Card Factory plc (CARD) Earnings Call Transcript & Summary

Welcome to the Card Factory FY '27 Interim Results Presentation. Please welcome to the stage, CEO, Darcy Willson-Rymer.

Good morning, and welcome to our interim results presentation for FY '27. Thank you for joining us today, whether you hear in person at UBS or online. I also know that we have many Card Factory colleagues joining us today. So a warm welcome to you, and thank you, as always, for everything you do. I'm Darcy Willson-Rymer, CEO of Card Factory; and Matthias Seeger joins me here as our CFO. And I'll start with an overview of the first half before handing over to Matthias to take you through our financial performance in more detail. I'll then return to provide an update on the strategic and operational progress we've made before covering our priorities for the second half and our outlook for the full year. Matthias and I will then take your questions at the end. So the first half has seen further progress for Card Factory despite continued and well-documented pressure on U.K. consumer sentiment. We are on a journey of transitioning from a specialist card-led retailer into a leading celebrations business underpinned by an established profitable store estate. Everything we are doing is putting in place the foundations to capture this. We've remained focused on strengthening the store business or continue to capture a greater share of the celebration occasions market and making progress unlocking our growth opportunities. And as we enter the important second half, we have stronger plans in place for the golden quarter, informed by the learnings from Christmas and Halloween last year. So starting with our performance in the first half. Group revenue increased by 5.3% with positive free cash generation across the group. And while continued pressure on U.K. consumer sentiment impacted footfall and like-for-like sales, improved product margins supported increased U.K. store profitability, and we delivered positive free cash flow. Alongside this, the work delivered in the first half has strengthened the foundations for future growth. We enabled the rollout of our new party proposition expanding our participation in the broader celebrations market. And as stated at prelims, we've progressed our strategically important store segmentation program. And in addition, we continued with our program of targeted new store openings as well as further operational improvements that support a more productive estate. Progress with partnerships in international wholesale has continued alongside the integration of Funky Pigeon. And importantly, we entered the golden quarter with stronger plans in place. These include significant product newness and a broader, more joined-up Christmas offer across cards, gift, wrap and party supported by clearer value and stronger in-store execution giving us greater opportunity to capture more of our customers' Christmas celebration spend. With the half 1 initiatives such as party proposition, and store segmentation, delivering encouraging early results. And alongside our Golden Quarter plans, we are confident of delivering our full year expectations. So for more detail on our financial performance, let me hand you over to Matthias.

