- Online like-for-likes slump 28.6% in Q1
- Retailer ‘materially’ lowers guidance for 2023
- Still intends to reinstate dividends
Shares in The Works (WRKS) plunged 24% to 35.2p after the budget books-to-toys retailer ‘materially’ lowered its outlook for 2023 as it grapples with falling consumer confidence, rising inflation and cost headwinds.
The profit warning accompanied news of a 2.5% drop in total like-for-like sales in a tough first quarter ended 31 July as The Works’ resilient physical store performance failed to offset a plunge in online sales as post-COVID shopping trends normalised.
The retailer also cautioned that current market conditions are creating a ‘heightened degree of uncertainty about how consumers will behave’, in particular ahead of Christmas, which is the most important selling season for the cut-price stationery, arts and crafts seller.
GROWTH GUIDANCE DISAPPOINTS
While The Works still believes it can grow sales through the rest of the year to April 2023, it is ‘uncertain whether the level of growth will be in line with original expectations’ and sufficient to offset the surging freight and wage costs it is having to stomach.
Chief executive Gavin Peck commented: ‘The Works is a remarkably resilient business and the group’s financial position remains robust. Although the near term market conditions are very uncertain, we are confident that our “better, not just bigger” strategy still has a lot more upside to deliver in the medium term.
‘As a value retailer we are working hard to ensure that customers can continue to rely on The Works as a destination for good value products, as well as focusing on protecting our profitability as the cost of doing business continues to rise.’
ONLINE SALES PLUNGE
In the first quarter of the new financial year, The Works’ brick and mortar stores generated 1.4% like-for-like sales growth but online like-for-likes tumbled by an alarming 28.6%.
Peck said the recent online sales performance ‘reflects the challenges facing the broader sector but remains significantly higher than pre-COVID levels and we remain confident that the long term investment we have made in our customer proposition will see further growth’.
Besides the residual impact of disruption following a March cyber attack, The Works pinned the online sales plunge on the industry-wide normalisation of shopping trends post-lockdown as well as a challenging consumer environment which ‘appears to be affecting online sales more than physical stores’.
On the plus side, the retailer said it would report underlying EBITDA (earnings before interest, tax, depreciation and amortisation) of around £16.5 million for the year ended 1 May 2022.
That is ahead of its previous guidance of £15 million, mainly thanks to a lower than expected level of stock provisions, and the value retailer reiterated its intention to reinstate dividends with a 2.4p final payout for the year.
