Card Factory plc (CARD) Earnings Call Transcript & Summary

Good day, and welcome to the Card Factory Interim Results for 6 months to 31 July 2021 Conference Call. At this time, I would like to turn the conference over to Darcy Willson-Rymer. Please go ahead.

Welcome to our interim results update for FY '22. I'm Darcy, CEO of Card Factory. And joining me today is Kris Lee, our Chief Financial Officer. Kris and I will shortly provide the financial performance update for the half one of FY '22. Then, as we stated in our prelims, we will provide an update on our future growth strategy, which has been the subject to review over the last few months since I joined the business. Looking first at the financial performance for the first half of FY '22. We are pleased with how the business has performed, with sales of GBP 116.9 million, Card Factory has achieved a like-for-like revenues of minus 3.7%. That's split by stores at minus 7.2% and online at plus 50.2%. This has led to a GBP 6.5 million loss before tax. We've continued our strong focus on cash and our net debt is now below GBP 100 million. Store transaction levels continued to outperform the Springboard high street footfall data, demonstrating the strength of the brand and the customer proposition. And in addition, increased average basket value across multiple categories is offsetting the reduction in transaction volumes. So what's important to note? Unlike other retailers, if you missed a birthday party because of lockdown, that event will not be repeated. However, if for example, we look at the wedding category, what we are seeing is that, as restrictions have lifted, we see volumes rebound. Similarly, with Children's birthday parties, as schools return, assuming no further restrictions, like wedding, we would expect to see that category bounce back. Looking at online, that channel is performing well, and we will continue with our planned investment to drive future growth. Online is one of the growth areas examined through the strategy review, which I will talk through in more detail later. The transition is underway to becoming an omnichannel retailer, allowing customers to shop whenever and however they want. The strategy will show an increased focus on complementary gifting and party categories to enhance the offer and substantially increase the addressable market. And importantly, we will shift the focus of Card Factory from being a product-led to a customer-led business. Kris will now take you through the financial performance.

