- Good start to financial year
- Travel delivering strong growth
- High Street arm continues to struggle
Having kick-started an auction process for its ailing High Street division earlier in the week, WH Smith (SMWH) was in demand with investors again as the retailer reported soaring sales at its Travel division over the Golden Quarter.
The FTSE 250 company’s shares rallied 6.6% to £12.69 on an update that demonstrated why WH Smith put its UK High Street business under the hammer, as the struggling division’s negative performance dragged on the group’s overall performance in the 21 weeks to 25 January 2025.
Investors also responded positively to the confident tone of the outlook statement: ‘We have made a good start to the financial year,’ said WH Smith, ‘and, while there is some economic uncertainty, we are confident of another year of good growth in 2025.’
TRAVEL JOY
It’s no coincidence that WH Smith announced the potential sale of its UK High Street operations just before reporting good trading for the Travel arm. Led by CEO Carl Cowling, management needed the core business going forward to be firing all cylinders to justify the strategic shift.
Travel sales skipped 8% higher at constant currency in the 21-week period, powered by increased passenger numbers and key initiatives. In Travel UK, the largest division, revenue was up 7%, with good progress being made to transform the business to a one-stop shop for travel essentials and WH Smith highlighting good results from new food and extended health and beauty ranges.
In North America, revenue was up 6% on a constant currency basis, whilst like-for-like sales rose 3%, accelerating from the 1% notched up in the fourth quarter.
HIGH STREET BLUES
Like-for-like sales in the UK High Street division were down 3% as the business continued to struggle, although WH Smith exited the Christmas trading period with a clean stock position and the business is on track to deliver full-year cost savings of £11 million.
On 27 January, WH Smith confirmed it is ‘exploring potential strategic options’ for the historic High Street business, which remains profitable and cash generative, including a possible sale of its 500 UK stores.
Despite the challenges ranging from the shift towards online shopping and subdued footfall to an array of rising costs following the recent UK Budget, the business is understood to have caught the eye of several potential buyers, including HMV owner Doug Putman, Bensons for Bed owner Alteri and Modella Capital, the owner of Hobbycraft.
While a successful sale and repositioning of WH Smith as a pure-play travel retailer would be welcomed by investors, there is no certainty that the High Street arm will be successfully sold.
EXPERT VIEWS
‘For years, the High Street business has been beleaguered by diminishing footfall, a switch to online retail and weaker consumer spending,’ observed Begbies Traynor’s (BEG:AIM) Julie Palmer.
‘It would seem that Labour’s fateful decision to hit businesses with an even greater tax bill may have been the final nail in the coffin for WH Smith, who are now taking practical steps to streamline the business,’ said Palmer.
‘Whether WH Smith will be able to easily find a buyer for the business remains to be seen, particularly given the clear challenges a would-be buyer would have to take on if it were successfully disposed. It seems most likely that private equity will swoop in on the division and allow WH Smith to begin its next chapter as a pure play travel business, but it still very early days and a success outcome is by no means a certainty.’
Russ Mould, investment director at AJ Bell, believes the future of WH Smith now rests with getting travellers to pay the price for convenience.
‘WH Smith’s task is to secure slots in more transport hubs around the world so it can milk the traveller for everything they’ve got. Once the UK operations are sold, WH Smith’s management should have a sharper focus on the remaining business and potentially new energy across the group to take advantage of growth opportunities,’ said Mould.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
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