Tale of two businesses for WH Smith

WH Smith has proved once again to be a tale of two businesses after launching an overhaul of its under-pressure high street arm while revealing rising sales across its outlets based in airports and train stations.

The group has 839 travel outlets and 610 high street stores in the UK. Picture: Contributed
The group has 839 travel outlets and 610 high street stores in the UK. Picture: Contributed

The group, which has 839 travel outlets and 610 high street stores in the UK, has kicked off a detailed review of the high street business which will see it close six branches and wind down trials such as its 20-strong Cardmarket chain and franchised convenience store arm WH Smith Local.

It said the move was designed to “better structure the business for the future”. The company, which can trace its roots back to 1792, will also undertake a restructure of some operational activities and increase its focus on core ranges.

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One-off costs associated with the review sent group pre-tax profits down 4 per cent to £134 million for the year to the end of August. With these costs stripped out, underlying pre-tax profits lifted 4 per cent to £145m.

Trading profits at the high street division fell 3 per cent to £60m, but this was offset by a 7 per cent hike in profits at its travel arm to £103m.

The firm said high street like-for-like sales slipped 3 per cent, although the “slime” craze helped drive an “encouraging” performance in the final six months of the financial year. Sales were up by 3 per cent across its outlets based in travel locations.

Chief executive Stephen Clarke said: “We had a good year in high street despite the well-documented challenges of the UK high street.

“During an encouraging second half, the business traded well and we quickly identified the latest trend in the market, becoming a one-stop-shop for all slime-related products.

“Despite this good performance, we are not ignoring the broader challenges on the UK high street and, during the second half, we conducted a business review to ensure our high street business is fit for purpose now and for the future.”

He added: “Travel accounts for over half our sales and two-thirds of our profits and continues to perform strongly. This performance has been driven by our ongoing investment in stores and growth in passenger numbers.”

The board has proposed a final dividend of 38.1p per share, marking a 13 per cent increase on the year before, giving a total dividend for the year of 54.1p, up 12 per cent.

John Moore, senior investment manager at Brewin Dolphin Scotland, said: “The key to understanding the WH Smith investment story is that it has cornered the market in areas which have less price sensitivity – stationery and magazines and confectionery at trains and airports, to name a couple.

“That’s seen the business fall into the ‘little and often’ retail trade, which tends to be more resilient than other forms of high street shopping.”

He added: “WH Smith is also fierce on capital discipline, which has been a key aspect of its high return on capital employed.

“The business has returned more than £800m to shareholders in the last decade, which is quite remarkable for a non-FTSE 100 company.

“That focus was re-iterated today with a 12 per cent hike in its dividend, to 54.1p per share.”