Thank you, Darcy, and good morning, everyone. I take you now through our financial performance for the first half. These are the key messages I would like you to take away. First, group revenue increased by 5.3%, reflecting the benefit of the Funky Pigeon acquisition and continued growth in wholesale partnership. Second, adjusted earnings per share increased by 1.6% to 2.9p supported by the benefit of the share buyback program. Adjusted profit before tax was GBP 12.7 million compared with GBP 13.2 million last year. This was mainly the result of the planned investment in digital during the Funky Pigeon integration and transition period, which balanced the improved performance in store. Third, our core store business improved profitability despite lower U.K. footfall and like-for-like sales. This reflects stronger product margin, continued cost discipline and further benefits from simplifying scale. And fourth, the group continued to generate strong cash. Free cash flow over the last 12 months was GBP 47.8 million, an increase of GBP 9.9 million year-on-year. Lastly, we remain committed to predictable and progressive shareholder returns. The Board has declared an interim dividend of 1.4p per share, an increase of 7.7%. So the overall picture is one of resilient operating performance, strong cash generation with improved store profitability, funding, continued investment in the future growth and efficiency of the group. Turning to revenue in more detail. Group sales increased by GBP 13.2 million to GBP 260.8 million, representing growth of 5.3%. The principal driver was digital where sales increased by GBP 12.8 million, reflecting the full period contribution from Funky Pigeon following its acquisition last August -- August last year, of course. Excluding the incremental contribution from Funky Pigeon, group sales were broadly flat year-on-year. Wholesale partnerships contributed a further GBP 2.2 million of growth. This included double-digit organic sales growth. Garven and Garlanna continued to perform in line with expectations. Store sales reduced by GBP 1.8 million to GBP 226 million. Within that decline of minus 0.7%, U.K. like-for-like sales were down 2.3%, reflecting lower consumer confidence and weaker footfall. This was partially offset by the contribution from net new stores and a particularly strong performance in the Republic of Ireland, where like-for-like sales increased by 5.6%. There are 2 important conclusions from this performance. The first is that the U.K. consumer backdrop has been challenging and has affected transaction volumes in stores. We cannot control footfall on the high street but we can influence the shopping baskets of our customers when they are in our stores. The second is that our digital business, our wholesale business, our international operations and the new stores are broadening the sources of growth beyond U.K. store like-for-like sales. That diversification is important. It increases our customer reach and creates additional platforms for future growth, while our core store estate continues to be the engine and operational foundation for the group. Moving from revenue to profitability. Adjusted PBT was GBP 12.7 million compared with GBP 13.2 million last year. The movement reflects 2 contrasting dynamics within the group. The first is a strong underlying improvement in U.K. and Republic of Ireland store profitability. Higher product margins and lower operating costs more than offset the impact of negative U.K. like-for-like sales and inflation. This demonstrates the benefit of the actions we have taken on range, pricing, sourcing and operational efficiency. The second dynamic is the planned investment in digital, the mission was clear when we acquired Funky Pigeon about a year ago to create one digital business and rebuild the iconic Funky Pigeon brand. As we discussed, this year is therefore an integration and transition year funkypigeon and cardfactory.co.uk. During the first half, we invested in brand building media for Funky Pigeon, organizational integration, and the operating capabilities required to bring the 2 businesses together. That investment reduces current period digital profitability but it is creating the foundations for a simpler and more scalable digital business. Within wholesale partnerships, Garven and Garlanna continued to make a positive contribution and performed in line with their acquisition economics. As a greetings was behind our expectations, and we're taking actions to improve its performance. To summarize, store profitability improved despite the difficult macroeconomic backdrop. This stronger underlying profitability provides a solid foundation for delivering our second half plan. At the same time, we deliberately invested in integrating and the future growth within digital. Darcy will talk about -- more about the future growth later in his section. Looking more closely at U.K. stores. The key point is that the profitability improved despite lower sales. That improvement was driven by a 200 basis point increase in the product margin rate, together with store efficiencies and benefits from simplifying scale. This more than offset the impact of lower sales and continued inflation. U.K. store sales declined by 1.4%. Like-for-like sales were down 2.3%, partially offset by a 0.9% growth from net new stores. The principal issue was footfall, [ weak ] consumer sentiment, hot weather and pressure on disposable incomes among our core customer groups resulted in fewer store visits and transactions. External industry data indicated that footfall in the locations in which we operate reduced by around 3.5% during the first 6 months. Consumer confidence remained below the prior year level in the first half with reported signs of improved consumer sentiment over the last 3 months. Average basket value increased again in line with our strategy, partially compensating for the lower number of transactions with our [ card ] market share remaining in line with last year. This tells us that the customers who visit us, our stores continue to respond positively to the expanded range and value proposition. Building on this foundation, our plans for the second half will further strengthen our offer. We are sharpening our entry-level value offer, making value more visible in-store broadening the celebrations range and improving store standards and executions. We also continue to manage margin and operating costs carefully. The result in the first half demonstrate that these self-help actions protect and improve profitability even when the external environment remains difficult. Our core store stage remains highly profitable and cash generative. Store EBITDA over the last 12 months increased by 5.7% to GBP 50.4 million. That improvement reflects higher profit margins, optimize store operations and efficiencies that more than offset inflation. Store revenue was GBP 226 million. The U.K. performance reflected the consumer pressures I have just described, while the Republic of Ireland delivered strong like-for-like growth. Average basket value is now at [ GBP 5.3 ] have increased by 16.5% over the last 3 years. Importantly, gifts and celebration essentials now represent GBP 55.4 million percent of our in-store sales compared with 53.4% last year. This continued change in mix supports our strategy of moving from a card specialist towards a broader celebration occasions retailer. It also gives customers