The Works confident of return to growth after profits slump

Retailer The Works has revealed tumbling annual profits after sales and cost woes, but said it is on track to return to earnings growth over the year ahead.

The arts, crafts and stationery company reported a 40% slump in underlying pre-tax profits to £3.2 million for the year to May 5 after like-for-like sales dropped 0.9%.

Statutory pre-tax profits fell 23% to £6.9 million.

The Works said trading started to turn around in the final three months and this has continued into the new financial year, with comparable store sales up 0.2% in the first 21 weeks.

It said the improved performance is set to help profits grow in 2024-25, leading shares in the group to jump as much as 11% in Tuesday morning trading.

The firm is on track with City forecasts for underlying earnings of £8.5 million for the year, it added.

Chief executive Gavin Peck said: “Although consumer confidence remains subdued and we continue to face tough cost headwinds, the cost and operational action we have taken and the trajectory of recent trading means we are well positioned to offset these and return to profit growth in 2024-25.

“Operationally we are in a much stronger position this year as we head into the upcoming peak Christmas trading period.”

The group also announced that non-executive directors John Goold and Mark Kirkland – who also lead US private equity firm Kelso Group, which is a major shareholder in The Works – have stepped down from the board, citing their confidence in its overhaul.

Mr Goold and Mr Kirkland, who are chief executive and chief financial officer respectively of Kelso, said: “We joined The Works board on a temporary basis to provide additional guidance as the business underwent a period of change.

“Since then, significant progress has been made. We are content to step down now, knowing that the company is on a path to growth and with full confidence in the management team.”

The Works has been cutting costs in the face of inflation pressures, while also shutting loss-making stores.

It ended the year with 511 stores after closing 24 sites, although it also opened nine shops and relocated five.

The firm’s wage costs have jumped due to rises in the National Living Wage, but The Works said it is helping offset this by overhauling staff working hours.

It has also been negotiating with suppliers and reducing discount promotions to help minimise the impact of higher shipping costs.