I'd just like to give you the financial performance for the first half of FY '22 for Card Factory. So just turning to the financial summary. Overall, sales were GBP 116.9 million against GBP 100.5 million last year. Overall, there was 60% of the year where the stores were allowed to trade this year against 48% in the prior year. That in terms of like-for-likes on a 2-year basis, against pre-pandemic levels was minus 7.2%. Online and multichannel was plus 50.2%, with a net Card Factory like-for-like revenue of minus 3.7%, delivering a loss before tax of GBP 6.5 million, which was an improvement on the loss of GBP 22.2 million in the prior year. Net debt has been well controlled at GBP 96.5 million, down from the GBP 143.9 million in the prior year. And including the lease liabilities, that is GBP 238.9 million. Just move into a little bit more detail around the like-for-like sales performance in terms of how Card Factory has outperformed footfall trends in terms of what we've seen in terms of Springboard data. The -- I'll turn straight to the graph on the right-hand side, which effectively shows in the top line where the average basket value within our stores has been since reopening in April. As you can see, the ABV was put over 30% at the start. And in terms of transactions, the bottom line, the green line, were negative 30%. The middle line, the yellow one is effectively the like-for-like 2-year sales performance. And as you can see on the line, there has been a steady underlying recovery in transactions and therefore, in terms of the like-for-like performance in that period. So just turning to the divisional analysis for Card Factory. Overall, in terms of store revenues, those were GBP 102.7 million, again, reflecting that 10-plus weeks at the beginning part of the year, we were in lockdown. Overall, the store transaction levels are still pre-pandemic levels. However, we have seen that strong recovery and demonstrating the strength of the Card Factory brand. We continue to review the estate of just over 1,000 stores and to make sure they're in the right locations to maximize the sales, and we increased the net store estate by 3 during the period. It's fair to say, we're seeing in terms of retail parks, much stronger performances in terms of the footfall on like-for-like sales. Moving to the online performance. Even though year-on-year the online grew by 4.8%, we should bear in mind that actually the close down period in FY '22 in terms of the stores was lower, and therefore, that is a pretty strong performance. Getting personal was down 20.7%, but this was an internal decision within the business to go after more profitable sales. And we're certainly seeing that within the bottom line where on pay-per-click transactions we're back in where we can see the return on investment of the keywords. And in terms of partnerships, we've seen strong year-on-year growth up plus 17.8%, up to GBP 2.3 million. Total retail locations have increased as well from 894 to 908. We've seen strong performance from Aldi, and we've also agreed a contract renewal with them. The Reject Shop in Matalan were impacted by COVID restrictions in the period. I'd just like to turn to the margins of the business during the period. Overall, the cost of goods in the year were pretty much in line with the prior year in margin percentage terms and a slight improvement of 0.8 percentage points, being driven by how we've managed to utilize a lot of the aged seasonal stock from prior seasons into the new year. Also, store wages, even though store wages are up GBP 30 million against GBP 23.7 million. This reflects really just the time in terms of less utilization of the CJRS scheme. And store property costs down at GBP 4.5 million from GBP 6.9 million. Again, this relates mainly to the timing in terms of government support in terms of business rates. And then turning to direct expenses and operating expenses, you can see that year-on-year we've managed to keep the costs flat or slightly down. The only other point bridging down to the operating loss of GBP 6.5 million is the net financing expenses. That slightly up at GBP 6.5 million, reflecting the blended average of the financing that's in place now of just sub-5%. One other important call out on the sheet is the other income -- one-off income of GBP 8 million in the P&L, and this reflects the government grants that's been received in terms of government support and non-essential retail closures. Just turning to the free cash flow. We're seeing a continued improvement in the cash generation of the business and largely driven by the improvement in sales and the profit performance overall. Two further call-outs in terms of the cash flow is, one on the net working capital, where we've seen that GBP 4.7 million negative. This is purely down to the deferrals that we managed to negotiate with landlords on rents and with HMRC in terms of VAT. Further down the cash flow, you'll see lease liabilities that, again, it's GBP 1.7 million negative. This, again, is being driven by just the timing and deferral of payments on rent into the current year. So overall, a very positive free cash flow, plus GBP 14.5 million against GBP 1.1 million last year. One further important point on the free cash flow is the note at the bottom. You might remember, at the year-end, I mentioned that there was GBP21 million of rent deferrals that we negotiated, and there's a further GBP19 million of VAT payment deferrals also. As we sit here at the half year, we've now got GBP26 million of rent deferrals as we've had further lockdown periods, and we've negotiated further rent deferrals there. And the VAT viability deferrals are now GBP7 million. I expect by the year-end, that into FY '23, most of the payments will have unwound in '22. But by '23, that could be between GBP 6 million and GBP 12 million of them deferral payments hit in that year's cash flow. So I just like to move to the liquidity update. You'll remember in May of this year, we've given an announcement in terms of the securing of GBP 225 million of financing facilities for the business. This was with replacement covenants until March 2022. Other important terms that were mentioned in the agreement in May was that we have the requirements to either raise GBP 70 million net equity by July 2022 or to prepay GBP 70 million using funding from other subordinated sources. It's fair to say as a business, the capital investment has been tightly controlled to preserve cash, whilst at the same time, investing in the long-term strategic objectives. The focus is on maintaining a capital structure that is conservative, yet efficient in providing long-term returns to shareholders. And the Group's capital policy continues to be under review as trading conditions become clearer. And as we see the transactions on the high street recover. I'll now pass the call back across to Darcy to give an update on the refresh strategy.

