Shares in The Works (WRKS) weakened 4.3% to 69.6p after warning investors to expect increased uncertainty around consumer spending to persist.
In a year-end trading update, the cut-price books, toys, arts and crafts retailer was unable to give the market guidance on earnings in the year ahead despite seeing ‘very encouraging’ sales through its stores since the retail reopening.
This has left the company in a strong financial position as its financial year came to an end on 2 May 2021, the company said.
ENCOURAGING REOPENING
Since reopening brick and mortar stores in England on 12 April, trading in the bulk of The Works’ estate has proved promising - the group’s outlets in the Republic of Ireland are due to reopen on Monday.
‘It is probably too soon to judge the extent to which these encouraging sales reflect strong underlying performance as opposed to pent up demand,’ conceded The Works, adding that with the reopening of its brick and mortar stores, its online sales have reduced yet ‘remain significantly ahead of pre Covid-19 levels’.
During a lockdown-disrupted 53 weeks to 2 May 2021, total sales slumped 19% to £202.6 million, the pandemic proving incredibly challenging for a retailer which has historically relied mainly on in-store sales.
‘Our business was severely impacted by successive lockdowns and forced closures of our entire store estate,’ explained CEO Gavin Peck.
Despite this, he reckons the period has ‘highlighted the resilience of the business and our ability to both adapt our offer and leverage our multi-channel model. Since we couldn’t control store closures we focused on the things we could, keeping tight control of costs, optimising our operations and vastly improving our online offering.’
Peck also pointed out that online growth ‘exceeded our expectations, and when stores reopened we saw customer demand returning quickly to pre-Covid levels.’
KEEN PRICING, COMPETITIVE EDGE
As Shares outlined in our retail sector report in March, The Works is a likely beneficiary of the reopening thanks to its competitive prices, which are significantly lower than high street rival WH Smith (SMWH), not to mention the appeal of its stores, which Shore Capital says are ‘full of theatre, lots of impulse with a likeable bazaar feel, very family friendly with a very engaged and loyal customer base’.
Understandably, the brokerage doesn’t have any forecasts on The Works at this time, although it says there is ‘much to like about this tidy and effective retail business.
‘Beyond the remedial activity moving away from pandemic restrictions, it is a company and a stock that has the basis to sit effectively in a UK small cap consumer portfolio.’
