The Works profits jump as store-first strategy gains traction

A stronger underlying year for The Works

The Works has delivered a sizeable improvement in underlying profitability during the first full year of its five-year transformation strategy.

Revenue from continuing operations increased 3.1% to £260.0 million in the 52 weeks ended 3 May 2026. Like-for-like sales, which measure growth from comparable stores, rose 3.3% against 2.3% in the previous year.

More importantly, pre-IFRS 16 Adjusted EBITDA increased 47% to £14.0 million. This measure strips out adjusting items and the accounting effects of store leases, giving management's preferred view of underlying operating performance.

The early FY27 numbers are also encouraging. Like-for-like sales increased 8.8% during the first 11 weeks to 19 July 2026, with growth across all four product categories.

However, investors need to separate the stronger store business from the costs and losses associated with closing the transactional website. Those discontinued operations weighed heavily on statutory profit and cash flow.

The key numbers

Metric	FY26	FY25	Change
Revenue from continuing operations	£260.0 million	£252.2 million	3.1%
Like-for-like sales growth	3.3%	2.3%	100 basis points
Pre-IFRS 16 Adjusted EBITDA	£14.0 million	£9.5 million	47%
Adjusted EBITDA margin	5.4%	3.7%	170 basis points
Adjusted profit before tax	£7.2 million	£5.0 million	44%
Statutory profit before tax	£6.8 million	£9.5 million	-28%
Net cash	£3.6 million	£4.1 million	-12%

Adjusted diluted earnings per share from continuing operations increased 25% to 9.1p. Statutory diluted earnings per share from continuing operations fell 44% to 8.3p, while the total Group figure, including discontinued operations, dropped to 2.4p.

That difference between adjusted and statutory performance is central to understanding these results.

Why underlying profitability improved

The improvement was not driven by sales growth alone. Product gross margin increased by 240 basis points to 62.0%, building on a 210 basis point improvement in FY25.

Management attributed the latest increase to supplier negotiations, tighter stock and promotional markdown control, product mix improvements and favourable movements in foreign exchange and container freight rates.

The business also completed its planned £2.0 million annual cost reduction programme. This included efficiencies from a £0.6 million mezzanine floor at its Retail Distribution Centre, which reduced the need for external storage and had paid back its investment by December 2025.

Together, better sales, stronger product margin and cost savings more than offset higher employment costs. Store payroll increased by £5.4 million, predominantly because of a 6.7% rise in the National Living and Minimum Wage and higher employer National Insurance contributions.

This suggests the strategy is producing measurable operating benefits rather than relying solely on a more favourable consumer environment.

Closing online simplifies the story, but at a cost

The Works stopped taking transactions through its website in March 2026. The website will remain as a place to browse ranges and find stores, but the company is now concentrating investment on its physical estate.

Online sales represented less than 10% of total sales and the channel was loss-making. Its performance had also been affected by fulfilment problems involving two different third-party providers.

The strategic logic is understandable. More than 98% of The Works' stores were profitable during FY26, while online trading added operational complexity and losses.

There was nevertheless a substantial near-term financial impact. Discontinued operations produced a £3.5 million loss after tax and a £4.8 million cash outflow during FY26. This contributed to total Group profit after tax falling 83% to £1.4 million.

The online closure also helps explain why net cash declined to £3.6 million despite continuing operations generating a £4.3 million cash inflow. A small amount of closure-related expenditure will fall into early FY27.

Stores are now firmly at the centre of growth

The Works ended FY26 with 508 stores, up from 503. It opened 14 locations, closed nine and relocated three during the year.

New stores continue to generate an average payback of less than two years. Management plans to add a further net 10 stores in FY27, likely involving 25 openings, 15 closures and up to five relocations.

The medium-term objective is to operate more than 560 stores by the end of FY30, with management seeing longer-term potential for at least 600 across the UK and Ireland.

The relatively short average lease term of around 1.5 years to the next break or expiry gives The Works flexibility to renegotiate rents, relocate or exit weaker sites. That flexibility matters when the company is making such a clear commitment to bricks-and-mortar retailing.

Current trading and guidance

Like-for-like sales growth of 8.8% in the first 11 weeks of FY27 represents a strong start, even against growth of 7.0% in the equivalent period last year.

The Board has maintained its recently upgraded FY27 guidance for pre-IFRS 16 Adjusted EBITDA of £15.0 million. It also remains confident in achieving at least £22.5 million by FY30.

Investors should note that the key back-to-school and Christmas periods are still ahead. The company also remains cautious about macroeconomic uncertainty and continuing cost pressures.

The FY30 target will require another £8.5 million of EBITDA growth from the FY26 continuing-operations result. Execution will therefore remain important, particularly as The Works accelerates store openings and invests approximately £6.0 million over four years in new systems, including an Enterprise Resource Planning platform.

What investors should watch next

There are several clear positives. Comparable store sales are growing, product margin has improved sharply and the company has delivered its cost reduction target despite significant wage inflation. Early FY27 trading also provides support for the maintained £15.0 million EBITDA guidance.

The main concerns sit in cash generation and execution. Net cash declined, discontinued operations consumed £4.8 million and capital expenditure increased to £5.9 million. The store expansion and systems programme will require disciplined spending if profitability is to translate into stronger free cash flow.

There is no immediate shareholder distribution. The Board said it may consider ordinary dividends, special dividends or share buybacks as profit and cash generation improve, but the timing and value of any return were not disclosed.

The new £20.0 million revolving credit facility, running to November 2029, provides additional liquidity for seasonal working capital and investment.

For now, the central investor question is whether The Works can turn its stronger store-led trading into sustained cash generation. FY26 provides encouraging evidence on margins and underlying profit, while the 8.8% early FY27 sales growth keeps momentum moving in the right direction. The next test comes through the important back-to-school and Christmas trading periods.