Market Watch: Stationery to stations shift boosts WH Smith

WH SMITH should buck the negative trend on the high street this week thanks to its increased focus on stations and airports.

The stationer and bookseller will update the City on its third quarter trading on Thursday.

In the six months to the end of February, it managed to grow profits despite seeing sales drop 4 per cent to 686 million. Tight cost controls and a focus on boosting its margins gave it a 3 per cent rise in profits to 64m.

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The travel business increased operating profits by 9 per cent to 25m, while profits from its high street estate were flat.

Philip Dorgan, analyst at Panmure Gordon, said WH Smith could sustain high returns despite increased competition from supermarkets and the rise of the e-book.

He said: "We believe that WH Smith has resilience and growth. Its two main businesses have distinct strategies, providing a combination of cash generation on the high street and organic growth in travel."

Home furnishings chain Dunelm will update the market on its battle to keep soaring costs under control when it gives its fourth quarter trading update on Thursday.

The group reported a "pleasing" jump in sales in its third quarter - the 13 weeks to 2 April - but has been battling to keep cost hikes from being passed on to its customers.

Dunelm claimed its sales outstripped the growth in the homewares market - citing figures from the British Retail Consortium - after being boosted by a January sale in which it sold nearly all its discontinued stock.

However, it warned it was unlikely to maintain the growth in margins as it expects more price hikes from suppliers and will struggle to pass these on to customers in the "very challenging" environment that lies ahead.

The City will look for an update on expansion plans after the group opened new outlets in Scarborough and Truro, bringing its total to 111, and unveiled plans to open 10 more over the coming year.

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Catalogue and online shopping group N Brown delivered record revenues and profits for the seventh year in a row in May and is expected to have maintained its momentum when it reports on its latest trading period on Tuesday.

While the company warned about a squeeze in consumer spending in its annual results delivered in May, it has continued to press ahead with its growth plans.

Ramona Tipnis, an analyst at Shore Capital, said: "The key here is that beyond the current year the uplifts that can be achieved are significant. We have not built-in any success from these initiatives at this stage, despite the potential."

Shore Capital is forecasting pre-tax profits for the full financial year of 105.1m, compared to 98.2m last year.

Leading housebuilder Persimmon's latest trading update on Tuesday will give an idea of how the housing market is faring.

Recent housing surveys have indicated that the market is trading sideways, as activity is constrained by lack of mortgage availability and the general squeeze on household incomes.

But analysts at Numis expect Persimmon to report that it has traded well against a difficult backdrop in the first half of its current financial year.

In April, Persimmon said its order book was little changed from a year earlier at 1.1 billion, and Numis added that the market will be focused on whether this has improved in May and June. The group may also have increased its land buying over the first half, which Numis says will be a key signal of confidence in the market's recovery.

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Roofing and insulation materials supplier SIG's last update in May indicated that trading had recovered strongly in the first four months of the current year against a weather-affected period in the previous year. The company will update the market on its latest trading period on Friday.

Europe accounts for more than half of the Sheffield-based group's sales and brokers estimate it saw double digit like-for-like sales growth between January and April, with Britain and Ireland more sluggish.

Morgan Stanley expects the group to report like-for-like sales rose 8 per cent over the first half and forecasts full year profits of 77m.

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