ii view: travel growth still driving WH Smith

Third-quarter trading update to 1 June

• Like-for-like revenue up 4%
• Travel store like-for-like revenue up 5%
• UK high street like-for-like revenue down 1%

ii round-up:

WH Smith (LSE:SMWH) is a retailer selling newspapers, books, stationery, and other convenience products. 

It operates through the two divisions of Travel related stores both in the UK and overseas and UK High Street outlets. 

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

Other brands include its InMotion branded technology related stores, often sat next to its Travel related stores at airports both in the UK and internationally, and its online stores WHSmith.co.uk and Funkypigeon.com. 

For a round-up of this latest trading update announced on 5 June, please click here. 

ii view:

Tracing its roots back to 1792, the FTSE 250 retailer today operates from around 1,250 travel stores in the UK, US, and rest of the world as well as approximately 500 outlets across UK high streets. UK travel outlets at airports, railway stations and hospitals generate it biggest slug of sales at 40%, followed by UK high street stores at 26%, US travel outlets 21% and stores across the rest of the world 13%. 

For investors, technology and its impact on group product categories such as newspapers, books and stationery cannot be overlooked, and the cost of expanding its North American outlets has weighed on profits. Other businesses such as Greggs (LSE:GRG) are competing hard in the area of food at places such as train stations, while currency headwinds warrant consideration given growing overseas operations. 

• How to become an ISA millionaire
• ii view: M&S recovery has momentum
• Nick Train continues to back these FTSE 100 heavyweights

On the upside, new travel related stores, particularly in North America, remain a focus, and a diversity of both product type and geographical location exists. UK high street initiatives include the opening of instore ‘Toys R Us’ outlets, a new food-to-go brand Smiths Family Kitchen, which is now a focus for its travel convenience sales, while a forecast dividend yield of close to 3% is also not to be ignored. 

In all, and despite the lack of growth momentum overhanging its high street business, further expansion at its travel related business including InMotion persists, while a consensus analyst estimate of fair value north of £16 per share offers room for optimism longer term.  

Positives: 

• Product and geographical diversity
• Growing store numbers

Negatives:

• Uncertain economic outlook
• Overseas ops bring currency volatility 

The average rating of stock market analysts:

Buy