The Works cut its full-year outlook, warning early that it expects the cost-of-living crisis to weigh on its key Christmas trading period.
The discount craft, book and toy retailer, which has around 525 stores in the UK, said the market had deteriorated since January and had “decline significantly [sales and profit] expectations” for the year to May 2023 as it was no longer certain that the pace of sales growth would offset rising costs, including high transport costs and an increase in the statutory minimum wage.
“The general market outlook has deteriorated since the start of the calendar year,” the company said. “It is unclear how long these market conditions will persist, creating a heightened degree of uncertainty about consumer behavior, particularly in the upcoming Christmas shopping season, The Works’ most important trading period. .”
The Works also said its online sales had fallen from their peak during Covid as shoppers returned to department stores.
Underlying sales fell 2.5% in the three months to July 31, as a 28.6% decline in online sales was offset by a 1.4% increase in established outlets .
The company said a cyberattack in March continued to affect commerce for part of the period, but online sales remained 40% above pre-Covid levels.
The security breach in its computer systems forced the temporary closure of some of the retailer’s stores, delayed inventory replenishment and deliveries of online orders to customers.
Gavin Peck, the company’s chief executive, said: “The Works is a remarkably resilient business and the group’s financial position remains strong. Although near-term market conditions are highly uncertain, we are confident that our ‘better, not just bigger’ strategy still has much more to offer in the medium term.”
Shares fell a quarter after Monday’s update.
While the outlook for the current year was gloomier, The Works said it expected to record underlying profits of £16.5million in the year to May 2022 , which is around £1m better than expected. Earnings for the past current year are now expected to be lower than that.
The Works’ gloomy outlook for Christmas highlights new strains on retailers after a difficult few years when they faced pandemic-related closures and supply chain lockdowns related to Covid and Brexit and runaway inflation on energy, labor and raw materials.
Several retailers, including Marks & Spencer, have warned they expect trade to sour in the fall, when families face high utility bills and balk at inflation on food, clothing and other essentials.