WH Smith set for sharp drop in profits as it sites cost and trading pressures
Retailer WH Smith has revealed more pressure on profits as it said results would be at the bottom of forecasts following a series of recent downgrades just months after a £100m investor cash call.
The group said annual underlying pre-tax profits are now expected to drop to around £75m for the year to August 31, down from the revised forecast given in June for between £75m to £90m.
It is set to mark a sharp fall on the £108m in underlying profits reported for 2024-25.
WH Smith, which sold its UK high street shops to private equity firm Modella Capital last year, said the more downbeat outlook reflected “lower trading profit margins driven by increased promotional activity, a reduction in brand marketing and inflation headwinds”.
It follows a difficult past couple of years for the retailer, which is now focused on shops in travel locations and hospitals, with the group last year admitting it overstated profits for its North American business by as much as £50m because of issues with its audit process.
In June, the UK’s accountancy watchdog said it had launched an investigation into PwC over its auditing of WH Smith in the wake of the damaging accounting saga in its US division.
Former chief executive Carl Cowling resigned in November last year after an independent report by Deloitte confirmed the accounting problems, finding a number of “shortcomings” in its US audit process.
WH Smith remains under investigation by the Financial Conduct Authority (FCA) over the accounting issue.
The firm raised £103m in June through an equity raise to bolster its balance sheet and help drive investment plans.
Its full-year update showed like-for-like sales rose 2 per cent, with UK revenue growth picking up to 4 per cent in the final three months as it saw a recovery in airport sales as the peak summer season drove a bounce back in passengers.
Airport sales lifted 2 per cent, having fallen by 2 per cent in the previous three months amid travel woes caused by the Iran war.
Hospital site sales jumped 8 per cent and revenues from shops in rail stations lifted 4 per cent in its final quarter.
It said it was seeing “good progress on the group’s transformation agenda”, with costs being reined in and some targeted investment in its travel essentials offering.
Speaking on the results, Susannah Streeter, chief investment strategist at Wealth Club, said: “WH Smith has been finding out that escaping the high street doesn’t mean escaping the pressures facing retailers.”
She added that a “combination of conflict erupting in the Middle East and increasingly cost-conscious travellers” had also “dented sales” for the firm.