Cash-generative retailer WH Smith (SMWH) is in investors' good books today, rising 5.45% (45.5p) to 880.5p on well-received full-year results delivered in the face of continuing sales weakness. The books, magazines and stationery seller has also announced another £50 million share buyback drive and a 15% dividend hike, a bumper cash return adding further fuel to the year-to-date rally.

Web chart - WH Smith - Oct 2013


The £1 billion cap high street stationer's numbers for the year to end-August show taxable profits 6% ahead at £108 million, at the top end of market expectations with the help of a 180 basis point gross margin gain. This looks a creditable achievement in the face of ongoing weak sales, off 5% to £1,186 million in total with like-for-like revenues down 5% and same-store sales in negative territory in both the Travel and High Street divisions.


Once again, the retail stalwart has demonstrated its ability to eke out profitable growth through tight cost control, gross margin gains and doing the retail basics well. In both High Street and Travel, less onerous trading profits (stated before central costs, interest and tax) rose roughly 5% to £56 million and £66 million respectively.


Within the Travel arm, including outlets in airports, railways stations, hospitals and motorway service stations, WH Smith continues to open new units at home and internationally. The outlook for the High Street division, where the retailer is targeting £22 million of cost savings over the next three years, is less certain as WH Smith faces the structural challenge of dwindling footfall on the High Street. Migration to eBooks presents a further challenge, although WH Smith is developing a presence in this market through its partnership with Kobo.


Having already completed its £50 million share buyback flagged in the summer of 2012, WH Smith, which generated formidable free cash flow of £95 million last year, remains keen to return surplus funds to shareholders.


The company has announced a new £50 million buyback programme and CEO Steve Clarke, the former High Street managing director seeking to fill the big boots of predecessor Kate Swann, also proposes a 15% final dividend hike to 21.3p. This takes the total dividend 14% higher to 30.7p, a payout covered 2.2 times by earnings per share up 15% to 68.5p and underpinned by £31 million net cash on the year-end balance sheet.


With a 'buy' rating on the stock, Cantor Fitzgerald retail sage Freddie George has upgraded his price target from 900p to 950p yet leaves his full-year profit forecast unchanged at £113 million for 76p of earnings per share. 'We believe the company is entering an interesting development period with its international expansion', writes George, 'which could potentially become a sizeable income stream. It now has over 140 Travel units open overseas. In the meantime, we view SMWH as a sustainable long term double digit EPS growth story with Travel as a high single to double-digit growth business supported by a pedestrian High Street cash cow and buy-back programme.'

Issue Date: 10 Oct 2013