As previously stated, I would like to use today to provide an update on our future growth strategy. We've undertaken a review of the 5-year strategy, which was originally announced at the Capital Markets Day last July. We needed to understand the impact of COVID on the strategy, but I also wanted to ensure that it could deliver the growth that shareholders expect and contained enough ambition to seize the opportunities that exist both within the markets we serve and the markets we could exploit to create maximum shareholder value. Working at pace, we have stress tested and evolved the strategy. And for reasons I will explain, there's still more work to be done in some areas. However, what we have is a strategic approach that will build on our market-leading proposition in cards, while positioning the business to access broader market opportunity. So let me start by clearly outlining our vision for Card Factory, where we will be by the end of FY '26. And when we've delivered on our opening, our new future strategy. Over the next 5 years, we will transform Card Factory into the first omnichannel brand in our space to help customers celebrate each and every special occasion. We will become the #1 U.K. destination for all customers seeking unrivaled quality, value, choice, convenience and experience. And we will broaden our international footprint, putting more cards and gifts in the hands of more customers around the world. Delivery of the strategy is expected to drive an acceleration in revenue growth and margin expansion, growing revenues to over GBP 600 million by FY '26, with approximately 20% generated from online and multichannel and retail partnerships, while creating a business with a low-cost base and a highly scalable business model. We expect the delivery of the strategy to result in a shift in product and channel mix, alongside investment, resulting in PBT margin trending towards 17% over the long-term. By building on our existing quality and value heritage, we will take Card Factory on a journey that provides our customers with more convenience by providing greater access to our products wherever they are and wherever they want them. More choice by building upon our leading card offer to expand into complementary ranges and an exceptional customer experience that makes Card Factory a destination brand for more customers. If we want to make best use of our nationwide store estate and respond to today's customer needs, then we need to transform the business from a predominantly store-driven retail model to a full omnichannel offer that uses existing and invested infrastructure to become the first card and gifting retailer to provide a seamless physical and online customer experience. This will provide access to all categories, anytime, anywhere, including our personalized products via app or website at home or on the move. We believe that omnichannel provides the opportunity to leverage our brand, store estate, vertical integration, quality and value proposition, as well as our investment in our online channels to materially increase our market share of the online market. The U.K. online market for cards was estimated to be worth GBP 550 million in 2020. That's up from GBP 177 million in 2019. We are, therefore, targeting circa 10% of Group revenues from online by FY '26, up from 2% today. The budgeted omnichannel capital expenditure will include near-term investments with areas of note, including enabling our customers to access our brand and offer at home, on the move via our apps and in-store through web access. This will allow our customers to access our extended range in-store and will test options to understand appetite and investment return. Increasing the range of shipping options to home or store that meets every budget, increasing our fulfillment capacity, accuracy and speed to deliver against our customer service promise and enabling customers who want to self-serve throughout the journey to be supported by an AI experience focused on recommendations, personalization, notifications and live chat. The store portfolio will be optimized to ensure Card Factory has profitable stores in high footfall locations with a 100 new stores added to our existing portfolio of 1,000 stores across the U.K. and Republic of Ireland by FY '26. These new store openings will be focused on underpenetrated areas, including London and areas of high footfall, including retail parks. The store optimization program will continue with locations selected based on profitability and returns. And our stores will remain a vital route to market and are not simply legacy assets. Store revenues will continue to grow in their own right, but will simply be a smaller proportion of the mix as our online growth accelerates. Initiatives such as targeted pricing and an increased gifting range are expected to improve in-store sales, increase average basket value and offset the structural trend of minor year-on-year footfall decline. As part of our omnichannel transformation and through continued platform investment, we expect to increase our share of the online market from 2% to 10%. Our new Business Development Director, Syed Kazmi, joined in late August. And over the coming months, we will have designed and started delivery of our new partnership strategy. This will allow Card Factory to reach more U.K. customers for modest investment in additional convenient locations that meets the growing demand for impulse buying. Internationally, we will use the Group's expertise, including card design and customer insight to expand into new territories through partnerships into markets that show attractive characteristics for entry and disruption. While continuing to be a card-led retailer in a stable market, where 76% of adults are card givers, we will meet customer demand by providing greater choice through complementary gifting and party ranges, opening up access to a large market with GBP 40 billion per annum in the U.K., capturing more customer spend and increasing average basket value. We are already leaders in party and balloon categories. And for stores, we will be looking at expanding into additional categories, such as stationery and confectionery with other categories also being explored. This will not come at the expense of cards in store. It's about making smarter, more agile choices about the space dedicated to complementary categories. The card range will be broadened in terms of introducing more modern and contemporary choice and a clear focus on the proposition in-store to help shoppers. However, we expect the SKU size will remain the same. Online will have a far broader offer more across complementary categories. And at all times, our vertically integrated business model will remain a unique point of difference, affording us the flexibility to respond to market changes and enabling efficient, high-quality production at attractive margins, supporting online growth with lower cost per unit. Providing a new omnichannel service, Card Factory will improve the customer experience and access to its offer by being the first card and gifting brand to bridge digital with its store estate. This will be supported by an improved customer understanding from new data capabilities, including through the rollout of the Group's new ERP platform in quarter 4 this year. This will allow us to understand and respond to changing customer habits and preferences, including insight on price elasticity, enabling us to evolve our pricing approach while maintaining high levels of customer satisfaction. We will continue to invest in our brand based around quality and value to increase customer awareness and improve trust. Lastly, we will develop our ESG strategy to be recognized as a socially and environmentally responsible business, building on the wide range of existing initiatives that we already have in place. These include the recently introduced foil balloon recycling that is available to any customer visiting our store. We also are proud to have increased our store recycling to 87% of all store waste. And we will be a positive contributor in the communities we are present in, and we continue to be proud of our association with the Macmillan Cancer Support, for which we have raised GBP 7 million since the start of our relationship. So in summary, our -- opening our new future strategy is built upon using our market position, customer loyalty and vertically integrated model to provide a platform for our new omnichannel strategy, expanding into the gifting segment, which is highly complementary to the card giving market, where we are market leaders and which is highly resilient. Our refreshed growth strategy will deliver sustainable revenue and profit growth, and we will be making further investments and development across channels to improve convenience, choice and experience for customers. Now, with the Christmas season upon us, I want to provide an update on our preparations. We are well positioned with stock intake brought forward and Card Factory's in-house printing capabilities covering 70% of the range. We have brought forward recruitment to mid-September, supporting the challenging market we face and system changes mean we can provide a smooth and speedy onboarding process to retain successful Christmas candidates. Almost all Christmas and everyday ranges will move to auto replenishment. This will ensure the right stock is in the right stores, and we free up colleague time to focus on customer service. Our product ranges have been planned and built around 3 new key design trends this year, including our character of the year, the Yeti, which is an amazing character, and I'd encourage you all to go out and buy it. This is supported by lots of great value for money offers throughout the entire store, including cards from GBP 0.29, fabulous gifting ranges from soft toys to monogram gifts to festive books and even amazing chocolate character decorations for the tree, all for only GBP 1. Across our single Christmas card range, we've worked hard to significantly reduce the amount of glitter use throughout the range. In addition, we're pleased to have been able to remove all plastic from our box card range, saving the equivalent of 6.5 million plastic bottles. So in summary, Card Factory is now well positioned for growth, targeting over GBP 600 million of sales by FY '26. We will open 100 net new stores, adding to the existing portfolio of over 1,000 stores across the United Kingdom and the Republic of Ireland by FY '26. We will transition towards 20% of sales expected to come from online and omnichannel and retail partnerships by FY '26. Our PBT margin will trend towards 17% in the longer-term, reflecting shift in product and channel mix, and we will have completed our transformation to a full omnichannel offer. Thank you for your time today. We now look forward to answering any questions that you may have.

