The Works has reported deepening losses as cash-strapped customers prioritised food and essentials over gifts at Christmas.
For the 26 weeks ending October 29, 2023, The Works reported an adjusted loss before tax of £7.8m, a loss before tax of £14.8m and a Pre-IFRS 16 adjusted EBITDA loss of £8.5m.
The retailer blamed tough cost headwinds due to inflation and an increase in the National Living and Minimum Wages during the period.
The Works reported 3.1% growth in total revenue of 3.1% to £122.6m and total like-for-like sales growth of 1.6% against what it called a “challenging backdrop with softened consumer demand”.
However, in the 11 weeks to January 14, 2024, like-for-like sales dropped 4.9%.
The retailer said it experienced subdued demand over Christmas, with family finances under pressure “meaning many customers prioritised spend on food and essentials, while cutting back on gifting”.
Due to pressure on profitability from low sales and margins, The Works said it has now pivoted “to focus on resetting our cost base”, with most of the cost savings to be “realised in the next financial year”.
The Works said that, while its FY24 adjusted EBITDA expectations remain unchanged, it “remain[s] 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”.
Chief executive Gavin Peck 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, while 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.”