- 20-week sales jump 41% led by travel
- Sales almost flat on pre-Covid levels
- Recovery could trigger spin-off speculation
High street and travel retailer WH Smith (SMWH) delivered an upbeat trading update for the 20 weeks to 14 January celebrating a recovery in global travel and the award of new tenders.
The shares, which have rallied more than 40% from their mid-October lows just above £11, edged 0.2% lower to £16.13 in light trading.
ALMOST BACK TO NORMAL
Group revenue over the period was up 41% on the same period a year earlier and almost back to 2019 levels on a like-for-like basis.
The main driver was travel, where revenues were up 77% thanks to a 31% increase in the US, a 70% increase in the UK and almost a 200% increase in Rest of the World.
UK high street revenues were 2% lower than the same period a year ago and 10% down on pre-pandemic levels, but the firm noted it had maintained good stock availability and exited the Christmas period with a ‘clean’ inventory position.
Chief executive Colin Dowling said the group was in ‘its strongest ever position as a global travel retailer’, which combined with the continued improvement in global passenger numbers ‘means we are confident of another year of significant growth in 2023’.
As well as organic growth, the firm rolled out 40 new stores during the period and won several significant new tenders, including Reagan National airport in Washington and Palm Springs airport, taking the total number of stores won and yet to open to over 130 so far this year.
A PARTING OF THE WAYS?
‘The return of travelers to stations and airports has helped provide the captive audience for the company’s outlets selling stationery, electronics goods, snacks and drinks’, commented AJ Bell investment director Russ Mould.
However, the high street operations - which have been overlooked by investors in the past - are also pulling their weight says Mould.
‘For years the UK high street operation has been something of an afterthought, run as efficiently as possible with a firm control on costs.
‘This may see WH Smith stores regularly rank near the bottom in customer surveys, but the business has generated useful cash flow to help with the running of the business and investment in the faster growing travel operation.’
With the high street stores back on a firm footing, speculation about a separation of the two businesses is likely to return, suggests Mould.
‘At some point a debate over the role of the high street arm in the wider group may start to heat up and investors may look for a sale or spin-off of a business which has very different growth prospects.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (Tom Sieber) own shares in AJ Bell.
