Bookseller and general retailer WH Smith (SMWH) is retreating from the high street amid a challenging environment.
The news has emerged despite encouraging trading in the six months to 31 August as WH Smith took advantage of trending slime products, helping to offset the impact of the heatwave and World Cup.
Shares in the company have dropped 12.5% to £17.80.
WH Smith says pre-tax profit fell 4% to £134m in the year to 31 August after a 3% decline in its high street shops, marking a sharp contrast to the travel division's performance.
The travel division, which generates 63% of overall profitability, delivered a 3% rise in like-for-like sales thanks to more investment and growing passenger numbers.
STORES WITH ‘ONEROUS LEASES’ CLOSE
Following a review, WH Smith has decided to wind down non-core trial initiatives such as Cardmarket and WH Smith Local.
Six high street stores are being closed with those impacted by ‘onerous leases’ in the firing line, while operational activities are being restructured.
The restructuring is expected to rack up costs of £9m with approximately £5m expected in the current financial year.
Of potential significance is WH Smith’s £2m charge relating to fees on an acquisition outside of the UK, which it decided not to complete.
TRAVEL DIVISION REMAINS PROMISING
Barclays Equity Research analyst Richard Taylor says the potential M&A is a positive step forward.
‘It illustrates their ambition in International Travel and a deal would enhance the business mix further,’ comments Taylor.
Despite the setback, the analyst is confident on WH Smith’s prospects as it boasts attractive free cash flow and is forecast to pay out £109m to shareholders in 2019.
RBC Capital Markets analyst Richard Chamberlain remains bullish, flagging the company has plenty of expansion opportunities.
He argues potential catalysts include airport contract wins in major airports, a value-accretive acquisition or a demerger of the travel and high street arms, although he notes the latter is unlikely unless the shares become ‘very depressed'.