more reasons to shop with us and provides further opportunities to increase basket size and share of wallet. The estate now consists out of 1,126 stores across the U.K. and the Republic of Ireland. We added 23 net new stores over the last 12 months, including 9 net additions in the first half of this year. The low capital nature of our store model allows us to continue expanding selectively and our pipeline of potential openings remains strong. We continue to assess the performance and future potential of every location, including underperforming stores. Our objective is, therefore, not simply to create a larger estate it is to create a better and more productive estate with the right range, space and customer proposition for each location. The improvement of in-store profitability is closely linked to the continued delivery of simplifying scale. As discussed, we expect full year inflation of between 3% and 4%. Against that, our plans are on track to deliver close to GBP 10 million of efficiencies and structural cost reductions this year, with around 40% delivered in the first half. The benefits come from a broad range of initiatives. Store hours have reduced by 7% year-on-year through better optimized store operations while maintaining the focus on service and store standards. In the warehouse, the introduction of voice picking is improving efficiency within the support center, we are simplifying and automating activities, including the use of AI. We're also securing lower purchasing prices and bringing selected third-party manufacturing activities in-house. The importance of the program is not limited to offsetting inflation in the current year only. Each initiative is intended to remove complexity or structure to reduce the cost base. The benefits therefore support profitability this year and provide a stronger operating platform for future growth. Turning to cash. The group's cash generation remains a significant strength. Over the last 12 months, we generated GBP 47.8 million of free cash flow. In the first half itself, we generated positive adjusted free cash flow of almost GBP 1 million. That may appear modest in isolation, but it represents a significant improvement given the normal seasonality of the business and the cash investment typically required ahead of the key peak Christmas trading period. It is also noteworthy that this is the first time in the last 10 years that the free cash flow was positive in the first half. Continuous progress on working capital management was the key to this improvement, alongside a tax refund in relation to previous years. Capital expenditure in the first half was GBP 11.8 million compared with GBP 7.6 million last year. This included investment in additional manufacturing capability and the new HR information system as well as expenditure associated with the digital integration. This year, we expect free cash to again exceed GBP 30 million. This is at the lower end of our target cash conversion range, primarily due to one-off capital investment required to deliver Funky Pigeon synergies and enhance our manufacturing capability. These are deliberate investments the increased expenditure in the current year but are intended to reduce future operating costs, improve control of the value chain and support future growth. From next year on, we expect capital expenditure to return towards the lower end of our GBP 20 million to GBP 25 million guidance range. The central message is, therefore, that the underlying cash generation of the business remains strong, even while we fund the investment required to improve the future operating model. Cash generation continues to translate into balance sheet strength and flexibility. Net debt increased by GBP 8.5 million to GBP 87.4 million. This increase was after funding the acquisition of Funky Pigeon as well as shareholder returns of GBP 28.5 million by way of dividend and share buybacks. Net debt, excluding the Funky Pigeon acquisition and associated transaction costs reduced by GBP 18.9 million. This demonstrates the underlying cash generative capacity of the group. Adjusted leverage was just below 1.1x at the half year. This remains comfortable inside our maximum target of 1.5x. The group has total revolving credit facilities of GBP 160 million, providing material liquidity and financial flexibility. We, therefore, retained the capacity to invest behind the strategy and support progressive dividends while maintaining conservative financial guardrails. Our approach to capital allocation remains clear and unchanged. The first priority is to maintain a strong balance sheet. This provides resilience through economic cycle. The second priority is to invest in the delivery of our plans. This includes investment in new stores, digital integration, manufacturing capabilities, systems, and the operating efficiencies required to support long-term growth. The third priority is to support sustainable and growing dividends. Finally, the -- where the group has surplus cash after meeting those priorities, we intend to return that cash to shareholders over time. The financial guardrails remain equally clear. We target adjusted leverage below 1.5x, free cash conversion of between 70% and 80%, and dividend cover of between 2 and 3x adjusted earnings. Over the medium term, we continue to target mid-single-digit group revenue growth, mid- to high single-digit adjusted PBT growth. The growth -- the drivers of that growth are diversified. They include store like-for-like growth, new store openings, digital growth and wholesale partnerships, benefits from simplifying scale and operational leverage from our vertically integrated model. Disciplined capital investment and working capital management that converts growth into cash. It is this combination of growth, cash conversion and disciplined allocation that underpins the potential for attractive shareholder returns. We intend to maintain that discipline. Returns will be supported by the strength of the business, not by increasing leverage beyond our stated guardrails. Turning finally to shareholder returns. Our objective is to provide predictable, sustainable and growing cash returns. The Board has declared an interim dividend of 1.4p per share equivalent to approximately GBP 4.6 million payable in December this year. This represents an increase of 7.7% compared with last year. The interim dividend is based on our expectation of a progressive full year dividend and the dividend cover ratio consistent with last year. We have completed 83% of our GBP 15 million share buyback announced with our full year results. Shares purchased under that program are being canceled. These returns have been funded from the cash generated of the business while maintaining leverage comfortably inside our maximum target. Following last year's 5 million antidilution share purchase program, we intend to launch another 3 million antidilution share purchase program upon completion of the current GBP 50 million share buyback. Those shares will be held in treasury to satisfy future employee share scheme awards and to prevent shareholder dilution. Looking forward, we expect to generate more than GBP 30 million of free cash flow in FY '27 and expect the group to pay a progressive dividend in line with our policy. Our approach is consistent disciplined investment, conservative leverage and the return of surplus cash when it is appropriate. Darcy, back to you.

