Trading update

RNS Number : 1692V

TheWorks.co.uk PLC

08 August 2022

 

8 August 2022

TheWorks.co.uk plc

("The Works", the "Company" or the "Group")

Trading update

TheWorks.co.uk plc, the multi-channel value retailer of arts, crafts, toys, books and stationery, announces an update on FY22 results and current trading for the 13 weeks ended 31 July 2022 (the "Period" or "Q1").⁽¹⁾

Highlights

· FY22 underlying EBITDA now expected to be higher, approximately £16.5m

· Board still anticipates recommending 2.4 pence per share dividend in relation to FY22

· Q1 total LFL sales decline of 2.5%, which includes:

o  Resilient store LFL sales growth of 1.4%

o  Challenging online performance with LFL sales decline of 28.6%

· Continued good progress against "better, not just bigger" strategy

· New committed £30m bank facility, extended to November 2025

· Outlook more cautious due to heightened uncertainty in consumer backdrop

FY22 results update

In our trading update issued on 20 May 2022 we noted that the FY22 EBITDA result was expected to be £15.0m. Underlying EBITDA is now expected to be approximately £16.5m, primarily due to a lower than expected level of provisions relating to stock.⁽²⁾

It is still anticipated that the Board will recommend the payment of a 2.4 pence per share dividend in relation to FY22 at the forthcoming AGM on 27 October 2022.

Q1 trading update

A resilient store sales performance generated positive LFL sales, up 1.4%. Online LFL sales declined by 28.6% in Q1 but remain 40% higher than pre-COVID levels. This resulted in a total LFL sales decline of 2.5% and total sales in the first quarter were 1.3% lower than the prior year.

As previously announced, The Works was subject to a cyber security incident at the end of March 2022. Although the immediate impact on trading was limited, the action taken to secure the business had a residual impact on store and online trading. Our recovery has progressed well and this impact to LFL sales was therefore largely confined to May and early June. Importantly, the decision to bring forwards planned investment to strengthen our IT security and the cautious approach taken to reinstate the systems has greatly improved our cyber security protection.

At the beginning of the period, store LFL sales growth was also impacted by a strong comparative with May 2021.⁽³⁾ Store performance then improved progressively through the period, with July's store LFL sales up 7.6%. This was driven by further improvements to our customer proposition, including an expansion of our front list adult book offering, enhancements to our children's book offer and refreshed outdoor play range, as well as investment in our biggest ever 'Back to School' offer.

Whilst store performance was resilient, online was impacted by trends affecting the industry including channel shifting (as post-COVID shopping trends normalise) and the challenging consumer environment,⁽⁴⁾ which appears to be affecting online sales more than physical stores. Despite this, our online sales remain 40% higher than pre-COVID levels. Although the external environment will make it more challenging in the short term, our online penetration is only ~10% of total sales and therefore provides a significant opportunity for growth in the medium term.

We have made good progress against our "better, not just bigger" strategy. We are encouraged by the positive impact that this has had on the resilience of the business and that the ongoing improvements we are making to our proposition are resonating well with customers.

FY23 outlook

The general market outlook has deteriorated since the beginning of the calendar year, with low consumer confidence and rising inflation being significant factors. It is not clear how long these market conditions will persist, which creates a heightened degree of uncertainty about how consumers will behave, particularly in the forthcoming Christmas shopping season, The Works' most important trading period.

Whilst we still expect to be able to grow sales in the remainder of FY23, it is uncertain whether the level of growth will be in line with original expectations and that which is required to offset cost headwinds such as historically high freight costs, which are showing little sign of abating in the short term, as well as increases to the National Living Wage. In light of this uncertainty, and reflecting its desire to maintain a more cautious approach in these market conditions, the Board has materially lowered its expectations in relation to FY23's result.

Financial position

The Group has recently increased the size of its committed bank facility to £30.0m and extended the expiry date to the end of November 2025, providing significant additional liquidity headroom.

Gavin Peck , Chief Executive Officer of The Works, commented:

"We delivered a strong performance in FY22 and will report a better than expected profit, as well as reinstating the payment of a dividend. Since the start of the financial year we have faced the residual effects of the cyber security incident and increasingly challenging trading conditions. The progressive recovery of store trading throughout the period is reassuring and we are pleased with the resilient performance delivered considering the lower consumer confidence. Our 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."

"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."

Preliminary results announcement

The preliminary results for FY22 will be announced on Friday 23 September 2022, along with a further update on current trading.

Enquiries: TheWorks.co.uk plc Gavin Peck  CEO Steve Alldridge  CFO	via Sanctuary Counsel
Sanctuary Counsel Ben Ullmann Rachel Miller	| |	020 7340 0395 [e-mail]

(1) As announced at the Full Year Trading Update on 20 May 2022, the Group plans to issue its FY22 results during September 2022. Given the delay, as a result of the cyber security incident announced in April 2022, the Company is today providing a separate update on Q1 trading.

(2) Although the audit of the financial statements is not yet fully complete, it is not anticipated that the remaining audit work will result in material changes to this figure.

(3) Q1 FY22 LFL sales had been temporarily boosted through pent-up demand following the reopening of stores after the lockdown.

(4) Recent data from the British Retail Consortium (BRC) has shown that online non-food sales are down year-on-year.

 

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