WH Smith ahead of target thanks to travel and high street gains - UPDATE

Preliminary results from WH Smith were slightly ahead of target thanks to a strong year from its travel business and solid performance from the UK high street.

Group total sales were down 2% to £1.12bn in the year to 31 August, with like-for-like (LFL) sales down 3%, but a 160-basis-point hike in gross margin helped profit before tax rise by 9% to £112m and earnings per share by 18% to 77.7p.

The FTSE 250 retailer announced a further £50m share buyback thanks to its strong cash generation, with free cash flow of £98m in the period.

The travel arm, which has stores in airports and train stations, delivered a strong performance with trading profit up 11% to £73m and gross margin and cash generation both improved as LFL sales were flat but improving.

There were 30 new travel units opened in the UK during the year, taking the total to 596, with a further 30 international units given permission to take the overseas total to 165, of which 138 are open.

The much-maligned UK high street business lifted profits up by 4% to £58m thanks to cost-cutting as sales fell 6% and LFL sales declined 5%. Yet another round of cost-cutting was announced, with target cost savings of £21m over the next three years.

Management have extended the trial of the WHSmith Local franchise concept to 30 stores and announced the trial of a small number of value-based standalone greeting cards stores to be called Cardmarket.

Chief executive Stephen Clarke said distinct strategies for each of the businesses was behind the profit growth.

"Looking ahead, our focus will remain on profitable growth, cash generation and investing in new opportunities that position us well for the future."

Broker Canaccord said that with the company widening its cost savings guidance in 2015 from £6m to in £11m and revising down its pension funding deficit target, the consensus PBT forecast for next year of £118m should move up to around £120m.

Analysts wrote: "We remain buyers for the strong growth prospects of travel, now bolstered by a concerted push into international markets, and the continued strength of cash generation, which underpins a good dividend yield and further accretive share buybacks."

Similarly Investec said: "[The] valuation does not reflect cash generation and potential to deliver high single/low double-digit EPS growth. We see SMWH increasingly as a play on international travel as this division builds critical mass."