Thank you very much, Matthias. So let me provide you with an update on the strategic and operational progress we've made during the first half. As we outlined previously, our growth opportunity is to build on our leadership in cards to capture a greater share of the broader celebrations market. We already serve millions of customers across a wide range of celebration occasions, giving us the opportunity to extend our relationship with them across gift, celebration essentials and party, both in-store and online. And by reaching more customers through our stores, digital and partnerships, both in the U.K. and internationally, we have significant headroom for further growth. This is the opportunity our strategy is designed to capture. As we outlined at our full year results, the celebration occasions market represents a significant opportunity for Card Factory. It is a growing market, underpinned by resilient customer demand with our opportunity broadening as we extend our offer and capture more of the spend around each celebration. And we can build on our leadership in cards using cards as the gateway into complementary categories and increasing the value of each occasion. This gives us significant opportunity to capture a greater share of the celebration spend our customers are already making. Our priorities for FY '27 are focused on delivering against that priority in 3 ways: first, increasing our share of the celebration occasions market. That means maintaining our leadership in cards through compelling value in range, while expanding into areas such as gift, celebration essentials and party. A birthday, for example, extends well beyond the card and the balloon to the wider party occasion from tableware and decorations through to party bags, giving us the much broader opportunity to participate in that celebration spend. It also means continuing to optimize the space within our stores alongside our store segmentation program so that we can better reflect the different missions of our customers. Second, reaching more customers. We continue to selectively expand our store estate into underpenetrated locations whilst bringing together the best of cardfactory.co.uk and Funky Pigeon to create one digital business and build the capability to acquire and serve more customers through an omnichannel experience. We are also developing a new loyalty proposition, which we intend to launch by the end of FY '27, designed to deepen customer relationships and support greater engagement and frequency over time. And third, unlocking our international opportunity. Here, our focus remains on expanding our wholesale cell reach in our identified international growth markets with our international businesses providing the platform to support that expansion. In North America, we continue to make progress in moving from the current test and learn phase through to wider activation. This includes ongoing discussions with potential retail partners an integrated card capability into Garven. So let me now turn to how we are translating these priorities into action starting with the work underway to drive greater performance and productivity across our core profitable store estate. Our store segmentation program is a multiyear sort of test and learn approach that builds on the work that we've done in recent years to optimize space in our stores, enhanced use of customer and basket data tells us that different stores serve different customer missions. We're using these insights to explore how we make the space we already have work harder to capture more of customer celebration spend, by tailoring the space, range and customer journey much more closely to local demand. For example, giving greater space to party and gifting in stores where we see stronger customer demand for those categories. Following its successful test and learn during the first half, we completed the rollout to 118 stores that we identified as a party in gift led segment. These stores where customers are focused on party and/or gift missions. Encouragingly, for these 118 stores, sales performed 1.6 percentage points ahead of the rest of the estate. We have also recently completed testing of the cross-category format, which is designed around customers who see Card Factory as the destination for all their celebration needs. In 20 stores -- in the trial 20 stores, sales performed 1.9 percentage points ahead of the rest of the estate. Further rollout is planned for FY '28. So while this is a multiyear program, the early evidence is encouraging, and we'll look at further segment tests next year. Turning to digital. FY '27 is an important transition year as we bring Funky Pigeon and cardfactory.co.uk together into one digital business. The future growth opportunity for our digital channels is compelling. The acquisition of Funky Pigeon has given us an established customer base, stronger technology capabilities and the platform we need to grow our share of online cards and attach gifting while creating greater opportunities to connect our own digital and store propositions over time. We have a clear differentiation between our 2 digital brands. card.factory.co is focused on value and the broader celebration, while Funky Pigeon is centered on personalization and attached gifting. On Funky Pigeon, the integration program remains on track, as does delivery of the GBP 5 million of expected synergies from FY '28. And we've made good progress operationally during the first half. Our fulfillment optimization is well underway, with parcel orders now fulfilled from [ Belden ] and card fulfillment moving to Guernsey during the second half. We've completed the integration and restructure of our teams and agencies, and we are making good