ii view: WH Smith becoming specialist travel-focused retailer

Third-quarter trading update to 31 May

• Total currency-adjusted revenues up 7%
• Like-for-like revenues up 5%

ii round-up:

WH Smith (LSE:SMWH) is a retailer selling a variety of items including newspapers, books, stationery, technology accessories and food on the go.  

Having operated via the two divisions of travel-located stores and UK high street outlets, a sale for the latter is under way and expected to complete soon.

The group’s remaining 1,200-plus travel stores operate both in the UK and overseas, at locations such as airports, railway stations and motorway service stations.  

Other group brands include online store funkypigeon.com and tech-related stores InMotion, which are often found next to the firm’s travel-related stores at airports both in the UK and internationally. 

For a round-up of this latest trading update announced on 4 June, please click here. 

ii view:

Started by Henry Walton Smith in 1792, the Swindon-headquartered retailer today employs around 14,000 people. Of the business remaining, UK travel stores generated most sales during the first half to late February at 54%. That was followed by North American stores at 27%, and Rest of the World branches, including around 146 European stores, 92 in the Middle East and India, and 118 in Asia-Pacific, the balance of 19%. 

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For investors, tech and its impact on group product categories such as newspapers and books should not be overlooked. Competition for so-called food on the go from the likes of Greggs (LSE:GRG) and Marks & Spencer Group (LSE:MKS) should not be forgotten. Currency headwinds may now increase given a higher proportion of overseas sales following the UK high street business disposal. Increased global geopolitical tensions, such as the growing war in the Middle East, warrant consideration, while group net debt rose 22% to £454 million as of late February. 

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On the upside, the sale of the high street division removes a non-growth business, leaving Smith’s fully focused on its expanding travel division, which expects to open a net 10 new stores this financial year to August 2025. A concentration on cost savings includes items such as more efficient fridges. A historical dividend yield of around 3% has previously been supplemented with share buybacks, while the potential sale of its non-core greetings card funkypigeon.com business is also being considered by management. 

For now, and despite ongoing risks, investors are likely to remain supportive of this soon-to-be more specialist UK and overseas travel-focused retailer.  

Positives: 

• Product and geographical diversity
• Exposure to expected growth in air travel

Negatives:

• Uncertain economic outlook
• Overseas ops bring currency volatility 

The average rating of stock market analysts:

Buy