The Works delivers growth, but cash flow remains big issue

Following today’s release of The Works FY figures for 2019/20,

Hannah Richards, Retail Analyst at GlobalData, a leading data and analytics company, comments:

‘‘Despite delivering positive sales growth in FY2019/20, l-f-l sales were subdued in comparison, and had it not been for the surge in demand in late March due to COVID-19, it is questionable as to whether l-f-l sales would have been positive at all. The Board’s cautious outlook reflects the uncertainty of future trading conditions, and what remains paramount for The Works is its cash flow, and how it manages costs throughout the pandemic, to mitigate lost sales from store closures.

A key step in reducing its capital expenditure is the suspension of its new store rollout, with only a select number of stores set to open and as a direct result of COVID-19, and it is negotiating reduced rent payments to landlords while stores remain closed. Though staff have been furloughed, there have been voluntary pay reductions from senior management to further preserve cash. Despite taking necessary steps to stay afloat, its precarious financial position and increasing levels of debt before the coronavirus are likely to worsen while its stores remain closed.

Prior to store closures its overall LFL sales were +81% in the week to Sunday 22 March 2020, as customers geared up for the inevitability of lockdown, and online orders have tripled since then. Though it is currently limiting daily orders to safeguard its workers and maintain social distancing measures, it is in the process of increasing online fulfilment capacity.  

With children out of school, it has seen strong customer demand for children’s education products, as well as a return to the mindfulness trend with adults likely purchasing items such as colouring books to maintain positive mental health throughout the period of huge uncertainty. Its extensive range of books and stationery, arts and crafts, and toys make The Works a popular retailers among consumers, and though demand will have spiked when lockdown measures were first implemented, online sales will likely remain highly positive for some time.”

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