness in cards. We're putting in some products.
00:03:51
Speaker
Really beautiful premium card ranges off the back of some new designs coming out of the studio, but also some investments in the factory. um We are going to see ah some some new ranges in to your pet and from your pet. as well as baby. So so quite a bit of newness yeah within within that. So there was a noticeable increase in the rate of store openings in the first half.
00:04:17
Speaker
It was coincidentally the same number as you had in the second half last year. So is there anything specific driving that, or is it just a matter of the way the the store openings fell? As part of our strategic plan, we said there would be 90 net new stores over the four-year period of the life of that plan. We are...
00:04:36
Speaker
probably slightly ahead of where we thought we'd be. We opened 15 net new stores in the first half, and that's off the back of 26 net new stores ah last year. um And really the focus is in a number of areas. So number one is continuing to develop in some white space, so continuing to develop in Ireland. There's opportunities for us in central London where we open our fourth central London store, but but also there's quite a bit of infill still.
00:05:11
Speaker
um But in doing so, we maintain the disciplines that card factories always had and been famous for. So we have very profitable store estate, less than 1% of our estate is lost banking, which is probably one of the better retail estates. um We continue to have um flexible leases, um and we we target payback in under two years and we're averaging about an 18 month payback.
00:05:39
Speaker
ah including the new stores that we open.
Online Growth and Customer Experience Investments
00:05:41
Speaker
So, it's yeah, yeah gri so set some really good progress. Thanks, Darcy. i Moving on to online, so you've now had two consecutive halves of revenue growth in cardfactory.co.uk,
00:05:54
Speaker
and that's after you've you know you've invested in the platforms, the customer experience. So could you just give some insight into you know what customers are doing online, the purchasing habits, their frequency, what they're buying, that type of Yeah, so we've continued to invest in the customer experience and some notable things that we've done in in this half of the year. We've continued to invest in both the platform and the doorstep experience in order to to improve the customer experience. On on the platform, we've...
00:06:26
Speaker
launched an upgraded version of our event reminders to make it easy for customers to be reminded for their special celebrations. We've made some changes to the AI engine that suggests make suggestions to customers.
00:06:41
Speaker
We've done some development on the app where we can now do app only promotions in order to drive um you know people to that and as well as customers have noticed the improvements we've made to both basket and checkout so continuing to do that and then in terms of the offer.
00:06:59
Speaker
So we have continued to invest in some some new products with a real focus on personalization, but also on on celebrations and how do we bring a whole celebrations experience. So so we're still in the investment phase, some some really good progress, but but more work to do.
00:07:22
Speaker
You mentioned you in in the investment phase. Now, online is still loss-making for you a little bit. So it's this balance between investing to grow and and and profitability. isn' it So can you just give some idea how you think about that going a bit further out? First of all, if we start um from where we have come,
00:07:39
Speaker
And when cardfactory.co.uk was first built, it was built like a big store. And what we did is we trained customers to come to cardfactory.co.uk for the products that were available in store. Where in actual fact, what we're doing,
00:07:58
Speaker
be really clear on what each channel does. And online is really about personalization, but it's also about whole solution fulfillment. so So for example, in each and every store, we might not be able to stop the whole party range, or we know we've launched a personalized party range you know online. And so it's really about that pivot for online and then making sure that We've got the offer exactly right. And then we know what customers we want to target, how we market to them, drive trial on the site, repeat, and and they they and then you you go through the cycle. But as I said, we're still in the investment phase. We expect you know to be profitable hi over the next couple of
Partnerships and U.S. Market Entry
00:08:47
Speaker
years.
00:08:47
Speaker
So moving moving on to partnerships, there's obviously quite a lot going on in the partnership business. So could you just talk about that for a while, please? If I take take a step back, we made we've made some some some brilliant progress in the partnership business. And there were a number of ah key topics that we talked about in our results. so um and And I think coming out of that, there's probably two clear messages. So first of all, we announced the expansion of our relationship with Aldi, and we're going from 500 stores, 550 stores,
00:09:24
Speaker
to 1200 stores as well as, um and that that that will be our fourth renewal with Aldi and we're in ah place with our second renewal with TRS in Australia. And the point of that is to say, so we've demonstrated we can win new business, but also that we can retain and grow our existing partnerships.
00:09:50
Speaker
Then in addition to that, On the new business side, we've announced a small acquisition in Ireland where we've acquired Galana Limited. and And that is about completing our work in Ireland. So we've been investing in stores and now we're beginning the investment in partnerships.
00:10:09
Speaker
The nice thing about Galana is that it is a wholesaler of cars, primarily to the convenience sector, and that's not a sector that we're in, and it's not a sector where we have expertise. So in addition to um it's helping us in Ireland with ah the...
