WH Smith overcomes sales fall with lift in margins

The stationery and books chain managed to offset a decline in sales by revealing a boost to margins powered by focusing on costs and more profitable stock.

Steve Clarke, managing director of the chain’s high street stores, described the performance as “resilient, in what were very challenging weather conditions”.

While the weather has improved, the economic outlook has taken a turn for the worse for some commentators after this week’s shock GDP figures showed a 0.5 per cent contraction in the last quarter. This was followed shortly after by more inflation warnings.

Asked about the UK outlook this year, Mr Clarke said: “We don’t think the trading environment is going to improve.

“We have certainly not built our plans around any improvement in customer sentiment. It will remain difficult.” He said the GDP figures “reflected some of the difficulties we saw in retail”, although he added it was difficult to gauge the underlying performance of the economy because of the impact of the weather.

Consumers are facing sharp increases in the cost of living this year with inflation likely to reach four or five per cent, the Bank of England has warned, but these rises are unlikely to affect shoppers at WH Smith, said Mr Clarke.

He added: “Books, newspapers and magazines are generally fixed retail price categories and therefore we don’t normally see a huge amount of inflation feeding through to the customers because they are very competitive.”

For stationery products, the group has opened a new sourcing office in Hong Kong, having previously used a third party.

Mr Clarke said: “Opening our own office enables us to buy better and offset some of the inflationary pressures. We have been working with suppliers directly to offset price increases and not pass them on to customers as far as we possibly can.”

Like-for-like sales at WH Smith’s high street stores slumped 7 per cent in the eight weeks to January 22, compared to a 4 per cent decline in the previous quarter.

At railway stations, airports and other travel hubs, the company reported a 3 per cent decline in the 21 weeks to the same date but accompanied this with a better than expected update on margins as it focuses on costs and more profitable stock.

Kate Swann, chief executive, said: “Our staff worked extremely hard during this period to maintain the best possible service for our customers. With gross margin ahead of plan and costs tightly controlled, overall performance for the period was in line with expectations.”

Analysts had been expecting a 5 per cent like-for-like sales decline at the high street stores and a 1 per cent fall at travel stores in the period, but those predictions were made before the Arctic weather hit trading.

WH Smith’s like-for-like sales have declined in recent months as the company moves away from lower-margin entertainment items such as CDs and DVDs and concentrates on selling its core range of confectionery and stationery.

Sales of books recommended by the Richard and Judy Book Club were strong, with Sister by Rosamund Lupton and The Postmistress by Sarah Blake among the best sellers.

The group operates 516 outlets at airports, train stations and motorway service areas and 573 sites on high streets.

It has 54 high street stores in Yorkshire, plus a number of travel outlets.

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