Shares in The Works (LON:WRKS) rallied to a five-year high after the arts and crafts-to-toys retailer raised FY27 profit guidance again. The latest earnings upgrade demonstrates that CEO Gavin Peck’s ‘Elevating The Works’ growth strategy is paying off.
The strapline of Birmingham-based The Works is ‘screen-free activities for the whole family’.
Investment firm Kelso (LON:KLSO), which has a 10% stake in the business, believes this strapline is increasingly relevant in the current climate, especially given the UK’s pending social media ban on under-16s.
Back-to-school boost for The Works
In its annual general meeting (AGM) update, The Works said it now expects adjusted EBITDA for FY27 to be ‘at least’ £16 million. That is comfortably ahead of previous guidance for adjusted EBITDA of £15 million.
The upgrade reflects the continued positive momentum in the business. The Works delivered like-for-like sales growth of 10.4% during the first 18 weeks of FY27 to 6 September. This included the important back-to-school trading period.
| Year to April | FY26A | FY27E | FY28E |
| Revenue (£m) | 260 | 274 | 288 |
| Adjusted EBITDA (£m) | 14.1 | 16 | 17.5 |
| Adjusted pre-tax profit (£m) | 7.3 | 8.9 | 10.4 |
| EPS (p) | 8.9 | 10.6 | 12.5 |
Source: Singer Capital Markets
That marked a significant acceleration on the 8.8% like-for-like sales growth achieved in the first 11 weeks of H1 and the 5.9% growth seen in the comparable period in FY26.
The Works generated sales growth across all four of its key product categories: arts and crafts, stationery, toys, games and books.
What did the CEO say?
Peck said the latest upgrade reflected ‘the successful execution of our long-term growth strategy and our clear focus on delivering a differentiated customer proposition focused on affordable screen-free activities for the whole family’.
He added: ‘We remain focused on maintaining this strong trading momentum through the remainder of the financial year and delivering the group’s exciting long-term potential for the benefit of all stakeholders.’
With its growth strategy driving improvements across all parts of the business, we see scope for further earnings upgrades from The Works. Despite the squeeze on consumer discretionary spending, the retailer’s focus on value gives it a golden opportunity to grab market share over the Christmas trading period.
Management has done a sterling job improving product margins and rebuilding profitability. And The Works has strong growth potential from new store openings and the introduction of new products.
The latest upgrade strengthens the board’s hand ahead of the AGM later today, where shareholders will vote on the appointment of shareholder Graeme Coulthard to the board. This is a proposal from Kelso which the board and independent voting advisers ISS and Glass Lewis have recommended shareholders reject.
The Works has warned the appointment could ‘create unnecessary distraction’ and risk derailing its growth strategy. It also argued Coulthard has ‘no executive experience in multi-site value retail operations’.
Kelso, which believes The Works remains ‘materially undervalued’, countered that Coulthard served for five years on Card Factory’s (LON:CARD) board through a period of ‘rapid store roll-out, strong profit growth and a successful flotation in 2014’.
Disclaimer: The author James Crux owns shares in Card Factory.
