WH Smith investors to share in £50m windfall

A focus on cost cutting has driven earnings in what remains a tough climate for the group.

The retailer, which has more than 50 high street stores in Yorkshire plus a number of travel outlets, promised a £50m return to shareholders following the hike in profits.

The chain shrugged off falling sales to increase profits to £108m in the year to the end of August from £102m a year earlier.

Chief executive Steve Clarke, who took over from long-time boss Kate Swann in the summer, said it had been a strong performance in a tough trading environment.

He announced the return of another £50m to shareholders through a share buyback, while the dividend for the year increased by 14 per cent.

The company will have handed £330m to shareholders since 2008 through buybacks and a special dividend.

The figures confirm WH Smith’s strategy of putting profits over sales growth, although city analysts are concerned about how long it will be able to continue squeezing costs.

The 221-year-old group increased targeted cost savings in its high street business to £22m over the next three years.

Data and surveys have shown an improving outlook for UK consumer spending, which generates two-thirds of gross domestic product, but retailers remain wary as inflation continues to outpace wage rises.

“Looking to the year ahead, we continue to plan cautiously in an uncertain environment, however we are a resilient business and are well positioned for continued growth in both the UK and internationally,” said Mr Clarke.

WH Smith, which trades from over 1,200 stores, reported like-for-like sales down five per cent.

However, the firm’s gross margin improved 180 basis points due to better buying and a sales mix of more profitable products.

WH Smith’s travel division – outlets at airports, railway stations, motorway service stations, hospitals and work places – posted a five per cent rise in trading profits to £66m, while the firm’s traditional high street business made £56m, up four per cent.

The firm ended the period with net cash of £31m and raised its dividend payout by 14 per cent to 30.7p.

Like-for-like sales in its 615 high street stores slumped six per cent, but profits were four per cent higher at £56m. It slashed £18m of costs from its high street network during the year with initiatives such as less power-hungry tills and voice-activated stock picking in its warehouses.

The chain has weathered the downturn with the help of “impulse” offers such as a free bottle of water with newspapers, while shifting its focus away from lower-margin CDs and DVDs towards books and stationery.

Its 673 travel units located at airports, railway stations and motorway service stations saw a four per cent fall in underlying sales.

It said the travel network is “well positioned for recovery when the economy improves”.

WH Smith is increasingly adding travel outlets abroad, with a total of 141 either open or due to launch abroad, on top of 579 units in the UK.

The chain’s revenues dropped five per cent to £1.19bn from £1.24bn a year earlier, as new travel store openings failed to offset sliding underlying ta- kings.

Independent retail analyst Nick Bubb said: “The message is that there is no need to change something that it is still delivering the goods, with the pre-tax profit outcome of £108m a tad ahead of expectations and cash generation still enough to finance another useful dividend increase and another £50m share buyback plan for the new year.”

Neil Saunders, managing director of retail analyst firm Conlumino, said: “WH Smith sensibly focuses on maximising margins rather than simply driving up sales.

“On this front the company should be applauded for its adeptness and focus.

“In many ways this policy, which was initiated by Kate Swann, has probably saved WH Smith from the fate of many of its high street contemporaries.

“We believe that the longer term aim should be to drive up sales, especially by pushing higher ticket value items in areas like stationery and gifting.”

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