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7 May 2020 07:00
7 May 2020
TheWorks.co.uk plc
Full Year Trading Update
TheWorks.co.uk plc ("The Works", or the "Company"), the multi-channel value retailer of gifts, arts, crafts, toys, books and stationery, announces a trading update covering the 52-week period to 26 April 2020 (the "Period").
Full year overview
Revenue for the Period increased by 3.5% year-on-year. Overall like-for-like ("LFL") sales in the year to 22 March 2020 (the day before all stores were closed due to the COVID-19 outbreak) were +0.7%[1], with growth both in stores and online. During the Period, the Company opened a net 37 new stores, taking the total number of stores in the estate to 534.
As previously reported, despite a challenging first half of the year due to the difficult consumer backdrop and the absence of a Mega Trend[2], The Works returned to positive LFL sales growth during the peak Christmas trading period. This momentum continued and, prior to the COVID-19 outbreak, the Company was trading in line with the Board's expectations and was on target to be debt free at year-end.
Recent trading
The Company saw a significant increase in sales, both in stores and online, prior to store closures, with overall LFL sales +81% in the week to Sunday, 22 March 2020. This reflected strong customer demand for products to support childrens' ongoing education, mindfulness materials to support mental health and products to "beat the boredom" during this period of social distancing.
Online
The strong demand online has continued during the lockdown period, with sales up more than three times the equivalent period last year. The unprecedented level of demand and the Company's strict adherence to social distancing and additional health and safety measures at the distribution centre has required it to limit daily sales volumes. However, the Company is working closely with its third-party fulfilment partner to expand its online fulfilment capacity both in the short-term and to support increased volumes through peak trading over Christmas.
Managing cost base and cashflows
Due to the significant impact brought about by COVID-19 and as outlined in the update on 23 March 2020, the Company has implemented a number of measures to manage its cost base and cashflows. Updates on these measures, and other actions taken, are as follows:
Capital investment plans have been reviewed, with capital expenditure in the coming year expected to be c.£3m versus the c.£9m previously expected. The new store rollout programme is currently suspended (with the exception of a small number of stores where the Company is legally committed);Discussions with landlords to reduce rents whilst stores are closed are ongoing;The Company continues to work collaboratively with suppliers to review stock intake plans and agree extended payment terms in the coming months and through the peak working capital period ahead of Christmas 2020;The Company has significantly reduced its online marketing spend and promotional activity to help manage sales within capacity constraints which, coupled with an increase in the average transaction value, has resulted in margin enhancement online;All of the Company's store colleagues (including Area and Divisional sales managers), the vast majority of its retail distribution centre colleagues and a significant proportion of its support centre colleagues have been furloughed under the government's Job Retention Scheme. The Company agreed to top up the additional 20% of salary for these colleagues for the month of April; and,Gavin Peck, CEO, has taken a voluntary 33% pay reduction, Catherine Glickman and Harry Morley (Non-Executive Directors) have waived 33% of their fees and the Chairman, Dean Hoyle, has waived 100% of his fees. These reductions will be in effect for three months. The Operational Directors have also taken a voluntary 20% pay reduction for the period of store closures.
Financial position and scenario planning
Net debt (pre- IFRS16) as at 26 April 2020 stood at c.£7.9m, reflecting the impact of the partial unwind of working capital and the impact of stores not trading for the last five weeks of the financial year. The Company has access to a £25m revolving credit facility (expiring in June 2021). The Board continues to run various scenarios to assess the potential impact of the current pandemic, including a three-month lockdown period followed by a prolonged period of subdued sales. Under the scenarios considered, taking into account the mitigating actions noted above, the Company is able to operate within its existing banking facilities. The Company is having constructive dialogue with its lending bank regarding the forecast covenant breaches under these scenarios and to explore additional funding options should the pandemic have an impact materially worse than currently modelled.
Re-opening stores
The Company continues to monitor the impact of the pandemic closely and is putting in place plans to re-open its stores at the appropriate time (subject to Government guidelines). The health and wellbeing of colleagues and customers are its key priorities and appropriate measures will be implemented in its stores, retail distribution centre and support centre to ensure ongoing safety.
Outlook
The Board is confident that The Works' proposition will continue to resonate well with customers during this period of extended social distancing. Whilst it is not possible to provide specific guidance for the financial year ahead, the Board has a cautious outlook given the highly uncertain trading conditions and the potential impact of social distancing in stores. This caution is reflected in its modelling and the Board believes that, based on the scenarios considered, it currently has appropriate liquidity in place.
Enquiries:
TheWorks.co.uk plc Gavin Peck, CEO Rosie Fordham, Interim CFO
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Teneo Ben Foster, Haya Herbert-Burns, Rachel Miller +44 (0)7776 240806/ +44 (0) 7342 031051/ +44 (0) 7850 656713
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Notes to Editors:
TheWorks.co.uk plc is a multi-channel value retailer of gifts, arts, crafts, toys, books and stationery - offering customers a differentiated proposition as a value alternative to full price specialist retailers. The Works sells its quality products at affordable prices across four product zones comprising Kids; Arts, Craft & Hobbies; Stationery; and Family Gifts, which are supplemented by both seasonal and regional offerings.
As at 26 April 2020, the Company operated a network of 534 stores in the UK and Ireland. Stores can be found on high streets, in retail parks, shopping centres, factory outlets and as concessions in various locations. The Works also has a significant and growing online presence that enables customers to shop any time of the day, with an extended range of products not available in stores. This multi-channel offering is one of the first of its kind in the value retail sector and includes a popular Click & Collect service, driving additional footfall and sales in store.
[1] LFL sales are defined as the year-on-year growth in gross sales from stores which have been opened for a full 63 weeks (but excluding sales from stores closed for all or part of the relevant period or prior year comparable period), and from its e-Commerce platform, calculated on a calendar week basis.
[2] Mega Trends are defined as any individual product, or collection of products, for which sales exceed 3 per cent. of weekly sales for a temporary period and for which management deem to be material in terms of impacting on the underlying performance of the Company.
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