Though recently voted the worst high street retailer by Which? readers, who panned its store standards and customer service, there is plenty of life left in WH Smith (SMWH).
Shares in the British heritage newsagent, stationer and bookseller skip 6.3% higher to £21 on a well-received third quarter update and a confident outlook statement from CEO Stephen Clarke (pictured below).
HIGH STREET COMEBACK?
Total group sales ticked 4% higher in the 13 weeks to 2 June with like-for-like sales up 1% year-on-year. In the structurally challenged High Street business, which is facing the challenge of lower UK footfall, WH Smith is pushing ahead with its well-established ‘profit focused strategy’.
While high street like-for-like sales were down 1% in the seasonally quietest quarter, the pace of decline has moderated markedly from the 4% drop reported for the six months ended 28 February, possibly boosted by recent warm weather.
High street gross margin also continues to improve and cost savings have been delivered in line with plan. ‘We continue to invest in our new store format trials and evaluate their performance.
We have extended the trial to a further 10 stores, as well as developing a trial for smaller stores,’ says WH Smith, which clearly hasn’t given up on the ailing high street.
TRAVEL GROWTH ENGINE
Yet the Travel business, the biggest part of the group in revenue and profit terms, remains the growth engine for WH Smith, with sales and gross margins both on an upwards trajectory.
Albeit founded way back in 1792, cash-generative retail stalwart WH Smith is making itself relevant and insulating itself from the dwindling importance of the high street through its focus on the Travel division.
One of the strengths of the travel business is that it sells low ticket impulse purchases (magazines, drinks and snacks) in train stations and airports where customers are both captive and often pushed for time, giving WH Smith pricing power.
Travel’s total sales and like-for-like sales grew 8% and 3% respectively in the quarter, buoyed by passenger number growth and ongoing investment in the UK and international businesses.
‘We saw good sales from our food offer, including a wider selection of healthy eating options,’ thunders today’s statement, WH Smith insisting ‘our new store opening programme is on track in both the UK and internationally. We are on target to open between 15 and 20 units in the UK this year and are pleased with the recent opening of our latest standalone bookshop at London Bridge Station.
'This brings the total number of standalone bookshops now open to eleven. In our international business, we look forward to opening over the summer the eight units recently won in Madrid Airport, bringing the total number of units open internationally to 282, with a further ten new units due to open this year.'
Clarke issues a defiantly upbeat outlook statement too: ‘Whilst there is some uncertainty in the broader economic environment, WH Smith serves millions of customers each week and continues to grow both internationally and in the UK. We continue to focus on profitable growth, cash generation and investing in the business to position us well for the future. We remain confident in the outcome for the full year.’
SIGNIFICANT REWARDS
Russ Mould, investment director at AJ Bell, comments: ‘People may grumble at WH Smith’s messy shops and excessive pricing on many products, yet this is a business which continues to flourish thanks to strategic shop locations in a large part of its estate.’
Mould is not surprised that the travel division remains the growth driver as having shops in airports, railway stations, hospitals and motorway services enables it to benefit from a captive audience.
‘People are often in a hurry to catch a flight or a train and so they don’t have time to shop around. They just want to grab something quickly which means WH Smith can afford to keep pushing up prices.’
This might not be particularly customer-friendly, nor does it incentivise staff to push extra products at the till (bars of chocolate, for example), but the strategy is clearly not stopping people from spending money in-store.
WH Smith's success has also translated to significant rewards for investors.
‘Anyone buying shares in WH Smith five years ago would have since made a 174% gain which is eight-times as much as the FTSE 100 index over the same period,’ says AJ Bell's Mould.
