The Works warns after first quarter online sales fall 30%

– 28.6% drop in similar online values ​​in the first quarter

– The retailer “significantly” lowers its forecast for 2023

– Still intends to restore dividends

Shares in The works (WRKS) plunged 24% to 35.2p after the budget toy book retailer “significantly” lowered its outlook for 2023 as it grapples with falling consumer confidence, rising inflation and cost headwinds.

The profit warning accompanied the announcement of a 2.5% drop in total like-for-like sales during a difficult first quarter that ended July 31, the resilient performance of physical stores in The Works failed to offset a drop in online sales as post-COVID shopping trends normalized.

The retailer also warned that current market conditions are creating an “increased degree of uncertainty about consumer behavior”, particularly ahead of Christmas, which is the busiest selling season for the stationery, art and craft seller. discount crafts.

GROWTH MANAGEMENT DISAPPOINTED

Although The Works still believes it can increase sales over the remainder of the year through April 2023, it is uncertain whether the level of growth will be in line with initial expectations’ and sufficient to offset the surge in prices. freight costs and wages it has to stomach.

Chief Executive Gavin Peck commented: “The Works is a remarkably resilient business and the group’s financial position remains strong. Although the short-term market conditions are very uncertain, we are convinced that our “better, not just bigger” strategy still has much more to offer in the medium term.

“As a value retailer, we are working hard to ensure customers can continue to rely on The Works as a destination for good value products, while focusing on protecting our profitability as the cost of doing business continues to increase.”

DIVE IN ONLINE SALES

In the first quarter of the new fiscal year, The Works physical stores generated like-for-like sales growth of 1.4%, but like-for-like online sales fell 28.6%.

Peck said recent online sales performance “reflects the challenges facing the wider industry, but remains significantly above pre-COVID levels and we remain confident that the long-term investment we have made in our customer proposition will experience further growth”.

As well as the residual impact of disruption following a cyberattack in March, The Works attributed the fall in online sales to the industry-wide normalization of post-lockdown shopping trends as well as to a difficult consumer environment that “seems to affect online sales more than physical stores”. ‘.

On the positive side, the retailer said it would report underlying EBITDA (earnings before interest, tax, depreciation and amortization) of around £16.5 million for the financial year ending May 1, 2022.

This is ahead of its previous guidance of £15m, mainly thanks to a level of inventory provisions below expectations, and the value retailer reiterated its intention to restore dividends with a final payment of 2.4 pence for the year.


Date of issue: August 08, 2022

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