The Works has slashed its outlook for the full year, giving an early warning that it expects the cost of living crisis to weigh on its key Christmas trading period.
The cut-price crafts, books and toys retailer, which has about 525 stores in the UK, said the market had deteriorated since January and it had “materially lowered [sales and profit] expectations” for the year to May 2023 as it was no longer certain if the pace of sales growth would offset increased costs, including high freight charges and a rise in the legal minimum wage.
“The general market outlook has deteriorated since the beginning of the calendar year,” the company 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.”
The Works also said its online sales had fallen from their peak during Covid as shoppers returned to high street stores.
Underlying sales fell 2.5% in the three months to 31 July as a 28.6% slide in online sales was offset by a 1.4% increase at established high street outlets.
The company said a cyber-attack in March had continued to affect trade for part of the period but that online sales remained 40% ahead of pre-Covid levels.
The security breach of its computer systems forced the temporary closure of some of the retailer’s stores, delayed the resupply of stock and online order deliveries to customers.
Gavin Peck, the company’s chief executive, said: “The Works is a remarkably resilient business and the group’s financial position remains robust. Although the near-term market conditions are very uncertain, we are confident that our ‘better, not just bigger’ strategy still has a lot more upside to deliver in the medium term.”
Shares fell by a quarter after the update on Monday.
While the outlook for the current year was gloomier, The Works said it expected to book underlying profits of £16.5m in the year to May 2022, about £1m better than previously anticipated. Profits for the current final year are now expected to be below that.
The Works’ gloomy outlook for Christmas highlights further strains on retailers after a tough few years when they faced pandemic-related closures and supply chain holdups linked to Covid and Brexit and soaring inflation on energy, labour and raw materials.
Several retailers, including Marks & Spencer, have warned that they expect trading to get worse in autumn, when families face high utility bills and balk at inflation on food, clothing and other essentials.