00:10:35
Speaker
they the the cultural ah differences and and um ah but But it also provides us with the learning on how to do convenience, which we could then potentially expand into Northern Ireland and gives us then the knowledge to determine whether that's appropriate for the for the UK or not. so so So that was one. And then the second announcement we made was um a partnership in the US where we are going to um put a Christmas range into a number of
00:11:07
Speaker
stores into the US market. Now, the significance of that is if if we're going to deliver on the 80 million of of new growth that we talked about at the CMD, we're going to have to crack America, given it's the largest card market in the world, one half billion in the UK, it's 7 billion ah in the US. And so for us, that first step, dipping our toe in the water, you have many companies have gone abroad and not been successful.
00:11:40
Speaker
So we're excited about the learning opportunity this brings. We're gonna we're gonna get card factory product in front of thousands of customers in the US, and we're gonna get really good read on how our quality value offer it resonates with ah with with customers in the in the US.
Profitability Expectations and Cost Management
00:12:00
Speaker
and And you're going to give some more information on that in the in the next couple of months, I think. Yes, as as soon as it's appropriate and we're able to make the announcements, we'll we'll well will basically yeah yeah bring that forward. So i mean so overall, you know really good progress.
00:12:17
Speaker
um But again, as always, our work is never done. yeah um So moving on to profitability for the year, you've you've given a very clear message that it's you your expectations are you know still where they were at the start of the year. um And there's there's a few moving parts within that. Obviously, is ah there's the typical H2 seasonality, half two is bigger than half one, and you you always have an eye on costs, we know that. But specifically in the release, you also mentioned efficiency and productivity savings. So could you just give some examples of what what you mean by that?
00:12:51
Speaker
So if you look at the profitability, effectively what has happened is is that we've had inflationary costs coming into the business ahead of ah some of the the results of of some of the initiatives. So from my perspective, this is a this is a timing issue. Look, in an ideal world, what you do is you line up all of your initiatives that they line up and land in order um you know to cover inflation. And given all of the work we've been doing, whether that be the things we've talked about, opening new stores, product development,
00:13:27
Speaker
getting ready to launch in the US. And so what we'll see in the second half of the year is some of those productivity initiatives come through. But the reasons to believe, so so in half two, in order for us to deliver on our full year expectations, about 50% of the improvement in profitability is seasonality. It comes in automatically and that's year in, year out. And the other half is comes from a range of initiatives. So one, it's the full year effect of things we did
00:14:05
Speaker
um in the second half of of last year or the first half of this year. There's the range development that we've done for Christmas as we have expanded some of our more premium lines.
00:14:19
Speaker
And then we have a series of initiatives around efficiency that will will basically deliver the rest. The other thing that's really important is all of the components to deliver the efficiency, whether it's the systems on labor management, whatever it is all of the things have been implemented. They're in store or or or in the factory or in the warehouse.
00:14:43
Speaker
um already there. So we're not dependent on future activity. We're dependent on our our execution of the things that we've we've put in place, of which we're in control of. And so that's what gives us ah that's what gives us the confidence um to reiterate our our guidance of hitting our full-year
Reinstatement of Dividends and Business Growth Confidence
00:15:06
Speaker
numbers.
00:15:06
Speaker
That's great. That's very clear. Thank you very much. And finally, the dividend. You reinstated the final dividend at the with the full-year results. declared an interim dividend, which is good. So there's a lot of confidence in the business, I i suspect.
00:15:21
Speaker
Yes. So the end of last year, we ah announced both a combination of the interim and final dividends together. We were unable to do an interim dividend last year, given we still had some of the COVID loans still outstanding. That's now now now being cleared. I think also we were very clear in our in our results and outcomes in the prelims of our capital allocation policy and and the four critical components of maintaining a strong balance sheet, having sufficient cash to invest in the strategy and the future growth of the business, reinstatement of the dividend, and then keep all options on the table for any excess cash um with with the principle that we don't want to hold on to shareholders' money that
00:16:09
Speaker
we don't have, um that we can generate superior returns on. And so, yeah, we were werere pleased to to ah to announce that dividend. and It applies a three times cover you know for for for the full year.
00:16:24
Speaker
um And we're committed to to a progressive dividend and cash returns for our shareholders.
Optimism About Card Factory's Transformation
00:16:31
Speaker
Darcy, so there's a lot going on, obviously, which is good to hear. So any final words for the viewers?
00:16:37
Speaker
Yeah, look, I think, Russell, we're making really good progress on our transformation to becoming a celebrations destination for our customers, serving more customers in more places, whether that's through our stores, the work we're doing online, or or with our with our partnerships. Darcy, thanks for spending some time with us today, and we look forward to seeing the results next year.
00:17:00
Speaker
Thanks very much, and look forward to seeing you next time. Thank you.