Fiver-a-time shoppers keep WH Smith profits rising

Published on Thursday 9 October 2008 21:20

WH SMITH became the surprise star of the high street yesterday as a continuing turnaround by cost-cutting chief executive Kate Swann produced bumper full-year profits.

Shares in the 215-year-old group jumped as much as 10 per cent on news of the 76 million underlying profit, ahead of the 74m expected in the City and last year's 66m profit haul.

Since joining the firm in 2003, Swann has focused on improving margins by shifting the mix of products, better sourcing and better control of markdowns, rather than driving top-line sales.

Despite that, shares in the newspaper, books and stationery retailer have lost about a fifth of their value over the past year on fears it will struggle amid a consumer spending slowdown.

Swann admitted yesterday that the key festive trading period would be competitive, but said the business was well placed to cope.

"Whilst we're not completely immune, relative to other people we're probably a lot less impacted," she said.

"Our average transaction value is about 5 … so you won't see us impacted in the same way as some of the big-ticket retailers."

The group, which established itself in the Scottish market in the late 1990s with the acquisition of John Menzies' retail arm, is expecting a strong line-up of new book releases to boost Christmas sales.

The annual results were lifted by strong performances at the group's motorway, airport and railway station stores.

Total sales rose 4 per cent to 1.35 billion, but on a like-for-like basis, stripping out the impact of new store openings, they were down by 2 per cent. Underlying sales at the core high street business fell while those at the travel division rose.

WH Smith will roll out six more standalone book stores before the end of the year at airports, taking its total to 15.

It is also launching a new postal service in 400 existing stores with express carrier DHL, targeted largely at the eBay users' market.

WH Smith introduced its first DHL postal point this week, allowing customers to buy pre-packaged boxes and put them in secure in-store collection points to be sent out.

Analysts at Credit Suisse said they expected consensus profit estimates for the year to the end of August 2009 to edge up 2 to 3 per cent to "the low 80 millions".

Dresdner Kleinwort said: "The business is well managed and there appear to be levers still to be pulled on gross margin and costs, which should offer some protection in a difficult environment."

WH Smith said finance director Alan Stewart would be leaving to pursue other business interests. He will be replaced by Robert Moorhead, currently finance director of the high street arm.

Shares closed up 7.8 per cent at 345p.