- Retailer reinstates the dividend
- Group now trading ahead of 2019 levels
- North America profits set to eclipse UK high street earnings
Shares in WH Smith (SMWH) rallied 3% to £13.26 after the books, stationery and snacks seller reported a swing back into profit for the year to August 2022 and reinstated the dividend following a Covid-induced pause in the payout.
The resilient FTSE 250 shopkeeper also insisted it is now in its ‘strongest ever position’ as a global travel retailer, with CEO Carl Cowling excited by its ‘multiple growth opportunities across the world’.
DIVIDEND RESTART DEMONSTRATES CONFIDENCE
WH Smith reported headline pre-tax profits of £61 million for the year, versus losses of £104 million in full year 2021, as the business enjoyed a ‘significant recovery’ from the stiff headwinds created by the pandemic.
Group sales rose 58% year-on-year, from £886 million to £1.4 billion, to come in slightly ahead of pre-pandemic 2019.
Cash generative WH Smith also reinstated the shareholder reward by declaring a final dividend of 9.1p, which Cowling said reflects ‘strong current trading’ and the board’s confidence in the group’s future prospects.
‘We have started the year well and, while there is economic uncertainty, travel patterns globally continue to improve and this, combined with the strength of the group’s growth opportunities, means that we are well positioned for a year of significant progress in 2023’, said Cowling.
WH Smith reported a strong performance from its international travel arm, the long-run growth engine of the group, and said momentum was continuing into the new financial year with total travel revenue in the 10 weeks to 5 November 2022 running at 148% of 2019 levels.
Operating stores from airports, train stations and roadside service hubs puts WH Smith in a position where it can charge more than the high street or internet for products as it enjoys a captive audience.
Customers don’t have a lot of time or choice to shop around when waiting for a plane or train, so they’ll simply pick up whatever’s on offer and regardless of price.
STORE PIPELINE EXCITES
Having opened 98 new stores in the year, WH Smith has a pipeline of 150 new stores yet to open across 16 countries ‘and in airports as varied as Los Angeles, Salt Lake City, Brussels, Oslo and Melbourne’, enthused Cowling.
‘We continue to grow our North America business at pace and we have a very strong pipeline of new store openings. In the current financial year, our North America business is set to become larger, in profit terms, than our UK high street business and we see significant opportunities to grow this business further.’
Cowling also flagged a ‘very good year’ from the retailer’s InMotion technology stores. ‘We now have over 150 InMotion stores open, including 36 outside of the US. We see significant scope to grow the brand globally’, he explained.
Elsewhere, WH Smith’s high street division, which generates cash to help fund the development of the travel business, delivered ‘another resilient and profitable performance’.
WH Smith is ‘pleased’ with the high street arm’s start to the new financial year with like-for-like sales up 2% in the 10 weeks to 5 November.
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, commented: ‘WH Smith has been spreading its wings across the US, Europe and Australia with great success. The fact its North American business is poised to have bigger profits than its UK high street business shows this is a very different beast to the WH Smith most people know of old.’
Mould added: ‘The return of the dividend will be welcomed by investors, but more importantly it signals that WH Smith has reached a tipping point. Covid appears to be in the rear-view mirror for the business and management is upbeat on the company’s prospects. That sends a very strong signal to the market.
‘Interestingly, the group is also making waves with its digital operations. WH Smith is not typically associated with the online channel, but its website does sell a wide array of goods and it also operates several specialist sites. Funkypigeon is a profitable greeting card seller while it also sells the widest range of pens in the world via the Cult Pens website. These initiatives would suggest that WH Smith is not the old-fashioned retailer which many people think it is.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) owns shares in AJ Bell.
