Card Factory profits hit by soaring cost of staff wages

Retailer Card Factory has revealed tumbling profits after seeing costs soar due to higher staff wages after this year’s National Living Wage hike.

The chain, which has more than 1,070 stores across the UK and Ireland, reported a 43% drop in pre-tax profits to £14 million for the six months to July 31.

It said the hit came after its wage bill was sent surging by April’s near 10% increase in the National Living Wage.

The group also suffered from higher international shipping and packaging costs.

Shares in the firm slumped by nearly 16% in early morning trading on Tuesday, despite assurances from Card Factory that it remains on track for full-year profit expectations as it takes action to offset the cost impact.

Darcy Willson-Rymer, chief executive of 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.”

The group said its profits took a £64.4 million hit from store and warehouse wages in the first half – now representing 28% of sales – after the National Living Wage rose by 9.8% on April 1.

This took the shine off otherwise robust trading as like-for-like sales rose 3.7% across its stores in the first half.

Card Factory said it is taking measures to make savings across the business in the face of the higher costs, such as a new workforce managing system, which has seen some changes in hours worked by staff, as well efficiencies across support functions.

It is also hoping that trading over the crucial Christmas season will help outweigh the cost pressures.

Russ Mould, investment director at AJ Bell, said: “When you sell a keenly priced product, your profitability is sensitive to any increase in costs and that’s been borne out by the latest results from greetings card retailer Card Factory.

“While the company saw a decent increase in group sales, particularly given poor weather and continuing uncertainty in the economic backdrop, increases in freight costs and the national living wage have seen that translate into an alarming drop in first-half profit.”

But he said the half-year hit to profits “will likely be viewed as a blip, rather than anything more serious”.