Travel and tourism will be the background theme as Whitbread PLC (LSE:WTB) and WH Smith PLC issue trading updates on Wednesday, with investors keen to know if the fortunes of the sector are turning around.
The owner of the Premier Inn chain, Whitbread’s hotels had 81% occupancy in the first quarter of this year, with April's final results showing profits and dividends returned and the outlook starting to look brighter.
Revenue in European lodgings was up 22% in the UK for the week of 22 May, according to Citigroup, which said the pricing recovery "bodes well for hotel profitability", with Whitbread one of those standing to benefit from most in Europe.
However, inflation and supply chain disruption remain industry-wide challenges, with consumer price inflation at 9% in the year to April and the company cautioning that cost inflation in the hospitality sector is set to be higher than previously expected at 8%-9%.
Boss Alison Brittain said the group should be able to offset the higher inflation through price rises, cost savings and estate growth, though it will make it harder for her to deliver a £140mln cost savings target by 2025.
Over at WH Smith, the retailer with a strong reliance on travel, rebounded back into the black in the first six months of this year, posting £36mln of group profit.
Like Whitbread, it had struggled to overcome challenges associated with Omicron, but more recently has reported an uptick in trading at its many outlets in airports and train stations.
The FTSE 250-listed retailer said in its interim statement that it plans to open 125 new travel stores by the end of the year, 28 of which are in UK airports.
With US and UK travel currently seeing "a post-pandemic resurgence", analyst Jonathan Pritchard at broker Peel Hunt was "hopeful that the green shoots of recovery seen last time will continue" for WH Smith.
As at Whitbread, he sees an ability to combat inflationary pressures, due to the chain's positioning in airports providing "a strong and we believe inelastic base", so forecasts are expected to hold up fairly well.
WH Smith’s focus on expansion in the US also "looks to be a winning formula", Pritchard said, with visitor volumes to Las Vegas up 31.4% in April compared to the prior year.
"There is, in our view, an outside chance of an upgrade here, which would buck the trend in retail."