Retailer The Works sees shares plunge as half-year losses increase more than tenfold amid rising labor costs
- The Works said losses for the six months to October 30 had climbed to £8.7million
- Margins were impacted by supply chain disruptions and ‘frontline’ book sales
- Total revenue increased by 2.4% even as LFL’s online revenue fell by 16.9%
Shares of The Works fell nearly a fifth on Friday morning after the discount retailer announced that its half-year losses had increased more than tenfold despite a buoyant trading performance.
Losses for the six months to October 30 soared to £8.7million from £852,000 in the equivalent period a year earlier as the group was hit by much higher wage costs and the lack of corporate rate relief.
Margins were further squeezed by higher containerized freight rates caused by supply chain disruptions and much stronger sales of ‘frontline’ books – new titles from authors like Julia Donaldson and Colleen Hoover .
Results: Losses for the six months to October 30 soared to £8.7million as The Works was hit by much higher wage costs and the lack of corporate rate relief
Total sales remained resilient throughout the period, growing 2.4% against a very upbeat comparative result in 2021, when Britain’s high street was reaping the benefits of the easing of Covid-19 restrictions.
But due to consumers returning to stores faster than the company expected, its like-for-like online revenue fell 16.9%.
The trade was also damaged by tougher economic conditions affecting the UK economy and a cybersecurity incident last March which delayed some deliveries and led to the temporary closure of several outlets.
Shares of TheWorks.co.uk had plunged 20.1% to 34.5p as of 11am after its interim results were released, making it the worst performer on the FTSE Fledgling index.
Gavin Peck, the company’s chief executive, said: “We have not been immune to the economic headwinds affecting the retail sector, including higher costs which have impacted our profitability. in the first half more than last year.”
“Although trading conditions were more difficult, we were still pleased to see cost-conscious customers buying into our value offering, which enabled us to drive positive overall sales growth.”
Since late October, The Works has seen revenue remain robust, rising 5.7% in the 11 weeks to January 15, even as digital revenue has been hit hard by Royal postal strikes Mail.
He noted that demand from shops was “particularly strong” the week before Christmas, indicating that Britons were shopping much later than in the previous two years.
Among the company’s products that were popular with Christmas shoppers were its craft ranges, tabletop games like The LOGO Board Game and Elf Monopoly, and its ‘3 for £15’ gift offering.
Due to the seasonal nature of the business, The Works’ profitability is highly dependent on its performance during the peak holiday season and the second half of the fiscal year.
It expects to achieve a better business result this year, but the group’s management has decided to stick to its current annual forecast due to fears that consumer spending will weaken in the coming months.
Friday’s announcement by The Works comes as figures from the Office for National Statistics estimated that retail sales fell 1% in December amid growing inflationary pressures.