Despite the challenging UK retail backcloth, cash generation and capital returns star turn WH Smith (SMWH) grew sales by a creditable 15% in the third quarter to 18 May.

However shares in the bookseller, stationer and newsagent cheapen 31p (1.5%) to £19.97 on the unexpected news chief executive officer (CEO) Stephen Clarke (pictured below) is leaving after six successful years in the hot seat.

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Over the 11 weeks to 18 May, total group sales rose 15% at WH Smith, one of Shares’ Great Ideas selections which has been successfully transformed from a staid high street books and stationery seller into an exciting international travel outlets story, initially under the stewardship of Clarke’s well-regarded predecessor Kate Swann.

The top line also received a boost from the £155m acquisition of US airport retailer InMotion, which has boosted the size of WH Smith’s travel business, further reduced its reliance on the structurally challenged UK high street and provided a platform for expansion across the pond in the world’s biggest travel retail market.

TRAVEL STILL GOING PLACES

Within the Travel division, which continues to open up units in airports, railway stations, hospitals and motorway service stations, like-for-like sales grew 3% in the quarter. WH Smith insists its new large format Travel stores in the UK are performing well and flags a positive customer and landlord reaction to its recently opened new WH Smith pharmacy format at Gatwick airport.

Over in the challenged High Street business, like-for-like sales were down 1%, although the company continues to bear down on costs and gross margin continues to improve thanks to management’s adroit execution of the retail basics.

CLARKE WAITS IN THE DEPARTURE LOUNGE

After 15 years with the company, including six ‘highly successful years’ as CEO, Clarke has decided to step down from his role on 31 October 2019. The good news is there’ll be a smooth handover to Carl Cowling, currently the Managing Director of the High Street business, who takes the reins from 1 November.

‘To lead this great company and succeed Stephen at WH Smith is a wonderful opportunity and I am excited by the future prospects of the group,’ enthuses Cowling today. He says he is ‘committed to continuing to deliver excellent shareholder returns’ and looks forward to leading WH Smith ‘to its next stage of growth, supported by the excellent teams across our Travel, International and High Street businesses.’

THE EXPERT’S VIEW

Russ Mould, investment director at AJ Bell, comments:

‘It is time to say farewell to the captain who helped steer WH Smith on the path to further profit growth. Stephen Clarke is stepping down as chief executive after six years at the top, a time during which he oversaw 24% growth in pre-tax profit and a 177% rise in the share price.

‘While Clarke certainly deserves credit for helping WH Smith to avoid the pains affecting the broader retail sector, one must remember that the true architect of the company’s turnaround was actually previous boss Kate Swann.

‘She made the business run more efficiently, sorted out a pension problem and, crucially, created a thriving travel business with WH Smith gaining a strong foothold in train stations, airports and motorway service stations.

‘Clarke has arguably taken Swann’s successful model and sharpened it further. He made sure WH Smith’s stores were relevant, stocking the latest trends such as adult colouring books and spoof versions of Enid Blyton novels, and offering more “food on the go” products.

‘Clarke has also given WH Smith a strong foothold in the US with the 2018 acquisition of airport-based accessories retailer InMotion.

‘He bows out at a positive time for the group which is keeping its chin up despite ongoing difficult market conditions on the high street.

‘A 1% like-for-like increase in sales for the 11 weeks to 18 May is satisfactory, albeit not earth-shattering. Drill deeper and it is the usual theme of faster growth in the travel arm and a small decline in the high street operations.

‘Clarke’s successor Carl Cowling will no doubt want to stabilise the high street operations and may be interested in finding ways to accelerate WH Smith’s overseas interests and build scale in more locations. The current blueprint looks like a successful business model to follow.’

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Issue Date: 21 May 2019