progress towards moving both brands onto a single technology platform. Alongside this, in half 1, we prioritized reinstating brand marketing for Funky Pigeon supported by improved performance marketing which has helped drive an 11% year-on-year increase in new customers during half 1. At the same time, we continue to improve the customer experience. We delivered more than 50 test and learn experiments on the site during half 1, while also evolving our search capability and improving the delivery proposition to give customers greater choice between speed and cost. And we are seeing stronger engagement from existing customers with funky VIP membership growing 46% year-on-year and now representing 16% of the active customer database. Taken together, we are making continued progress across customer acquisition, proposition and customer experience as we build the digital business. The Republic of Ireland continues to reinforce the strength of our established U.K. approach, delivering disciplined and profitable growth in an underpenetrated market. We entered the market in 2017 and had 49 stores at the end of July. Those stores continue to perform strongly with total store sales increasing by 24.3% in the first half and like-for-like sales increasing by 5.6%. We see further white space potential with the opportunity to grow that estate by around 50% over the next 5 years. Our approach remains disciplined, selective site expansion, flexible leases and the same focus on low-cost operation that underpins our U.K. model with new stores targeting a 24-month payback. Alongside our directly operated stores, Garlanna provides us with an established wholesale platform through which we can extend our reach across the Republic of Ireland. During half 1, we introduced Card Factory, seasonal and everyday products into Garlanna, bringing together cards, bags, wrap and gifting to create a broader and highly attractive celebration solution for our wholesale customers as well as an important point of differentiation for them. This demonstrates the opportunity to leverage the group's portfolio through Garlanna and reach customers beyond our own store network. So in Ireland, we have 2 complementary and successful routes to market, a growing store estate and established wholesale capability, providing a strong platform for growth. Let me now turn to the operational progress we've made during the first half and how this is supporting our performance as we move into half 2. Our store estate remains the sales engine of the business when combined with our omnichannel proposition, continually strengthening its performance is central to delivering growth. We look at store estate improvements through 4 areas of focus. The first is range. As we mentioned, we're introducing significant product newness across the Golden Quarter alongside a broader offer designed to capture a greater share of celebration spend. A major step forward has been the development and rollout of our new party proposition in mid-July. This broadens the range of customer needs we can serve across the celebration and creates further opportunities to capture celebration spend beyond cards. We're encouraged by early response with the party sales up double digits on a like-for-like basis since rollout. Alongside this, we're increasingly using customer insight and local demand to inform our ranges and bring categories together more effectively, such as increasing the space given to party and gifting in stores where we see stronger demand for those categories. This has been supported by improvements in forecasting, replenishment and stock allocation to ensure that we have the right products in the right store at the right time. The second area of focus is value. Value is an important driver for our customers, particularly in the current environment. We, therefore, made targeted investments in pricing, choice and promotions, including sharper opening price points across key card lines. Third is how we optimize space, and drive performance. We're continuing to make our store estate work harder, rolling out customer-led segmentation and optimizing space across cards, gift celebration essentials and party and at the same time, we continue to extend our reach through targeted new store openings in underpenetrated locations. We're also continually improving the customer experience in store with new customer service framework being rolled out across the estate to embed a more consistent approach to customer engagement and service. This is focused on helping customers find what they need discover more of our broader celebrations offer and ultimately improve conversion and basket size. Our final area of focus is how we communicate and merchandise that proposition in store. We're being much clearer and more impactful in how we present our offer from value messaging through to cross-category signposting and seasonal merchandising. The aim is simple, make our stores easier to shop, help customers discover more of the celebration offer and drive conversion and attachment sales by elevating our value messaging and our breadth of range. Taken together, these actions across range, value space and in-store communications strengthens the core business, driving traffic, improving conversion and capturing more of eat celebration mission. Central to our half 2 performance is, of course, the Golden Quarter, and this year, we've made significant changes to our Christmas proposition. As you can see here, there's substantial newness across the offer for the golden quarter. In cards, 90% of the Christmas range has been refreshed over the past 2 years with more than 1,400 single cards alongside new formats and innovation. And in Christmas, spot cards around