WH Smith unveils £50m windfall and overseas push

WH Smith may have cut down on DVD sales but the Hunger Games books have helped drive profit

Cost-cutting initiatives such as energy-efficient tills and self-service checkouts helped the group deliver a 6 per cent rise in full-year profits, at the top end of City expectations, and new chief executive Stephen Clarke said more savings are in the pipeline.

However, he insisted the firm was well placed to grow its overseas arm, which now has 141 outlets in airports and train stations across Australia, China, India and the Middle East.

Cantor Fitzgerald analyst Freddie George said: “The company is entering an interesting development period with its international expansion, which could potentially become a sizeable income stream.”

For the year to 31 August, WH Smith reported a pre-tax profit of £108m, up from £102m the previous year, as a tight rein on spending helped to overcome a 5 per cent drop in total sales to £1.2 billion.

Having trimmed £18m of costs from its high street network of 615 stores during the year, the chain is targeting an extra £22m in savings over the next three years.

Profits at its retail arm rose 4 per cent to £56m, despite a 6 per cent drop in like-for-like sales, which Clarke attributed to the “challenging” market environment and a strong book publishing schedule a year ago, when demand was driven by the Hunger Games series and erotic Fifty Shades trilogy.

The chain has weathered the downturn with the help of “impulse” offers such as free bottles of water or Lego toys with newspaper purchases, and shifting its focus away from lower-margin CDs and DVDs towards books and stationery.

Clarke, who took over from long-time boss Kate Swann in the summer, said it had been a strong performance in a tough trading environment.

Retail analyst Nick Bubb added: “There is no need to change something that is still delivering the goods.”

The group’s 673-strong travel division enjoyed a 5 per cent increase in profits to £66m as a marked improvement in margins offset a 4 per cent dip in like-for-like sales.

Clarke said: “We continue to plan cautiously in an uncertain environment, however we are a resilient business and are well positioned for continued growth in both the UK and internationally.”

WH Smith owns the Funky Pigeon personalised greeting card business, which is expanded its presence on the high street, and today’s results revealed it has also bought the ModelZone brand for an undisclosed sum. The toy chain fell into administration in June and WH Smith plans to sell ModelZone-branded items through its own stores.

Having returned £50m to shareholders during the year, Clarke said the group would be embarking on another buyback scheme of up to £50m. When completed, the company will have handed £300m to investors since 2008 through buybacks and a special dividend.

Shares in WH Smith have risen by 28 per cent over the past year and closed up 47p, or 5.6 per cent, at 882p today.

The board proposed a final dividend of 21.3p, giving a total payout of 30.7p – up 14 per cent.