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Air travel boosts WH Smith

RESULTS: WH Smith has reported a strong start to the year, with improving air passenger numbers in the UK boosting the travel business.
April 11, 2014

Pre-tax profit at WH Smith (SMWH) was bang in line with market forecasts in the first half of the company's fiscal year. The retailer made £9m of cost savings in its high-street division, offsetting declining sales, while trading in the travel division picked up.

IC TIP: Hold at 1159p

A 6 per cent slide in underlying high-street sales reflected partly a lack of best-selling novels over Christmas, but also a generally challenging market. However, a 220 basis-point gross-margin improvement - driven by product mix, better markdown management and streamlining operations -boosted trading profit by 2 per cent to £49m. A further £5m of savings will come in the second half.

Travel, however, was the star performer. Sales grew 2 per cent, declining 1 per cent on an underlying basis. The improvement was driven by an uptick in UK air-passenger numbers, which helped sales in the air segment rise 1 per cent. Meanwhile, a 110 basis-point margin gain drove profit 3 per cent higher to £30m. The UK will see 30 travel units open this year, while 38 stores are set to open overseas in cities as far afield as Bali and Shanghai.

On the back of these strong results, JP Morgan upgraded its full-year pre-tax profit forecasts by 1 per cent to £110m, giving EPS of 73p - from £103m and 64p in 2013.

WH SMITH (SMWH)
ORD PRICE:1,159pMARKET VALUE:£1.41bn
TOUCH:1,157-1,160p12-MONTH HIGH:1,246pLOW: 689p
DIVIDEND YIELD:2.8%PE RATIO:16
NET ASSET VALUE:82p*NET CASH:£18m

Half-year to 28 FebTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20136386741.99.4
20146136946.710.8
% change-4+3+11+15

Ex-div: 16 Jul

Payment: 7 Aug

*Includes intangible assets of £56m or 46p a share