We've had quite a few questions on the webcast. [Operator Instructions] Our first question comes from Vikram. He's got a few questions here. First one is, in the May trading update and annual report, the Company intended to use best efforts to raise equity net proceeds of GBP 70 million. But in the latest update, the wording has been changed, so the Company is permitted to facilitate these payments through the issue of new equity or through debt. The wording has been changed to exclude the best efforts for equity raise, why is this?

Yes. Just to be clear, there's no change there at all. Best efforts is still the case on the equity raise or to prepay through subordinated debt. So that's just an update on the presentation. There's no change in terms of the best efforts requirement.

And another question for Kris from Vikram again. He's got 2 questions. He's got 3 questions here. I'll ask them all at the same time. First one is, what does the due date for the term loan and CLBILS is debt? Second question is, how much is prepayments do you need to make by July 2022 to avoid paying the GBP 5 million penalty? And his last question is, what conditions do you need to meet to be able to extend the RCF loan to 2024?

So the first question, what was the due date to the term loan, CLBILS debt? That is effectively September '23 in the agreement. How much in prepayments do you need to make by July '22 to avoid paying GBP 5 million penalty? So the way that works is effectively, if we raise GBP 70 million net equity by November, then we pay none of the GBP 5 million penalty. Hopefully, we [indiscernible] after July, we pay the full GBP 5 million penalty here and then there's a ratchet in between. And if there's a shop -- we can shop the GBP 70 million, then the GBP 5 million is effectively pro rata on that amount. In terms of the extension through to September '24, that is basically based on doing a successful equity raise of GBP 70 million, all the subordinated debt GBP 70 million.

