TheWorks slashes FY23 outlook, shares tumble

TheWorks slashed its outlook for FY23 on Monday, pointing to a deteriorating market outlook, low consumer confidence and rising inflation, sending shares in the arts and crafts and stationery retailer tumbling.

The company said it now expects underlying EBITDA for FY22 to be around £16.5m, mainly due to a lower-than-expected level of provisions related to stock, up from previous guidance of £15m. However, it "materially lowered" its expectations for FY23 results.

"The general market outlook has deteriorated since the beginning of the calendar year, with low consumer confidence and rising inflation being significant factors," it said. "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."

Updating on first-quarter trading, the company said a "resilient" store sales performance generated positive like-for-like sales, up 1.4%. Online LFL sales fell 28.6% but remain 40% higher than pre-Covid levels. Overall, total LFL sales dipped 2.5% and total sales in the first quarter were 1.3% lower than the prior year.

"At the beginning of the period, store LFL sales growth was also impacted by a strong comparative with May 2021," it said. "Store performance then improved progressively through the period, with July's store LFL sales up 7.6%."

This was driven by further improvements to the customer proposition, including an expansion of the company’s front list adult book offering, enhancements to its children's book offer and refreshed outdoor play range.

"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, which appears to be affecting online sales more than physical stores," it said.