'Challenging’ market conditions put pressure on sales and profit at The Works  

The Works saw revenue growth of 3.1% in the 26 weeks to 29th October with total like-for-like sales up 1.6% “against a challenging backdrop and softened consumer demand”.  

According to the retailer’s latest trading update and interim half-year results half-year revenues were £122.6m for the period, compared to £118.9m last year. Store sales saw like-for-like growth up 3.5% with strong sales in the early summer months. This was followed, however, by a slower rate of growth "primarily due to sector-wide reduced footfall”. 

Online sales declined by 12.2%, echoing broader retail trends and pre-IFRS earnings before interest, taxes, depreciation and amortisation (Ebitda) saw a loss of £8.5m compared to a loss of £6.4m in 2023. Adjusted loss before tax was £7.8m compared to a loss of £7.3m last year. 

The Works said it “faced tough cost headwinds due to inflation and increase in National Living and Minimum Wages”. It continued: “Given pressures on sales and profitability and uncertain trading outlook, focus is now on cost reduction and margin growth in the short-term, with decisive action already underway.” 

Sales in the Christmas period, in the 11 weeks to 14th January 2024, were “lower than anticipated” with like-for-like sales declining 4.9%. This was “primarily a result of the challenging consumer environment and subdued demand over the festive period”.  

The Works said: “Family finances were under pressure, meaning many customers prioritised spend on food and essentials, while cutting back on gifting. The extended period of discounting seen across the sector continued throughout November and December, resulting in a highly competitive market and pressure to maintain promotional activity.

"In addition to the external challenges faced, some ranges, such as kids’ books, did not deliver as expected. We also experienced some teething problems at our Distribution Centre following the implementation of a new pick-process (expected to deliver significant savings in the long-term), which intermittently disrupted the flow of stock. Trading has improved post-Christmas in part reflecting a more impactful January sale, and the operational challenges in the DC have eased.” 

The retailer said it has entered the new calendar year “with stock levels in line with our original plans, having taken action to reduce planned intake and with seasonal stock selling through as expected”.  

Its cash position improved following Christmas, with £18.4m of cash as of 14th January 2024. It expects to end the financial year debt-free. Because of pressure on profitability from lower sales and margins it has “pivoted to focus on resetting our cost base, growing our gross margin and scaling back non-essential investments and spend in the short-term". Given the more positive sales trajectory in recent weeks, coupled with expected benefits from cost action and new ranges, the board’s expectation for FY24 pre IFRS 16 Adjusted EBITDA of approximately £6.0m currently remains unchanged.  

However, it warned: “We remain mindful that the outlook for consumer spend remains unpredictable and of uncertainty relating to external factors such as stock delays and increased freight costs as a result of supply chain disruption in the Red Sea.” 

Gavin Peck, chief executive officer of The Works, said: “Market conditions have been persistently challenging, putting pressure on our sales and profit performance in the first half and throughout the festive period. It is clear that many families celebrated Christmas on tighter budgets this year, and whilst we offered excellent value, we were not immune to this reduced spend. I am proud of the way that our colleagues have rallied together to deliver for customers during these challenging times.  

“We have started the new calendar year on an improved sales trajectory, with a strengthened leadership team to drive forward our strategy and exciting Easter and summer toy ranges due to land later this year. However, we are also mindful of external challenges, including recent supply chain disruption in the Red Sea.  

“Our focus for the remainder of the year will be on cost reduction, rebuilding margin and profitability, and conserving cash. It is necessary to take this action now to stabilise the profitability of the business during this challenging period, however we remain confident that our ‘Better, not just Bigger’ strategy is the right direction for the business and will enable a return to sustainable growth in the long term.”