Card Factory blames minimum wage for profit slump

Card Factory, the greetings cards and gift retailer, has blamed the increase in the national living wage for a slump in profits.
Shares in the retailer fell 16 per cent in early trading after it reported that first-half pre-tax profits dropped 43 per cent to £14 million, “predominantly driven by the increase in direct costs as a result of the impact of minimum wage increases”.
A number of businesses have warned of the impact of rising wages on profits after the UK’s national living wage rose by 9.8 per cent to £11.44 an hour in April.
• Workers on lowest pay set for 6% rise in minimum wage
Card Factory said that higher international shipping and packaging costs had also hit profits.
However, the retailer reassured investors that full-year revenues remained on track to meet expectations and that it was continuing to manage the impact of “inflationary pressures within the business”.
Card Factory posted revenues of £233.8 million for the six months to July 31, up 5.9 per cent from the same period last year. The greetings card chain also reported a 6 per cent increase in like-for-like revenues for its gift and celebration division.
The company said that performance at its stores had been resilient against a challenging retail backdrop and a drop in high street footfall “due to the continued impact of economic pressures on consumer spending and confidence, combined with the unseasonable weather”.
Darcy Willson-Rymer, chief executive of the Card Factory, said: “As we move into the second half of the year and the important Christmas trading period, our expectations for the full year are unchanged and we continue to focus on managing inflationary pressures within the business.”
Card Factory was founded in 1997 by Dean Hoyle and his wife Janet. Its business model is based on being able to mass-produce cards at a fraction of the cost of most retailers, creating strong margins.
In 27 years the company has expanded from a single shop in Wakefield, West Yorkshire, to a chain with more than 1,000 stores across the UK and Ireland. Today it is run by Willson-Rymer, the former Costcutter boss.
Wayne Brown, an analyst at Panmure Liberum, said: “While the impact of inflation especially from national living wage increases were well-flagged, some may be disappointed by the year-on-year declines in profit.”
Shares in the Card Factory, which listed on the London Stock Exchange in 2014, fell 23¼p, or 16.2 per cent, to 119¾p. The shares have risen 8 per cent over the past year.