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(Sharecast News) - TheWorks downgraded its full-year profit expectations on Thursday, citing a slowdown in October and increased discounting.
The company now expects FY24 EBITDA of around 6m, down from previous guidance of £10m.
In an update for the 26 weeks to 29 October, the arts, crafts, books and stationery retailer said the macroeconomic environment was "challenging", characterised by high inflation and low consumer confidence.
TheWorks said that in the nine weeks since its previous update, a further softening in consumer demand and unseasonable weather conditions had caused footfall to decline.
It pointed to a slowdown in the rate of store like-for-like sales growth, particularly in October, although the online LFL has improved.
In the first half of the year, the retailer delivered total sales growth of 3.4% and a total LFL sales increase of 1.6%. Store LFLs increased by 3.5%, while online sales declined by 12.2%.
Chief executive Gavin Peck said: "Consumer sentiment softened towards the end of the period, which resulted in early discounting across the sector and increased uncertainty as we head into the Christmas period.
"Recognising the competitiveness of the market we have responded with more promotional activity, which we expect to continue as we approach Christmas. Families will want to celebrate Christmas affordably and our value proposition makes us an ideal choice for them.
"Market conditions remain challenging and given the level of uncertainty in trading and forecasting we believe it is now prudent to moderate our expectations for FY24. Despite this short-term volatility, we believe that our 'better, not just bigger' strategy has the potential to deliver profitable growth in the medium and long-term."
At 0945 GMT, the shares were down 29% at 28.48p.
Russ Mould, investment director at AJ Bell, said: "It's the Nightmare before Christmas for The Works. The company was meant to be a champion in the cost-of-living crisis, selling cheap products to people who have been watching every penny. The idea of getting a big discount on a toy or book would appeal in such economic conditions. Sadly, its tills aren't ringing as expected.
"The retailer blames the weather along with the ongoing tough environment for consumers, putting more pressure on the forthcoming festive shopping period to make up for the shortfall in expected earnings.
"There are already suggestions in the industry that shoppers are going to leave their Christmas shopping as late as possible this year, and that's disastrous for retailers.
"This could result in heavy discounting in the weeks leading up to the big day, putting pressure on profit margins. Indeed, The Works now says it has no choice but to run big promotions and slash prices straight away so as to remain competitive."
