TheWorks.co.uk PLC (LON:WRKS) shares tanked on Thursday following its second profit warning in six months, in just its second year as a London-listed firm, with the group impacted having resorted to discounting products to drive sales.
The gift, toy and stationery retailer said in a statement that its full-year profit before tax is expected to be “significantly” below current market forecasts, after its like-for-like (LFL) sales missed its initial estimates.
In the half-year to 27 October, LFL sales were down 2% year-on-year, reflecting “difficult consumer backdrop”, while total revenue increased 5% thanks to discounting.
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However, the firm said it is entering the peak festive period “with confidence” in its Christmas offering, which includes new products, such as Disney’s Frozen 2 merchandise, available “at outstanding value”.
Plans to deliver 50 new store openings for the full year are on track, it added, while sales will also be supported by “a number of propositional improvements”.
Analysts at GlobalData suggested that the company should focus on its strong points, such as the Frozen 2 merchandising, to stand out among competitors, but said boosting promotions is a “worrying” sign for a value retailer.
“The Works should hold off discounting in the festive period to protect its margins, as it should not need to resort to this as a value retailer, and it has a strong Christmas gift and craft proposition to drive sales,” the GlobalData analysts said in a note.
In mid-morning trading, shares in The Works topped the London fallers board, down 43% to 43.80p.