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WH Smith performs as expected with travel offsetting slow high street decline

The FTSE 250 newsagent said total sales for the 20 weeks to 19 January were up 6% while like-for-like sales were flat, however, its travel arm saw stronger LFL growth of 3%
WH Smith store
The growth in travel and the decline in high street were mostly bang on estimates

It was very much business as usual for WH Smith PLC (LON:SMWH) in a trading update on Wednesday as healthy growth in its travel arm offset a continued slow decline on the high street.

The FTSE 250 newsagent said total sales for the 20 weeks to 19 January were up 6% while like-for-like (LFL) sales were flat.

READ: City broker “really excited” by WH Smith’s US potential now InMotion is onboard

The flat LFLs were slightly below forecasts from analysts at UBS who were expecting 1% growth, however, the banks 3% growth forecast for the travel business came in on target.

Total sales for the segment were also up 16% with the firm saying it planned to open around 20 new store units this year while also continuing the roll out its new concept airport stores in Heathrow.

Smith’s added that InMotion, a US travel retailer it acquired for US$198mln in October, was progressing well with its integration and had continued its “strong sales momentum” post-purchase with good growth prospects in the US and international markets.

The update was a lot briefer for the firm’s ailing high street business, but the trajectory was a well-known story with a steady decline. LFL sales for the segment were down 2% in the period with total sales dipping 1%, although Smith’s said it was on track to deliver £9mln in planned cost savings for the year.

The 2% decline was comfortably inside estimates, with UBS predicting the slowdown last week.

Stephen Clarke, Smith’s chief executive, said the company’s travel arm had been lifted by growth in air passenger numbers in addition to its investment programme, while the high street business had delivered what he said was “a good performance” bolstered by sales of stationery, Christmas cards, wrap, diaries, and fashion stationery.

Looking ahead, Clark said while there was “existing uncertainty in the broader economic environment”, the firm was “well positioned” for the year going forward.

Broker says potential of Travel business “underestimated”

In a note to clients, analysts at broker Peel Hunt said trading had remained “decidedly solid” through the first half across the company but added that the current 15x price/earnings multiple was “too cheap” given the global potential.

“Whilst the High Street business is unlikely ever to command a high multiple (despite its stability), we think that the potential of the global expansion of the Travel business is being under-estimated. The US deal should bring the growth potential into clear view and whilst management is wisely not over-stating the opportunity, we think that, in time, it is a route to a much higher profit number and a higher multiple too.”

The broker also retained WH Smith as one of their top picks with a target price of 2,100p.

In early trading Wednesday, WH Smith shares were up 2.5% at 1,923p.

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WH Smith PLC Timeline

October 11 2018
August 30 2018

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