The Works cuts dividend despite full-year revenue growth

Discount stationery, crafts, books and toys retailer The Works reported revenue growth and resilience amid a challenging economic environment in its preliminary results on Wednesday, largely due to strong in-store sales.

The London-listed firm did, however, report declining online sales and increased operating costs.

Its chief financial officer Steve Alldridge had also announced his departure by the end of the year, to be succeeded by the current head of finance, Rosie Fordham.

The company reported a 5.8% increase in total revenue, amounting to £280.1m for the 52 weeks ended 30 April, up from £264.6m in the prior year.

In-store sales, which make up 88.8% of the company's total sales, saw an impressive like-for-like sales growth of 7.5% as the year progressed.

By contrast, online sales dipped 15%, resulting in an overall like-for-like sales growth of 4.2% for the year.

A strategic change in sales mix, notably an increased focus on front-list books, and rising freight costs led to a decline in product gross margin by 170 basis points.

Moreover, the end of Covid-19 reliefs led to an increase in business rates costs by £5.8m.

Despite challenges, the company met its revised expectations with a pre-IFRS 16 adjusted EBITDA of £9m, although that was still a drop from £16.6m in 2022.

Adjusted profit Before tax stood at £10.1m, down from a restated £16.5m in the prior financial period.

The company maintained a strong financial position, ending the fiscal year with net bank balances of £10.2m.

Nevertheless, to balance profitability and shareholder returns, the board proposed a reduced final dividend of 1.6p per share, down from 2.4p last year.

In line with expectations, The Works said trading during the first 17 weeks of the 2024 period had shown store like-for-like sales growing 5.4%, although online sales continued to slide, registering an 18.4% decline.

The overall like-for-like sales growth stood at 3.1% for the period, with the board saying it was comfortable with market forecasts predicting an adjusted EBITDA of around £10m for 2024.

Alongside its financial results, The Works announced a forthcoming change in its executive leadership.

Chief financial officer Steve Alldridge would step down from his role by the end of 2023, and Rosie Fordham, currently serving as head of finance, would succeed him as the new CFO.

“The Works delivered a resilient performance in 2023, despite facing some sizable challenges,” said chief executive officer Gavin Peck.

“Revenue growth was driven by our strong portfolio of stores, bolstered by the sector-wide shift of customers returning to shop in-store post-Covid.

“Although inflationary pressures increased business costs and dampened consumer confidence, we ended the year in line with our rebased expectations.”

Peck said the 2023 financial year also showcased the “enduring appeal” of the brand’s value proposition.

“In the first half our focus was on protecting and rebuilding the business, but as the year progressed we were able to make more strategic progress.

“We have developed our brand and customer proposition, ensured that our range is aligned with customer demand and improved our store estate.

“We've also taken steps to enhance our online proposition and drive significant operational improvements across the business, the benefits of which we expect to be fully realised from the 2024 financial year onwards.”

Looking ahead, Gavin Peck said the macroeconomic environment remained uncertain.

“However, we are now well positioned to capitalise on strategic opportunities and given the momentum gained in the latter half of 2023, we expect to grow sales and profit in 2024.

“Reflecting confidence in the Group's prospects, the Board proposes a final dividend of 1.6p per share in respect of the 2023 financial year.”

At 0849 BST, shares in TheWorks.co.uk were down 11.57% at 28.52p.

Reporting by Josh White for Sharecast.com.