Retailer The Works 'confident in medium-term growth potential' despite Covid sales blow

Bosses at The Works, the crafts, books and stationery retailer, said they remain confident in the firm’s medium-term growth potential despite sales taking a major hit due to enforced store closures.

The Works stores are a familiar sight on Scottish high streets and in shopping centres. Picture: Michael Gillen

The 11 weeks since the company closed the first half of its financial year have brought increased government measures to slow the spread of Covid-19 across the UK.

As a result, shops have been shut for parts of the period, and sales have fallen by 24.8 per cent, despite a 70 per cent jump in online sales compared with the same period a year ago.

Under financial stress testing, the company could run out of money by breaching banking covenants due to uncertainties from the Covid-19 lockdowns.

The firm said there are scenarios where it would breach its agreements with lenders in the next financial year, which “represents a material uncertainty that may cast significant doubt on the group’s and the company’s ability to continue as a going concern”.

However, bosses remained beat, with chief executive Gavin Peck telling investors: “Our interim results and trading over the crucial Christmas period reflect a robust performance given the impact of store closures as a result of government restrictions.

“When open, our stores have performed well and our online proposition has continued to resonate strongly, supported by the investment we made to increase online capacity.

“With our stores temporarily closed, we are, once again, focused on maximising sales through our online operations and carefully controlling costs whilst ensuring that we are able to reopen safely when restrictions allow.

“We are in a strong financial position to face the current challenges and we remain confident in the medium-term growth potential of the business.”

In the six months to the end of October, revenue dropped by 7.8 per cent to £88.9 million, as the company’s shops were forced to close for seven weeks during the start of the period.

However, when the stores were not shut, they significantly exceeded what the board was expecting, with like-for-like sales jumping by 10.6 per cent over the 19 weeks ending October 25.

And despite the blow to revenues, The Works managed to nearly halve its pre-tax loss from £8.5m in the first half of last financial year, to £4.3m.

The company also saw the crisis as a marketing opportunity. Art, crafts, jigsaws and books formed part of a “beat the boredom” offer, when shops were open.

However, overall the firm cut its marketing spend and reduced promotions in a bid to make its online operations more profitable.

It also cut costs by negotiating lower rents on some of its shops, and closed six outlets over the period, while only opening two new ones.

Analysts at brokerage Shore Capital said: “The company is being tightly run and has been aided by government support schemes including business rate relief of £7m.

“Whilst the short-term outlook is uncertain, like many retailers, we view the self-help levers as important, so post Covid the company can emerge with its multi-channel customer proposition, but it will need a fair wind in its sails to push forward its financial performance.”

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