WH Smith makes strides after stronger third quarter

In the 13 week period to 2 June, despite recently being voted the worst high street shop in the UK, the group grew sales 4% with like-for-like sales up 1% compared to last year, which were both an improvement on the flat total sales and 1% decline in the first six months before. Gross margin was said to have increased in both the Travel and High Street arms.

Focused on airports and stations, the Travel arm generated an 8% increase in total sales and, stripping out the effect of new store openings, like-for-like sales were up 3%. This was attributed to growth in passenger numbers and continued investment in UK and international businesses, including a wider selection of healthy eating options.

Travel remained on track to open between 15 and 20 new outlets in the UK over the year, including the recent opening of an 11th standalone bookshop. In overseas airports there 18 more units expected to open over the rest of the year, including eight in Madrid over the summer, bringing the total number of units open internationally to 282, up from 258 at the end of February.

The High Street business remained focused on profits, margins boosted as cost savings were delivered in line with plan even as both total sales and LFL sales fell 1% in what is the division's quietest trading period. However this was still an improvement from the 5% and 4% declines in the first half of the year.

Further investment was made in new store format trials as evaluation of their performance continues and the trial extended to a further ten stores, as well as developing a trial for smaller stores.

Chief executive Stephen Clarke said: "Whilst there is some uncertainty in the broader economic environment, WHSmith serves millions of customers each week and continues to grow both internationally and in the UK. We continue to focus on profitable growth, cash generation and investing in the business to position us well for the future. We remain confident in the outcome for the full year."

SMWH shares strode 6% higher to 2,090p by mid morning on Wednesday.

Analyst George Salmon at Hargreaves Lansdown was impressed that the pace of the high street decline was notably slower. "We suspect the Royal Wedding and warm weather are contributing factors, but even if we look past these short-term boosts, it’s impressive how the group’s cost-cutting measures mean rising profit margins are offsetting lower revenues."

With the Travel business sales and margins both heading in the right direction, he said it was easy to see why the group has no plans to take its foot off the gas in terms of expansion.

"The attraction of the travel business is the customer is usually in such a rush that convenience takes priority over price, or in the case of airports, there aren’t many alternatives where passengers can pick up a sandwich, magazine or book. This gives the group that most valuable of qualities: pricing power.”

Neil Wilson at Markets.com said that Travel sales were up 8% but only 3% on a LFL basis "only serves to highlight the company's dependence on opening new sites at airports and train stations".

However, contrary to some suggestions that this puts a cap on growth prospects at the firm as it saturates the UK market, he was confident that there was plenty of international expansion left to be done.

"Continued underinvestment in the High Street side of the business should not cloud the view that WH Smith is building a strong brand in Travel that has significant room to grow overseas. This significantly reduces its exposure to the ailing UK high street – a strategy that increasingly looks like a masterstroke. While high street footfall is coming off, global air travel passenger growth is only heading up, and fast."