Buoyant travel stores give lift to WH Smith's profits

The group posted pre-tax profits of 89m in the year to August 31, which was an increase of 9 per cent on a year earlier.

The company recorded a rise in profits despite a 4 per cent drop in like-for-like sales.

The travel business, which operates from 516 outlets at airports, train stations and motorway service areas, increased operating profits by 10 per cent to 53m after total sales rose 1 per cent and it improved margins.

The record figure came despite pressure on passenger numbers and disruption caused to flights by the Iceland volcano during the spring.

Profits in the high street estate increased by 4 per cent to 51m after the company focused on core trading categories such as stationery and books. The shift away from lower-margin sales of DVDs and CDs meant like-for-like revenues were down 4 per cent on a like-for-like basis.

The high street business, which has 573 stores, made 12m of cost savings in the year. The company has improved the use of technology and opened a new distribution centre in Birmingham.

Across the business, WH Smith said it continued to build a market leading position in stationery after like-for-like sales rose 1 per cent in this category.

In books, like-for-like sales were down 3 per cent as reduced sales of celebrity biographies offset improved demand for fiction titles.

A difficult magazine market meant news and impulse purchases were down 2 per cent, while entertainment sales fell 42 per cent after WH Smith reduced its presence in this category.

Chief executive Kate Swann said the overall profit performance was ahead of expectations.

She added: "We are a resilient business with a strong and consistent record of both profit growth and cash generation and are well-positioned for continued growth in the future."

The retailer said it was relaxed about the potential impact of next week's public sector spending review.

Ms Swann added: "Relative to other retailers our average transaction value is pretty low at around 5 so we are less affected during a downturn or tougher economic times.

"This year and last year our profits have consistently increased despite the fact the climate hasn't been as positive as we would have liked, and we would expect that to continue."

Recent surveys have suggested that consumer confidence fell last month as shoppers become concerned about the impact of the Government's spending review.

"Management is turning the business into a sustainable growth story," said Seymour Pierce analyst Kate Calvert, who expects consensus profit forecasts for 2010-11 to rise by up to 4 per cent.

Ms Swann's strategy is based on cutting costs and improving gross margins by focusing on more profitable products, rather than driving top-line sales.

She has rebalanced WH Smith's mix of products towards core categories and away from entertainment products, such as CDs, DVDs, computer games and consoles.

Ms Swann is targeting a further 25m of cost savings over the next three years.