The Works Reports 47% Rise in EBITDA and 8.8% Like-for-Like Sales Growth as Store-Focused Strategy Gains Traction

Robust Financial Results Highlight Effective Execution of Elevating The Works Strategy

The Works reported a substantial improvement in underlying profitability for FY26, with pre-IFRS 16 Adjusted EBITDA from continuing operations rising 47% to A314.0 million from A39.5 million the prior year. This growth was driven by sales increases across the store network, a 240 basis point improvement in product margin, and the successful delivery of a A32.0 million annual cost reduction programme. Notably, this was achieved despite headwinds from rising National Living Wage and employer National Insurance costs.

Adjusted profit before tax from continuing operations increased 44% year-on-year to A37.2 million, up from A35.0 million, while the adjusted EBITDA margin expanded by 170 basis points to 5.4%, reflecting operational leverage from scaling the store-centric model. These figures exclude A30.5 million in system transformation and impairment charges in FY26, compared to a A34.5 million credit the previous year. Adjusted diluted earnings per share rose 25% to 9.1 pence from 7.3 pence, underscoring enhanced earnings power.

Revenue and Like-for-Like Sales Growth Outperform UK Retail Market Decline

Total revenue from continuing operations grew 3.1% to A3260.0 million in FY26, up from A3252.2 million the prior year, with like-for-like sales growth accelerating to 3.3%, improving by 100 basis points from FY25’s 2.3%. This growth contrasts with the UK non-food retail sector’s 0.1% like-for-like contraction during the same period, per British Retail Consortium data. The company’s repositioned brand, focusing on affordable, screen-free family activities, has resonated strongly with consumers seeking alternatives to digital entertainment.

Sales momentum strengthened in FY27, with an 8.8% like-for-like increase in the first 11 weeks to 19 July 2026, up from 7.0% in the same period the previous year. This reflects ongoing strategic initiatives, including enhanced product newness, targeted brand campaigns like the Find Your Story campaign launched in spring 2026 with the National Literacy Trust, and improved stock distribution prioritising high-turnover platinum stores. Growth was broad-based across books, toys and games, arts and crafts, and stationery.

Strategic Shift to Store-First Model Yields Operational Gains and Strong Returns

In March 2026, The Works discontinued its online transactional business following a strategic review, shifting to a non-transactional website platform. The online channel, which accounted for less than 10% of sales prior to closure, had suffered losses in FY25 and FY26 and faced ongoing fulfillment challenges. This move reduced operational complexity and allowed focus on the profitable store estate, which comprises 508 locations across high streets, retail parks, shopping centres, garden centres, and outlets in the UK and Ireland. Over 98% of stores are profitable, with new openings delivering paybacks under two years. The company opened a net five stores in FY26 and plans to add ten net stores in FY27, aiming to exceed 560 stores by FY30 and eventually reach at least 600 stores while maintaining disciplined site selection.

Product Margin Gains and Cost Controls Drive Profitability Leap

A key contributor to the 47% EBITDA increase was a 240 basis point product margin improvement in FY26, building on a 210 basis point gain in FY25. Margin expansion resulted from supplier negotiations, tighter stock control, improved promotional markdown discipline, and a more favorable product mix. Additional benefits came from foreign exchange tailwinds and reduced container freight rates, easing inventory and logistics costs. The cumulative 450 basis point margin improvement over two years marks a significant structural enhancement in unit economics.

Complementing margin growth, The Works delivered its targeted A32.0 million annual cost savings, demonstrating strong operational discipline despite wage and tax cost pressures. Operational efficiencies included a A30.6 million investment in mezzanine flooring at the Retail Distribution Centre, boosting storage and picking efficiency. Together, margin and cost improvements offset input cost inflation and supported EBITDA growth.

Brand Repositioning Around Screen-Free Activities Strengthens Market Position

The Works’ focus on affordable, screen-free family activities aligns with growing societal concerns about children’s digital engagement. Research commissioned in FY26 revealed 40% of parents want to reduce children’s screen time but lack alternatives. This insight aligns with UK government initiatives, including 2026 guidance on screen time for under-fives and plans to ban social media for under-16s announced in June 2026, reinforcing the company’s mission.

Brand campaigns like Find Your Story, launched in spring 2026 in partnership with the National Literacy Trust, encourage children’s reading engagement through book discovery and community outreach via a touring Book Bus. The campaign’s "Time Well Spent" message unifies the company’s product categories under a distinctive, family-relevant proposition. This repositioning helped The Works rank fifth in the 2026 OC&C Retail Proposition Index for best value for money among UK retailers.

FY27 Outlook and Long-Term Targets Demonstrate Confidence in Strategy

The board reaffirmed its upgraded FY27 guidance of A315.0 million pre-IFRS 16 Adjusted EBITDA, reflecting strong early trading with 8.8% like-for-like growth through 19 July 2026. While key seasonal periods remain, management is confident the screen-free value proposition will sustain profitable growth amid macroeconomic uncertainty.

Looking ahead, the company targets pre-IFRS 16 Adjusted EBITDA of at least A322.5 million by FY30, supporting the five-year "Elevating The Works" transformation strategy. This target implies substantial operational leverage through store expansion, further product margin gains, and efficiency from systems and organizational improvements.

Capital Allocation Strategy Balances Growth Investment and Shareholder Returns

The board approved a Capital Allocation Framework to support strategic growth while maintaining financial strength and enabling future shareholder returns. Capital will focus on high-return initiatives like new store openings and systems transformation to build scalability and profitability. The company ended FY26 with A33.6 million net cash, a slight decrease from the prior year due to discontinued operations and working capital needs.

A new A320 million Revolving Credit Facility was secured through November 2029, replacing the prior facility expiring in 2026, ensuring liquidity for trading and seasonal working capital. As profitability and cash flow improve, the board plans to consider reintroducing shareholder distributions via dividends or buybacks, with prior consultation of major shareholders to ensure alignment with long-term value creation.

Board Changes and Proposed Company Name Update Reflect Strategic Focus

During and after FY26, The Works saw board changes including the departure of Senior Independent Non-Executive Director Harry Morley at the AGM and Simon Hathway in November 2025. New appointments include Nick Wharton as independent Non-Executive Director and Audit Committee Chair in August 2025, and Angela Rushforth as Chair of the Remuneration Committee in February 2026, both bringing extensive leadership experience.

To align with its store-centric strategy and discontinuation of e-commerce, the board plans to propose changing the company name from "TheWorks.co.uk plc" to "TheWorks plc" at the upcoming AGM. This change will streamline brand identity and emphasize the company’s physical retail presence and mission to provide affordable, screen-free family activities across the UK and Ireland.

Store Network Expansion and Operational Enhancements Offer Growth Potential

The Works’ 508-store estate is its core growth asset, strategically located across varied retail formats and regions. The company aims to expand to at least 600 stores by FY30, adding approximately 52 locations from the current base, while maintaining disciplined site selection and return criteria. New store openings continue to deliver strong returns with paybacks under two years.

Store space optimization is an ongoing focus, with FY26 trials of new product ranges in larger stores informing rollout decisions. Demographic data guides tailored ranging, such as expanded art and stationery selections in student-heavy areas. A dedicated software solution for ranging and stock buying is planned for FY28 to enhance demand planning and inventory management across the estate.