Magazines, books and snacks seller WH Smith (SMWH) rallied 5.9% to £16.46 on Wednesday as the newsagent reported a better than anticipated Christmas performance despite numerous headwinds from Covid-19 restrictions.

Investors also welcomed news the company generated cash during November and December period and ended the year with a stronger cash position than anticipated with liquidity of £90 million, supporting optimism it can successfully weather the remainder of the crisis.

HIGH STREET DELIGHT

Boosted by seasonal and new ‘work from home’ ranges, the retailer’s high street business delivered a better than expected Christmas with sales in December at 92% of 2019 levels; most of WH Smith’s high street stores remain open, in line with government guidance which classes newsagents as essential retailers.

Encouragingly, its online businesses – funkypigeon.com, cultpens.com and whsmith.co.uk - performed very strongly with ‘record performances and sales significantly ahead of the prior year’ over the 20 weeks to 16 January 2021.

TRAVEL TOUGHS IT OUT

WH Smith’s long-run bull case has centred around the opening of international airport and train station stores, so it has been hit hard by the suspension of flights and the fact flocks of commuters are now working from home.

December 2020’s sales in the travel business came in at just 36% of 2019 levels, although WH Smith did highlight a recovery in North America, where around 85% of passengers are domestic.

THE EXPERTS’ TAKE

Russell Pointon, Director of Consumer and Media at research group Edison, explained that going forward, ‘investors will be keeping a close eye on possible travel restrictions and the impact that will have on the company. WH Smith has managed to produce a strong set of results on the back of housing Post Offices and its online business.

‘However, if travel restrictions keep in place into the second half of the year, that could potentially start to have a toll on the company’s finances.’

AJ Bell investment director Russ Mould said the high street operation has ‘actually performed creditably. December sales weren’t too far off 2019 levels and many of these stores remain open in the current lockdown, including those located in hospitals and those with post offices.’

Mould believes WH Smith’s experience in recent years with this part of the business has ‘supported its ability to conserve cash and keep a tight rein on costs. Management have consistently driven down expenditure in the high street arm as they managed a steady decline in sales, even if this meant its shops often came towards the bottom in surveys of customer experience.

‘The growth story until the Covid-19 pandemic was all around the travel business, where the company has been able to capitalise on a captive audience and charge more for its products.

‘The timing of a return to anything like previous levels of trade for these outlets in train stations and airports is uncertain but WH Smith will hope that like the rest of the travel sector it can benefit from pent up demand when restrictions are loosened.’

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Issue Date: 20 Jan 2021