ii view: WH Smith bumps up full-year expectations

Enjoying a recovery from the pandemic and expanding overseas. Buy, sell, or hold?

Third-quarter trading update to 11 June  

ii round-up:

High street and travel retailer WH Smith (LSE:SMWH) today upped expectations for its full-year performance as it detailed a strong recovery in pandemic hindered sales.

Sales for the third quarter to the 11 June rose ahead of pre-pandemic 2019 levels for the first time at 107%, led by a recovery for its travel located stores. 

"We now anticipate the full year outturn to be at the higher end of analysts' expectations," it said. 

WH Smith shares rose by more than 4% in UK trading having fallen by around 8% year-to-date coming into this latest update. Shares for on-the-go food retailer Greggs (LSE:GRG) are down by around 40% in 2022, as are shares for online cards and gifts company Moonpig Group (LSE:MOON). The FTSE 250 index is down by almost 18%.

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WH Smith operates over 1,100 travel located stores in more than 25 countries, along with around 530 UK high street stores. 

Accompanying management outlook comments pointed towards ongoing strong performances across all its UK, US and rest of world travel stores. A further 125 stores have been acquired but have yet to open, including 63 in North America and 31 in Spain. 

Total travel sales for the quarter came in at 123% of revenues achieved in the same pre-pandemic 2019 period. Sales for its UK high street stores hit 79% of those seen in 2019. 

First-half operating profit to the end of February, announced late April, recovered to £36 million from the previous year’s interim loss of £4 million. Annual results to the end of August are scheduled for November. 

ii view:

WH Smith traces its roots back to 1792, although the company was founded in 1828. Today, its stores continue to sell newspapers along with other items including books, stationary and greeting cards. Its more than 550 UK travel stores are located across airports, railway stations and hospitals. The balance of its travel stores are split almost evenly between the USA and rest of the world. Along with its WH Smith website, started in 1999, it also operates the Funky Pigeon site. 

For investors, an uncertain economic outlook and a cost-of-living crisis could see consumers tighten their belts, including cutting back on travel plans. Technological advances now offer alternatives to travel, newspapers are available online, while the retailing of books remains highly competitive. 

That said, a clear recovery from the pandemic has been seen and further travel related stores continue to be opened, including its InMotion technology stores. A push towards new store formats and product category development is ongoing, while the business is geographically diversified. On balance, and while some caution continues to look sensible, a consensus analyst fair price estimate of over £19 looks to give grounds for longer term optimism. 

Positives:

• Product and geographical diversity
• Growing store numbers

Negatives:

• Uncertain economic outlook
• Overseas ops bring currency volatility 

The average rating of stock market analysts:

Strong buy