- Sales growth slows as cost-of-living crisis bites
- Cautions over consumer spending
- Sticks with full year earnings guidance
Shares in The Works (WRKS) cheapened 9.6% to 31.2p on Friday after flagging a slight slowdown in recent sales. The cut-price books, arts, crafts and toys seller also issued a cautious outlook for consumer spending this Christmas as cash-strapped shoppers wrestle with higher inflation and rising interest rates.
Outlook caution overshadowed news of a rather resilient first half from the Birmingham-headquartered discounter.
The Works is sticking with its guidance for full year adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of around £9 million on the grounds its value proposition is ‘more relevant than ever’ and it is ‘well-placed operationally’ for the festive selling season.
PECK SAYS CHRISTMAS DIFFICULT TO PREDICT
CEO Gavin Peck said: ‘Although it is very difficult to predict what Christmas will look like this year, we believe that the great products and fantastic value we offer will be more important than ever, with families still looking to celebrate Christmas but in a more affordable way.’
He also stressed that The Works has proven itself to be a ‘resilient business’ and remains ‘confident in our ability to make progress on our strategy and deliver growth in the medium term, supported by a robust balance sheet’.
Over the 26 weeks to 30 October, The Works’ total sales ticked up 2.1% despite operational issues arising from a cyber attack, with like-for-like sales in brick and mortar stores up 3.5%.
Online sales declined by 16.9% due to the ongoing normalisation of shopping trends post-Covid, though digital sales were still 50% above pre-pandemic levels, demonstrating firm market share gains from The Works.
HOW IS TRADING HOLDING UP?
However, in the six weeks since The Works’ full year results (23 September), store like-for-like sales growth has remained positive, but the rate ‘softened slightly’ due to the extra bank holiday for the Queen’s funeral and the retailer lapping tough September and October comparatives.
Online sales growth continued to track behind stores, but The Works is ‘encouraged that the rate of decline has slowed progressively as trading through this channel stabilises’.
As Shares reported here in September, The Works’ results for the year to 1 May 2022 were fairly robust considering the swirling headwinds facing the retail sector.
The company swung from losses of £2.8 million to pre-tax profits of £10.2 million and also returned to the dividend list after a two-year hiatus.
The Works will deliver its Christmas trading update alongside first half results on 20 January 2023.
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould said times are tough on the high street and The Works is ‘seeing sales growth slow. While there are some extenuating circumstances and it’s only a slight softening that’s been reported for now, as an indication of the direction of travel it is not hugely encouraging.
‘The Works is at least partly reliant on impulse purchases and people have no choice but to be more disciplined with their spending.’
Mould added: ‘That said, heading into the festive period it will be an obvious destination as people look to do Christmas on a budget and that underpins management’s confidence about the outlook for the coming weeks.
‘Unlike some of its retail rivals, The Works at least benefits from a balance sheet in decent shape and it has a clear value-based proposition which should be well aligned with the current economic climate.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