half of this year's range is new. And importantly, we're also bringing categories together much more effectively. The popular snowman range, for example, extends across cards, gifting and celebration essentials. So alongside the card, customers could choose from a wide assortment of snowman gifts, including books, soft toys, blankets as well as the gift bag, creating a much more joined up Christmas shopping mission for the customer. We've significantly broadened our gifting and party offer too, with greater depth in license gifting, toys, secret center and Christmas party occasions. These include high-profile license such as LEGO and Pokemon as well as an expanded range of accessible gifting at key price points. There's also significant newness online. Funky Pigeon we're expanding personalized gifting including new license calendars, photo books and mugs, while broadening our branded direct gifting offer through partnerships, including Disney, Mars and Candy Kittens. And we've introduced balloons online using Card Factory's best-selling ranges and fulfillment capability, bringing the strengths of the 2 businesses together to create a broader offer for customers. Earlier, I mentioned the targeted investment we've been making in pricing, choice and promotions to reinforce the value offer in store. This Golden Quarter value is much more visible through the proposition with sharper opening price points and compelling promotions across cards, gifting and wrap. Together, that gives customers more reasons to visit card factory throughout the Golden Quarter, more reasons to shop across categories, when they do and gives us greater opportunity to capture more of their Christmas celebration spend. So this broader, fresher and more clearly value-led Christmas offer, supported by stronger execution across our stores and marketing. So let me now turn to the second half, the priorities that will underpin our performance and our outlook for the full year. We entered the second half with more favorable comparatives and with a clear focus on execution. As usual, our sales and profit delivery is weighted towards half 2 and the key Christmas trading period. Notwithstanding the wider consumer environment, our outlook is supported by initiatives already underway across the business, including actions that will benefit performance through second half. There are 3 clear priorities to deliver year-on-year profit growth in the second half. First, executing our commercial plans to drive sales growth across our channels. Our Golden Quarter plans are now in place with significant product newness broader ranges, targeted investment in value, supported by access to drive customer traffic and conversion. We've been encouraged by trading since the half year with U.K. store like-for-likes improving from half 1 levels and returning to positive growth in recent weeks. While it is still early, this provides encouraging evidence that the actions we are taking are gaining traction. Second, driving stronger operational execution through improved stock allocation and availability. We've made good progress in half 1, improving our forecasting replenishment and stock management processes. These improvements are now embedded. And together with tighter inventory control, we're improving availability across key ranges and seasonal events supporting stronger execution through half 1 -- half 2. And third, continuing to deliver efficiency and productivity improvements through simplify and scale. We remain on track to offset we remain on track to offset known annual inflationary pressures of around 3% to 4% with approximately 40% of the benefit delivered in the first half and the remainder expected in half 2. Since the program launched 3 years ago, we've mitigated approximately GBP 60 million of cost pressures, demonstrating the track record we have established in delivering efficiencies across the business. These priorities underpin our plans for delivering year-on-year half to profit growth, supported by a more favorable comparative period than we faced in the first half. So as we look ahead, we recognize that the consumer environment remains uncertain. Our focus remains on strengthening our proposition, improving execution and driving efficiency across the business. The actions taken through half 1 in these areas are providing a stronger platform as we enter half 2. And at the same time, our Golden Quarter plans are in place and focused on product value and driving traffic. As always, our multiyear simplify and scale program remains embedded across the group and continues to deliver efficiency and productivity benefits. Together, these actions give the board confidence in delivering expectations for the full year. So let me summarize. We've delivered group revenue growth in the first half and improve the profitability of our core store business despite the continued pressure on U.K. consumer. We've maintained our focus on strengthening the core or continuing to broaden Card Factory's role in the celebration occasions market. We are seeing tangible evidence from initiatives such as store segmentation, while the rollout of party enables us to meet more of our customer needs. And at the same time, we're building the foundations for future growth through Funky Pigeon, our wholesale partnerships and our international business. We've continued to deliver cash and shareholder returns with a progressive interim dividend our previously announced GBP 50 million share buyback program well progressed. And importantly, as we enter the second half with stronger plans for the Golden Quarter and Christmas. So thank you once again for attending the results. And Matthias and I will now take your questions. So thank you.

