ii view: WH Smith upbeat but shares continue downward trend

Shares in this FTSE 250 retailer have comfortably outperformed the wider index during 2022. We assess prospects. 

Second-half trading update to 27 August

• Travel related revenue of 129% of its pre-Covid 2019 second half level
• High Street related revenue of 80% of its pre-Covid 2019 second half level
• Total group revenue at 112% of its pre-Covid 2019 second half level

ii round-up:

Retailer WH Smith (LSE:SMWH) today detailed a recovery in airport and rail related sales as it continued to benefit from consumers desire to travel again following the global pandemic. 

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Second-half travel related sales, which includes train stations and airports, were 129% of the figure for the equivalent period in 2019. Sales for Smith's high street outlets continued to lag their pre-pandemic levels, coming in at 80% of revenue for the second half of 2019. Management expects the outcome for the year to the end of August to be in line with previously upgraded forecasts. 

WH Smith shares fell by 5% in UK trading having come into this latest announcement almost unchanged year-to-date.  Shares for on-the-go food retailer Greggs (LSE:GRG) are down by around two-fifths in 2022, while online cards and gifts company Moonpig Group (LSE:MOON) have halved. The FTSE 250 index has fallen by a fifth year-to-date. 

WH Smith operates more than 1,100 travel located stores in more than 25 countries, along with over 530 UK high street stores and online portals WH Smith, Funkypigeon.com and Cultpens.com. 

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Geographically, its stores were summarised as performing strongly in both the UK and North America. The recovery for its Rest of the World outlets had been slower, with the strongest recovery coming in Europe and more recently in Australia and Asia. 

Good progress regarding its store opening programme was flagged, with 130 stores in the pipeline, including locations like Brussels and Los Angeles airports. Annual results are scheduled for 10 November. 

ii view:

WH Smith traces its first store back to 1792, although the company was founded in 1828. Today its stores continue to sell newspapers and other items including books, stationary and greetings 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. 

For investors, the lag in recovery for its high street outlets cannot be overlooked. An uncertain economic outlook and a cost-of-living crisis could see consumers tighten their belts and scale back travel plans. Technological advances now offer alternatives to travel, newspapers are all available online, while book sales remain highly competitive. A previous cyber security incident at its Funky Pigeon online business may also have dented customer confidence. 

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On the upside, a recovery at its travel business has been seen, a new store opening programme is ongoing, including its InMotion technology stores, while the company's cost base and product categories continue to be reviewed. Smith's geographical diversity should not be forgotten and investment in its online business is also being made. 

On balance, and while some caution looks sensible, a consensus analyst fair price estimate of over £19 offers room 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