And our next question is from [ Ivor Jones ]. What progress has been made on growing partnership revenues? And how close is Card Factory to agreeing any new deals?

I think partnerships remains an important part of the strategy, and we continue to make progress. I think the biggest development is us hiring Syed as our new Business Development Director, who is very experienced in this space. He joined us a few weeks ago, and he's in the middle of reviewing the work that we're doing and the strategy. So more informations come in the future.

Next question is from Richard Martin. Why are you not milking your estate by extending hours, not only in week days, but also on Sunday, specifically in areas that you're close to other longer opening stores? You can also, on most of your shops, open for longer on Sundays. That's more of a comment. Maybe Darcy can address that one.

Yes, sure. So we have a program where we review the opening hours of all stores. Clearly, given the low price points and the labor costs, making sure that it's economic is important. And Steve, our Retail Director, has a program where that gets reviewed frequently, and we make changes as is necessary to the estate.

Next question is from [ Peter Kanellis ]. Who's asking, Kris, can you expand on why online revenue is still so slow in absolute terms? Or why is growth slow? What will make Card Factory's online market share grow over the next 12 months and coming years?

Yes. So in terms of online, we were relatively late coming to online. The platform went in about a year ago, then we've launched the apps. And also during lockdown, we had capacity challenges on fulfillment. So we've continued to invest in the technology and continued to invest in fulfillment, so that we can trade the peaks well. And we continue with the strategy that I've outlined. We've done a deep dive on online, and we have a robust strategy and program of works that will help us grow that business significantly.

Our next question is from Adam Tomlinson from Liberum. And Adam is asking, can you please talk a bit about how you see the outlook for cost heading into 2022 and freight, wages, rent and utilities, et cetera? And what levers do you have to help mitigate pressure if they persist? Maybe that's a question for Kris.

Yes. So just taking them in turn. So as far as in terms of freight, everybody has seen in terms of increasing trade costs, there will be some headwind from that in the second half of the year. In terms of mitigation, one of the things that we're looking to do is to effectively try and flatten the intake. So we're making your best containers and also we're doing towards to mitigate it up. In terms of wages, certain things like agency staff and things we cover in Christmas trading period. Obviously, there has been a lot said in the market in terms of the pressures in that area. We've gone quite early in terms of recruiting those individuals and making sure we're as [ close ] as we can. That's going well. But clearly, there's still a bit of a runway in yet to go into Christmas. But so far, we've not seen any major sort of wage inflation there. There's time to go. There could be some pressures on agency staff. And in terms of rents, overall, we've been getting local [ government provisions ]. Obviously, these ones where the leases are coming off for renewal. Most of the rents agreed where we did deferrals were deferrals somewhere with some cash savings on them. But overall, in the year, the ones that we've renegotiated, we've got good results on. There is some where we've tried to take advantage and bring some of the rent reviews forward a little bit and negotiate early while the market is where it is. And then finally, on utilities, in particular, obviously, electricity and wholesale prices were they've been having, we're hedged out for the next 3 years effectively on electricity. So we've took steps to mitigate that cost. But yes, as far as the big one there is the freight piece and as a business, we're looking at what levers we can pull in terms of offsetting that cost, as well as how efficiently we can bring the stock in.

And there's actually another 2 questions from Adam, so we'll take them all now. His other question was, how are you looking at your headroom to increase prices? And can you give any more information/updates on discussions you're having with potential new retail partners?

I think from a pricing perspective, clearly, we've put in some price increases last year, which we have seen no adverse effect on volumes. We are doing a piece of work around understanding pricing elasticity. I think the way we should be thinking of this is pricing is a lever for us to use to offset inflation, as well as other things around productivity that we're working on. And we are focused on maintaining our value proposition, at the same time, making sure that appropriate inflation is passed on. And then in terms of partnerships, I've got nothing to update further beyond Syed joining and he is reviewing the strategy as we speak.

And next question is from [ Toso ]. Who's thanking for the presentation and asks, what is the criteria used to choose between the capital raising mechanisms? He says, the current market cap is GBP 70 million equity raise would cause an enormous dilution for current shareholders. What are less damaging options? And why is this path not clear yet?