What we're going to do is take questions from the room first and then take questions from those joining online. And for those in the room, if you could please the microphone at your seat, so the people online are able to hear you. Go on, Russell.

It's Russell Pointon for Edison. A couple of questions. Encouraging signs on the store segmentation, the new product categories with the sales uplift. Could you just talk about what you're seeing in terms of gross profit from a percent and cash basis and perhaps talk about how is the cannibalization of -- how are sales on the core products that remain doing in those stores that you have? And how quickly would you actually roll out this store segmentation and what really prevents you going a bit quicker on this? And final question on Funky Pigeon. You've seen a good uplift in customers in response to the marketing, could you talk about the economics of those new customers now are you seeing good repeat purchases after they come in?

Thank you, Russell. Matthias, do you want to take the gross profit question, and then I'll come back on Funky rollout and customer segment.

And while that you can rest your voice a little bit. So your first question, if I understood it correctly, was about U.K. store profitability and what drives U.K. store profitability? And does it come in at the expend? How does that interact with other channels that we sell our products through? So first half U.K. profitability in stores increased versus the prior year, as we discussed behind a range of actions that we had taken during the first half that they included actions to improve product margin by 200 basis points, and that is behind a range of actions from looking at what the right product, what's the right price range to how do we -- where can we price products, still providing good value for consumers to making sure that our promotions are effective and provide value both for consumers and for us. And of course, through ways of making sure that we buy our products and produce them at the lowest possible price. Alongside, there was a range of actions through simplify and scale that helped us to keep our costs controlled and at bay. That led to that increase of overall profitability. And in the context of the overall U.K. profitability and your question, I believe, was on cannibalization [indiscernible] with other businesses. As we said before, we see a high level of complementary with other channels because other channels serve different shopper missions. So a purchase in an old store for a card is based on a different shopper mission than a purchase of a card in a Card Factory store or a purchase of a card in -- at Funky Pigeon, where it's more for the personalized and direct-to-consumer purpose. Did I answer your question?

But let me pick up the segmentation speed as well as new customers on Funky. So I just start on Funky in terms of those new customers, we're seeing conversion at the rates that we need. So we're encouraged by that. I think in terms of the segmentation, there's a couple of things, I think, to think about. First of all, we did quite a big piece of space realignment a couple of years ago. That then followed what we call radical space trials. So we said, how far can we go to kind of almost sort of break the system. That then led to the analysis around segmentation. Because we're in the crown jewels, so the balance between space range, display, it's very important that any decision we make, we get right because you can if you make mistakes, you can destroy value sort of quite quickly. So this sort of test and learn approach. First segment done. Second segment, we can't roll out during Christmas, so we have to wait until January, and we've got test slide for the other segment. It is a sort of test learn methodology. Adam?

Adam Tomlinson from Berenberg. Just a follow-up on the space allocation and the optimization there. Just if you could just give us a bit of an insight into practically how that works, I guess with 1,000-plus stores. Just understanding how your investment into systems and infrastructure allows you to really localize versus, I suppose, just a more general improvement across the estate. That's the first question. The second question is just you mentioned investment into manufacturing capabilities in H1. So just a little bit of color on that would be great, please. And then also on your on your move to be clear on your value proposition. If you could just outline any price investment that's been required there? And also just the reasons for that, whether you've seen a change in the competitive landscape, whether it's more the consumer backdrop or it's just ongoing improvements in terms of your marketing and how you message that value?

Yes. So I think on the first piece, we've done as part of our continuous investment in CapEx, we've done quite a lot of work this year to upgrade systems that relate to stock. So how we allocate stock, how we order, how we track it and monitor it. And what that should allow us to do is refine the next level of using the technology, algorithms of getting the right stock to the right place. So if I take a simple example where we have regional differences on grandma, nanny, nan, all of that, actually, the system allows us to be much more granular and get that stock allocation much better. So the stores in and around the Northeast that traditionally run out of mam cards close to Christmas shouldn't issue. So that would be an example, but that's across the range. So it's continuous improvement in how we choose what stock goes into what store and how we allocate it. I think in terms of manufacturing, I mean, effectively, we're investing in roll wrap manufacturing to a more paper, and we will see the benefit of that next year. So that's in process now.

Okay. Sorry, just talk about --

Yes. Okay. Yes. So in the majority of the value thing is leaning into where consumers are at the moment, and it's making sure that when -- if you're worried about a lot of our customers who will live paycheck to paycheck, if you're worried about what you spend when you come in, you need to see that were on your side, and we've got products that meet your budget. And it's being more overt about it. So we have more 99p cards this Christmas range, for example. But ultimately, it's about driving sales volume and supporting the consumer.

Before we move on, may I just add to the second point, the manufacturing investment in roll wrap -- we saw a [ draw ] rep from the 5 so far. We saw an opportunity to bring sourcing back to the U.K. which obviously gives us several benefits. One, we are more agile in responding to customer needs. Second, we will have lower inventory third, we won't be subject to volatility in container rates. And fourth, I mean, it is playing to our business model and our strength of having an end-to-end value chain and supply chain.

