WH Smith's swansong

Board changes aside, the financial results for the 12 months to the end of August were solid enough. The travel business, which is mainly rail and air passengers and accounts for over half group trading profits, pushed total sales ahead by 2 per cent as the contribution from 35 new UK outlets offset a 3 per cent decline in underlying sales in the other shops. And better management of the category mix delivered a 160 basis point improvement in gross margins which boosted trading profit by 11 per cent to a record £63m. As well as planning for a similar number of new UK outlets in the current financial year, 21 overseas units have been opened, bringing the overall group total to 619 units including 101 overseas.

Trading in WH Smith's 618 high street stores proved more challenging and like-for-like sales were down 5 per cent, but management has been quick to exit low-margin lines and rebalance the business mix towards its core categories. Cost savings of £17m were realised, thanks to a number of measures like self-scan checkouts and more efficient lighting, and a further £12m of new savings have been identified making a total of £25m over the next three years. These initiatives helped to drive a 120 basis point improvement in gross margins and lift trading profits by 4 per cent to £54m despite a 5 per cent slump in high street sales.

Cash generation remains strong and free cash flow of £91m will fund another £50m share buy-back scheme announced in August, which means that through a combination of dividends and buy-backs WH Smith has returned £450m to shareholders since 2007.

Numis Securities is forecasting current year pre-tax profits of £105m and EPS of 64.2p, up from £102m and 62.7p, respectively last year.