Sales growth is slowing at Card Factory (LON: CARD) and the outlook over the next three years is flat at best. The greeting cards retailer has an attractive yield and there is the promise of a special dividend, but the company has few other attractions.

The first quarter trading was relatively good, but the second was poorer. First half sales were 5.5% ahead. The sales of the Card Factory sites were 1.5% higher on a like-for-like basis, helped by on line sales. The like-for-like growth for the first quarter was 2.3%.

The problem is the cards market, itself, because volumes are falling. Card Factory is performing reasonably well compared to the sector, although it is the non-card products that are doing better.

Despite this, Card Factory is on course to open 50 new stores this year.

The Getting Personal personalised gifts website sales were 10% lower, so this is not providing growth to offset the flat core business. It is costly to acquire customers and there is plenty of competition.

Cash

Net debt was £170.3m at the end of July 2019 and that could fall to nearer £140m by January 2020. Management believes that it will be able to return surplus cash to shareholders near the end of the current financial year.

The interims will be released on 24 September and there should be some indication of the special dividend and when it will be paid at that time.  

Last year, the special dividend of 5p a share was paid in December along with the normal interim of 2.9p a share.  

Forecasts

Card Factory may find it difficult to make a pre-tax profit of much more than £70m in the year to January 2020. Last year’s underlying pre-tax profit was £74.6m and Card Factory probably will not even get back to that level in 2021-22.

At 156.2p, the shares are trading on less than ten times prospective earnings. That does not sound dear, but there is no real prospect of growth. The yield on an unchanged dividend of 9.3p a share, is nearly 6%, but again there is unlikely to be an increase in the standard dividend.

The upside is the special dividend. That makes the income very attractive, yet the share price is set to continue to decline or at best stagnate. So what is gained in dividend may partly be lost in terms of the share price.

The Card Factory share price is below the level it was when it floated just over five years ago. The offer price was 225p. There will probably be a chance to buy shares at a lower price in the future.