It's Hai Huynh from UBS. I have a few -- the first one is on -- could you give us a bit more color on the recent uptick in the like-for-like growth? Is that a function of mostly your new proposition, improving the mix and basket value? Or do you see also signs of consumer footfall improving? An added bonus to that is your range comfortable with consensus GBP 54 million to GBP 59 million. Do you assume any recovery of consumer in that rate? Or you assume that consumers where they are for the rest of the year? My second question is on market share dynamics for the first half. Footfall is down 3.5%. But within that, have you gained market share? And do you see opportunities from [ TG Jones ] closing 150 stores and cutting car publishers. Have you seen that benefit already? Or are you seeing future benefits from that perspective? And then my third question is a little bit more on Funky Pigeon. So 11% new customers. But when you frame it as a transition year, I assume that means investments on both the potentially pricing and also marketing from the margin perspective. So when do you see it being incremental or growth being incremental to the group. Is it end of the year or more for next year's story?

Just do you want to --

So with respect to the recent trends. Well, as we commented earlier as Darcy explained, we enacted a whole range of actions at the back end of the first half, including value in investing in price range, the launch of the party range, the in-store communication, all that sets the base, obviously, for a successful half 2. What we have also seen is that the overall footfall on the high street, not being impacted any more through the hot weather that we saw through the summer has, I would say, readjusted upwards and from our own trading point of view, we are very encouraged by the trading of the recent week, which brings to life brings together these 2 factors. And clearly, we're looking forward to a successful second half. We do not require a count on a sharp uptick in footfall or change in consumer sentiment, deliver our plans for the second half. They're built around the elements that helped us drive average basket value in the first half in the past. So yes, to your question, well, we are comfortable with the overall consensus. Do you want me to take --

Yes. I think -- so your next question around market share. I think over the last 12 months, we've seen a modest improvement in -- or a modest gain in card market share. And then in terms of your question on Funky, I think that the expectation is that on a run rate basis by the end of the year, our digital business is profitable. What we're doing for the balance of this year is on the marketing investment, for example, we've been running a group of sort of different test and learn initiatives. What we're trying to understand is what is the level of investment that we need to deliver profitable sales growth. And we've been looking at the dynamics of how much needs to be TV, radio, outdoor what more we could do on social or below the line to basically find that sweet spot to drive new customers, to drive conversion but do that sort of in a profitable way. But the actions between the marketing, the synergies, we -- yes, on a run rate basis, we expect to be profitable.

Matthew from Singer. Just coming back on one of those questions. I mean it's clear the market is pretty cautious/nervous about like-for-like growth being delivered in the Golden Quarter. You've got a lot of initiatives underway in the comps, you've had 2 years of being battered by labor government initiatives around the budget. Could you give any comfort in terms of the magnitude of like-for-like growth you require per your chart earlier to deliver the full year PBT kind of in the market that you referenced today? Is there anything that you can give just in terms of comfort that you don't have to shoot the lights out, particularly after the gross margin improvement, that would be first question, very helpful, please.

No. Okay. I mean as I just indicated, we don't require a sharp upturn of sales, but what is also true that we won't have hot weather as a hindrance in half 2, and that impacted certainly our like-for-like growth by a couple of percentage points. So as such we are very comfortable with the recent trading pattern and footfall. And again, through the initiatives that we have launched regarding range pricing where we see the benefits all materializing now, we feel comfortable with the consensus.

Just coming back to the party launch, and that's some quite good numbers you've reported on early trading. Does it have any influence in terms of card sales as well be that either positive or negative? That launch? I mean it's possible that you might actually generate some additional card sales where you can match those?

Yes. So I think from a -- I mean, overall, the majority of majority of baskets will have a card in them. But we are also starting to see people shop for party occasions, if you like, without necessarily buying the card. What's difficult to read in the data is if I want, is part of my party proposition, I want inflated balloons then I have to come on the day or the earliest the day before. And in fact, that card purchase may have already taken place. But it's all about capturing that sort of broader celebration. And just on a personal anecdote where I -- some friends that I've got where we celebrate something every year with each other, I spent GBP 25 in Card Factory and completely decked out for their 40th anniversary in -- it was a Ruby anniversary. So we decked out the whole lounge. And our friends kind of went in and came in and went, "Oh my god, why you've really knocked it out of the park." It's such a transformation just by decorating. And it's that point about how you enhance the celebration -- that I think is the reason why it's resonating.