Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
6. 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.
**************************************************************************************
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.
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/
Recommended
Transcript
Introduction of Darcy Wilson-Reimer
00:00:07
Speaker
Hello, I'm Russell Poynton from Edison. I'm delighted to have with us yet again ah the CEO of Card Factory, Darcy Wilson-Reimer. Darcy, welcome back.
00:00:18
Speaker
Thank you Russell. Very nice to see
Retail Business Overview
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 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. had We had a strong period last year.
00:00:43
Speaker
There was good growth in cards. There was even better growth in the newer categories. So could you just give some insight into what's driving that growth?
Sales Growth Strategy
00:00:51
Speaker
Sure. So overall, if i if we just talk about our stores, we had total sales growth of 6.1% in the first half.
00:01:01
Speaker
And that's driven by a combination of new stores, and ah 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 ah strong growth ah last year.
00:01:18
Speaker
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 essentials. 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 our gifting and celebration essentials.
00:01:49
Speaker
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. ah We've entered into new categories. So we're seeing good growth in ah in in gifting.
00:02:03
Speaker
We're seeing ah good growth in ah in in the party categories
Store Space Reallocation
00:02:09
Speaker
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
Yeah. And you mentioned that the store ah yeah space reallocation refurbishment that what you went through last year. Has has that gone as planned? Are the things, you know, what's gone well, what has gone less well?
00:02:26
Speaker
So I think from a store perspective and the growth that we're seeing, and 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.
00:02:40
Speaker
We reallocated 7% space away from into gifted celebration essentials. And that space translated, 7% of decreases in car space actually translated into a 60% increase in space in in the other categories just to because of the way the fixtures work.
00:02:59
Speaker
Now where we are is we're continuing... to grow those categories. We'll continue to innovate and bring in new products. And I would say now it's much more a business 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 within the celebration essentials. So so it's it's now an ongoing process.
00:03:30
Speaker
if we look For example, we're just about to enter 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 new.
00:03:45
Speaker
um and And we've got newness in cards. We're putting in some really beautiful premium card ranges off the back of some new designs coming out of the studio, but also some investments in the factory.
00:04:01
Speaker
um we are going to see some some new ranges in to your pet and from your pets uh as well as baby so so quite a bit of newness you know within within that so there was a noticeable increase in the uh motor store openings in the first half it was coincidentally the same number as you had in the second half last year so is anything specific driving that or is it just a matter of the way 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. ah We opened 15 net new stores in the first half, and that's off the back of 26 net new stores last year.
Store Expansion and Focus Areas
00:04:50
Speaker
um And really the focus is in ah 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 ah 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.
00:05:27
Speaker
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. but So, yeah, some really good progress. Thanks, Darcy.
Online Platform Investment
00:05:46
Speaker
um Moving 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 thing?
00:06:08
Speaker
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.
00:06:23
Speaker
um On the platform, ah we've... launched an upgraded version of our event reminders to make it easy for customers ah to be reminded for their special celebrations.
00:06:35
Speaker
We've made some changes to the AI engine that suggests make suggestions to customers. 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.
00:06:49
Speaker
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, So we have continued to ah 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.
00:07:15
Speaker
so So we're still in the investment phase, so some really good progress, but more work to do. 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?
Future Profitability Strategies
00:07:35
Speaker
First of all, if we start um from where we have come 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.
00:07:55
Speaker
Where in actual fact, what we're doing be really clear on what each channel does. And online is really about personalization, but it's also about whole solution fulfillment.
00:08:08
Speaker
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.
00:08:19
Speaker
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 Repeats then 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 Over the next couple of years so 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?
Partnerships and Market Entry
00:08:56
Speaker
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 um in our results.
00:09:09
Speaker
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.
00:09:38
Speaker
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.
00:10:26
Speaker
So in addition to um it's helping us in Ireland ah with the convenience 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 UK or not. so so So that was one.
US Market Testing
00:10:53
Speaker
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
00:11:06
Speaker
ah stores into the US market. Now, the significance of that is 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 UK, it's 7 US.
00:11:30
Speaker
And so for us, that first step, dipping our toe in the water, yeah 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 yeah in the in the US.
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.
00:12:12
Speaker
so i mean So overall, you know ah really good progress. um But again, as always, our work is never
Profitability and Cost Management
00:12:20
Speaker
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 still where they were at the start of the year.
00:12:30
Speaker
um And there's there's a few moving parts within that. Obviously, there's that 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 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.
00:13:09
Speaker
Look, in an ideal world, what you do is you line up all of your initiatives um 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 tip' 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.
00:13:55
Speaker
And the other half is comes from a range of initiatives. So one, it's the full year effect of things we did um the second half of last year or the first half of this year.
00:14:10
Speaker
There's the range development that we've done for Christmas um as we have expanded some of our ah more premium lines. And then we have a series of initiatives around efficiency that will we basically deliver the rest.
00:14:28
Speaker
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 guidance of hitting our full year numbers.
00:15:06
Speaker
That's great. That's very clear. Thank you
Dividend Reinstatement and Shareholder Confidence
00:15:08
Speaker
very much. And finally, the dividend. You reinstated the final dividend the with the full year results. declared an interim dividend, which is good.
00:15:17
Speaker
So there's a lot of confidence in the business, I i suspect. Yeah, so at the end of last year, we ah announced both a combination of the interim and final dividend 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.
00:15:37
Speaker
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 ah excess cash um with with the principle that we don't want to hold on to shareholders' money
00:16:08
Speaker
that we don't have, um ah that we can generate superior returns on. And so, yeah, we were were ah pleased to to ah to announce that dividend. 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 ah for and and cash returns for our shareholders. Darcy, so there's a lot going on, obviously, which is good to hear. So any final words for the viewers?
Optimism for Transformation
00:16:37
Speaker
Yeah, look, I think, Russell, we're making really good progress on our transformation to becoming a celebration's 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.
00:16:54
Speaker
Darcy, thanks for spending some time with us today, and we look forward to seeing the results next year. Thanks very much, and look forward to seeing you next time. Thank you.