The Works shares dive as half-year losses climb more than tenfold

Shares in The Works tumbled by nearly a fifth on Friday morning, after the discount retailer reported half-year losses surged more than tenfold despite a buoyant trading performance.

Losses for the six months ending 30 October soared to £8.7million, from £852,000 for the equivalent period in the previous year, as the group was hit by much higher wage costs and the absence of business rates relief.

Margins were further squeezed by higher container freight rates caused by supply chain disruptions and much stronger sales of ‘front list’ books – new titles from authors like Julia Donaldson and Colleen Hoover.

Results: Losses for the six months ending 30 October soared to £8.7million as The Works was hit by much higher wage costs and the absence of business rates relief

Total sales remained resilient throughout the period, growing by 2.4 per cent against a very upbeat comparative result in 2021 when the British high street was reaping the benefits of loosening Covid-19 restrictions.

But as a consequence of consumers returning more quickly to stores than the firm expected, its like-for-like online revenues slumped by 16.9 per cent.

Trading was also damaged by the more challenging economic conditions affecting the UK economy and a cyber security incident last March that delayed some deliveries and led to several outlets temporarily closing. 

TheWorks.co.uk shares had dived by 20.1 per cent to 34.5p at 11am following the release of its interim results, making it the worst performer on the FTSE Fledgling Index.

Gavin Peck, the company’s chief executive, said: ‘We have not been immune from the economic headwinds affecting the retail sector, including higher costs which 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 deliver positive sales growth overall.’

Since the end of October, The Works has observed turnover remain robust, growing by 5.7 per cent in the 11 weeks ending 15 January, even as digital revenue took a massive knock from Royal Mail postal strikes. 

It noted that store demand was ‘particularly strong’ in the week preceding Christmas, indicating that Britons were shopping a lot later than in the prior two years.

Among the firm’s products that were popular with Christmas shoppers included its arts and crafts ranges, tabletop games like The LOGO Board Game and Elf Monopoly, and its ‘3 for £15’ gifts offer.

Due to the seasonal nature of the business, The Works’ profitability is heavily reliant on the its performance during the peak festive period and the second half of the financial year.

It expects to score a better trading result this year, but the group’s management has decided to maintain its current annual forecast because of concerns that consumer spending could weaken over the coming months. 

Friday’s announcement by The Works comes as figures from the Office for National Statistics estimated that retail sales declined by 1 per cent in December amid growing inflationary pressures.

This post first appeared on Dailymail.co.uk