Tuesday, October 11, 2011
WH Smith bucks trend
Shares in the upmarket brand owner have retreated from an all-time high of £16 on worries that China, one of the engines of its recent sales surge, might be stalling due to the global economic uncertainty.
Despite the concerns, brokers still expect strong figures in Wednesday's trading update, which will cover sales in the three months and the half year to September.
A trading update in August from WH Smith indicated it was bucking the gloom seen on other parts of the high street.
The stationery and books chain, which has more than 1,000 stores across the UK, said Thursday's final results would meet market expectations for profits of about £93 million, compared to £89 million last year.
Analysts added that as the group does not normally issue a pre-finals trading update it must have wanted to demonstrate that its trading had not deteriorated in the current consumer squeeze.
Chief executive Kate Swann has focused the group on higher margin products and identified core areas such as news, magazines, books and stationery. The plan has involved weeding out lower margin areas, such as CDs, which has had the effect of cutting sales but boosting profits.
Like-for-like revenues are expected to fall by 2% in travel and by 4% at the high street chain because of the strategy, but analysts hope this time it will also include some detail on future growth plans, especially an expansion of the travel arm overseas.
Jonathan Pritchard, an analyst at Oriel Securities, said WH Smith may add 250-300 stores outside the UK over the next three to five years, against 47 currently, with overseas railways stations, hospitals and shopping malls being explored as well as airports for possible locations. He also believes the threat to the book and newspaper business from electronic readers and electronic books is overplayed.