So the process of which we've been through, we did the refinance, as we said in May. The Board are considering all options. Clearly, we're taking into account all stakeholders, including shareholders on the point there, if it was an equity raise option, but also, there's other debt options that we're looking at as well. So we -- there's nothing to update at the minute on that, but rest assured, myself and the Board are actively looking at all options, and we're hope to bring clarity on this as soon as we can.

Our next question is from Patrick Gerard, who's asking, as you forecast when the decision to increase the Company's capital will be taken. Considering that the lockdown is over and the future prospect of revenue is at least equal to the pre-pandemic level. What is a probability that it will be necessary to raise more funds via the issuance of new shares?

On that one, I'd have to refer back to the previous answer, really. I'd like to say, we're looking at all the different options in terms of debt options and the equity raise options. That's per the agreement in the bank agreement.

Another question from Ivor Jones is, could Card Factory consider a marketplace model for its website, i.e., a low complementary retailer space and the website, but not to handle their own fulfillment, an example being flowers. I'm not sure if that's a question, but maybe Darcy can address that.

Yes, I can take this one. Yes. So as part of the strategy we talked about expansion in gifts in complementary categories and doing gifts fulfilled by third parties is definitely an option. It's something we're looking at.

Next question is from [ Elrick ]. Who's got 2 questions. First question is, is there any chance the loans to be repaid if 2022, it could be financed by operative results without going for a capital increase and losing shareholders' capital? And have you may be contacted your major shareholders and they can support you concerning organizing a financing through subordinated loans? The second question is concerning the international partnerships, which countries are you approaching now? And that is his questions.

So yes, a similar sort of line of question in. Again, there's no further comment I can make it really apart from we have consulted with old stakeholders as you'd expect us to. But ultimately, the decision will rest with the Board on what their options are. The second point concerning international partnerships and which countries, we've sort of laid out in the Capital Markets Day, which countries those would possibly be. And as Darcy mentioned, Syed now being onboard only for a short period, he's been with us. Clearly, one of the key things he's assessing is the U.K. and internationally what the opportunities are.

We have a question about the Yeti. Maybe Darcy can take this one. How invested is Card Factory in the Yeti?

Look, we have our products team, both the commercial team and the design team have great confidence in. And I think we're -- the Yeti, we're excited about. We think it will be a good seller this year, and we have basically purchased appropriately. So yes, so we're excited about it.

Perfect. And next question is from Kate Calvert from Investec. She has 3 questions. The first question is, is there an opportunity to take out cash rent going forward or given -- looking at circa 100 as a flat profile, more appropriate year-on-year? Second question is, views on pricing architecture with recent trials of higher price points and potential to stretch it. And her last question is on the partnership model, can you talk about where you're up to in developing a pipeline? And should we expect moves on additional contracts in the next year?

I'll take the first question. So as far as -- just reiterating on rents, what we agreed during the lockdown periods is negotiated with landlords in terms of deferrals. Now, the world's options to maybe get cash reductions on then deferred rents, but only on the basis, a lot of these deals were signed up to longer tenure. And one of the things we've always kept in the portfolio is to keep it as flexible as we can in that top 2.5 years, reducing the lease length, which I think is even more [ informal ] review that as the 1,000 stores and locations. Like I say, we are getting rents down in terms of the negotiations that we currently have in as leases are coming up for renewal. And in terms of the circa 100 stores that we're looking to add on, we still think 1,100 stores is achievable. But the focus will be on making sure they hit the investment criteria and hurdle rates. That 18-month payback always been something that we've looked at. So that will still remain the focus when we're assessing adding up 100 stores. But I think, equals not more important, is more the 1,000 stores, their location and maximizing sales out of their locations.

And we actually have another question from Kate as well. She says, can you give some detail on investment needed in manufacturing to deliver your refresh strategy?

Sorry, I don't think we answer.

[Indiscernible] 2 and 3, you can answer the second part.

