Sentiment turns highly positive towards stationery, books and snacks seller WH Smith (SMWH) as a strong Christmas trading update stokes full-year earnings upgrades. The £1.84 billion cap defies the high street slowdown reported by retailers elsewhere by flagging an improving trend in its seemingly staid division, a 'beat' that sends the shares 8.3% higher to £17.20.
Click here to read WH Smith's update, covering the twenty weeks to 16 January and showing group-level like-for-like sales ticking 2% higher. While like-for-like sales in the High Street division were flat for the 20 week period, they grew by an encouraging 2% over the peak five weeks to 2 January. This is significant because, according to Investec Securities, the last time the High Street arm reported positive like-for-like sales was before the year 2000.
CEO Stephen Clarke (pictured below) attributes High Street's pleasing performance over peak to successful promotions in stationery and seasonal categories, as well as the 'colour therapy' book phenomenon. Besides the High Street top line beat, profit upgrades reflect a 100 basis point jump in divisional gross margins, with WH Smith famed for executing the retail basics with aplomb.
WH Smith continues to squeeze more margin out of High Street, the solid division which churns out the cash to support expansion of the Travel arm, the long-term growth engine for this retail stalwart. Like-for-like sales in the internationally expanding Travel division grew by a better-than-expected 5% over the twenty weeks, this part of the business continuing to benefit from recovering passenger numbers.
Following the High Street surprise, WH Smith now expects annual profit growth 'to be slightly ahead of plan' and analysts are revising their estimates up accordingly. Cantor Fitzgerald Europe's Freddie George raises his pre-tax profit forecast from £125 million to £127 million and earnings estimate up from 90.2p to 91.6p, though he sticks with his 'hold' rating.
Investec Securities' Kate Calvert, a buyer with an £18.20 price target, upgrades her year-to-August pre-tax profit estimate by 1.5% to £133.3 million (2015: £123 million) and views 'WH Smith increasingly as a play on international travel with a solid High Street cash machine.'