Stationer-to-bookseller WH Smith (SMWH) says full-year results to end-August will weigh in 'slightly ahead' of consensus estimates. This largely reflects strong summer trading from its expanding travel division, seemingly shrugging off a recent rumpus over airport VAT arrangements.

Shares in the copiously cash-generative retail stalwart are off 16p at £15.54 on Thursday. However this reflects profit-taking rather than disappointment with today's short pre-close update, flagging a beat versus the £121 million pre-tax consensus estimate.

Web chart - WH Smith - Aug 15

Increasingly a play on global travel rather than a staid high street newsagent and stationer, WH Smith reports a strong second half and fourth quarter performance from 'Travel', the growth engine going forwards. Expanding in the UK and internationally, the division is benefitting from strong passenger numbers, aided by a weaker Euro, lower oil prices and general economic improvement. Indeed, management flags 'good sales across all of our core channels', which all the more impressive given a Q4 sales boost from more Food-to-Go offers last year.


Last week, WH Smith's shares encountered some turbulence on worries over VAT refunds not being passed onto customers. However RBC Capital Markets analyst Richard Chamberlain believes these airport VAT risks are overstated. 'We think WH Smith's shares were unfairly hit last week by concerns over VAT refunds at airports (c.15% of group sales) not being passed onto customers,' he writes. 'This only applies to VAT applicable goods (50% of the mix). It also only applies to sales at airside stores and only to transactions outside the EU, so any financial impact on WH Smith is likely to be immaterial.'

Elsewhere, sales in the High Street division, a cash cow used to fund Travel's expansion, saw an improved second half trend, driven by low margin, high volume book releases including a new Fifty Shades of Grey book in June and Harper Lee's Go set a Watchman, published in July. This trend is encouraging with the peak Christmas period to come – High Street typically generates the overwhelming bulk of its profits in the first half of the financial year.


Following today's upbeat update, Investec Securities reiterates its 'buy' rating yet upgrades its published price target from £17 to £18.20. The broker forecasts August 2015 pre-tax profits of £122.4 million, rising to £131.3 million by August 2016. Over at RBC Capital Markets, Chamberlain upgrades his price target from £17.50 to £18.

Issue Date: 20 Aug 2015