- Dividend cut as retailer prioritises profits rebuild
- Finance director to step down
- Post-Covid online performance disappoints
Shares in The Works (WRKS) tumbled almost 10% to 29.4p as delayed results for the year ended 30 April 2023 revealed a near-40% pre-tax profits plunge and the value retailer cut its recently-restored dividend.
Investors were also rattled as the retailer revealed that finance director Steve Alldridge will step down from his role by the end of 2023, with head of finance Rosie Fordham to step into his shoes.
The profits reverse overshadowed news of ‘good strategic progress’ and in-line current trading from the family-friendly value arts and crafts, books and toys seller, whose new stores are trading ahead of expectations.
WHY DID PROFITS PLUNGE?
Delayed results from The Works showed adjusted pre-tax profits of £10.1 million, significantly below the previous year’s restated £16.5 million haul, as the discounter wrestled with declining consumer confidence as well as rising freight and energy costs.
The cut-price books, arts, crafts and toys seller also had to absorb a £5.8 million business rates costs increase as Covid-19 reliefs ended.
Revenue rose by 5.8% to £280.1 million last year, driven by the brick and mortar stores which represent roughly 90% of The Works’ total sales, as shoppers returned to in-store shopping post-Covid.
Unfortunately, a 15% drop in online sales meant overall like-for-like sales growth was modest at 4.2%.
DIVIDEND DISAPPOINTMENT
There was also disappointment as The Works cut its final dividend from 2.4p to 1.6p, despite closing the year with £10.2 million net cash in the coffers, as the retailer seeks to ‘balance the objective of continuing to provide a reasonable level of dividend for shareholders whilst maintaining cash reserves during a period in which the group is seeking to rebuild its profitability’.
Trading during the first 17 weeks of the new financial year has been in line with expectations, with store like-for-like sales up 5.4% and online sales down by 18.4%, resulting in modest overall like-for-like growth of 3.1%.
Future shares tank as CEO Jon Steinberg makes an early exit
‘Looking ahead, the macroeconomic environment remains uncertain,’ conceded CEO Gavin Peck, though he expects full year 2023 to be ‘the low point in The Works’ profitability post-Covid given that cost headwinds have now eased, the financial performance improved throughout the second half of the year and we have started to make more meaningful strategic progress, the benefits of which are expected to be realised in full year 2024 and beyond.’
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, commented: ‘The cost-of-living crisis should have been a tailwind for discount retailers such as The Works, as more shoppers seek bargains.
‘Sadly, ongoing cost pressures have meant The Works’ profit is significantly lower than a year ago. That’s had a knock-on effect with a sharp cut in the dividend – a toxic cocktail which has led to a slump in its share price.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Martin Gamble) own shares in AJ Bell.
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