Yes. So I think in terms of the other 2 questions around price of architecture, I've answered a few questions. Look, I know there's quite a lot of energy for us to be very specific about what headroom we think there are in prices. And that's a really difficult question to answer. I think I will say that historically, it's an underutilized lever in the business. And it's one that we are -- that we do have at our disposal, and we will use it appropriately. But it is also about maintaining the balance between value and price. We have recently done a full market competitive review of pricing to know where we sit. So I think it's just -- I don't think I have any more detail kind of other than that. And again, pricing model, I think I've addressed that question.

And yes, just back on to Kate's follow-up question. Can you give some detail on investment needed and manufacturing to deliver your refresh strategy?

I mean, the manufacturing side and the vertical integration side has always been obviously a competitive advantage and something that we've always focused on investing in the right areas. So in the past, we've invested in -- the [ envelope ], how we use file, which is quite an expensive commodity, more efficiently. So that's constantly under review. We don't think there's an area where there's a massive underinvestment or anywhere where we think we need to make a big investment. We invested in a new printing machine in the last year or so, which was double the speed. So we've got quite a bit of capacity in there. So really, the other investments we'll look at in the manufacturing side is, where we still think we can do things to try and enhance the cost of goods, particularly obviously around the card.

We have another question from Vikram. This one can may be for Darcy. Can you discuss more about your competitive landscape in the gift market compared to pure online player or other card pure online-only players?

Yes. So a few things I'll give. So if I -- first of all, in the original strategy when we did the customer segmentation work, that work was done around card. So we refreshed that work. And we're looking at the customer segmentation based around gift. So we've got some data, and we have some things in research for us to test around the gifting. So I think that's one area. The second thing would be is, I think, we and most of our competitors do seasonal gifts very well. So this Christmas, I'd say, [indiscernible] Day, I think there's an opportunity to us to do every day gift and to own that space. I think also the gift market is a GBP 40 billion market. That is not the total addressable size for us, but it's a significant sized market. And therefore, there are opportunities for us to exploit that. We know that 72% of customers of people in the U.K. send gifts with cards. And again, that's why there's a great opportunity for us.

Our next question is from [ Shiret ]. With the current increase in supply chain costs, how has that impacted your cost of goods sold? Approximately, how much of your cost of goods sold pre-COVID were made up from freezing costs and how much were year-to-date?

So I think you can see from the half year margin position that we've managed margin quite well even with some of the freight issues. I think on the overall product margin, we still remain quite confident in maintaining that in the medium, longer-term. Certainly, I think second half of this year, we will see a little bit of pressure in there, like I say, on freight costs. I think that's sort of trebled, but we're looking what we can do to mitigate it. So I will give a profit or margin forecast on that. But yes, that's probably the one area of concern, as well as for the second half.

Another question from Ivor. To what extent our stores were saw closure of Clintons or other competitors benefited? Have these stores seen an improved LFL performance due to increased small -- your market share?

Yes. I think to do with Clintons, I think -- and other competitors, I think it's always thought that once a Clintons closure will pick up all the sales. There is a slightly different customer that goes into Clintons. But equally, I think we've eroded a lot of that customer base over the years. So we do see an uplift in the like-for-like sales. In terms of locations, we know all the locations of Clintons, Paperchase, et cetera, locations in the town and where we want to be. So we're pretty comfortable, even Clintons of all the stores, which are closed, obviously, they've been in a reducing portfolio and restructuring, as such Paperchase that they're already in pretty good locations. There's fairly limited locations where we want to relocate a where Clinton store or a Paperchase will be. So yes.

The next question is from Richard Martin. Who is more of -- making more of a statement, he is saying, extending shorten times do not cost that much more. And we are seeing your stores, they could be extended as a [ consultants ] be one of the first to close. What are your thoughts on that statement, Darcy?

Yes. So I think I'm not sure, Richard, you asked this question earlier. And therefore, you didn't think we answered this fully now or if it's a repeat. But look, we do look at footfalls by hour and we have a criteria by which we make decisions about what the shop opening hours are to effectively capture customer needs, but also to make sure that the shops are profitable. It's something that we review frequently. Happy to take a specific look at it and [indiscernible] touch if you have [ consider ] a point of view you want to discuss.

Thank you. That concludes our webcast Q&A today. So I'll hand back to Darcy for any closing remarks.

Great. Thank you very much for hosting. To everybody on the call, we really appreciate your time and engagement today, and we look forward to engaging again in the future at our next update. Thank you, all.