WH Smith: The star stock shoppers love to hate

A week after being named the UK’s worst high street retailer, WH Smith (SMWH) fired the perfect riposte today with a reminder that it knows a thing or two about success in retail.

Its latest trading update was a trademark WH Smith performance, with a continuation of the profitable growth and strong cash generation that has won it so many fans in the City, if not the love of all high street shoppers.

Shares jumped another 7% on the back of the update, leaving the FTSE 250 Index (MCX) stock within sight of the record high seen at the turn of the year.

The stand-out performer was again the travel division, with growth in passenger numbers at transport hubs helping to offset the slowdown in consumer spending on the high street.

WH Smith’s unique positioning at airports, train stations and motorway services meant travel division total sales were an impressive 8% higher, with a 3% rise on a like-for-like basis in the 13 weeks to June 2.

Source: interactive investor           Past performance is not a guide to future performance

In contrast, high street like-for-like sales were down 1% as the chain continued with its profit focused strategy. Cost savings have been delivered in line with plan, but one of the side effects of this approach is the inevitable rise in customer complaints about out of date stores or threadbare carpets.

However, WH Smith continues to see a future on the high street and has just extended new store format trials to a further ten stores, while it is also developing a trial for smaller outlets.

Analysts are also supportive of the division, particularly as today’s third quarter result was better than the predicted 4% like-for-like sales decline forecast by some in the City.

What’s more, the quarter included the period of adverse weather which has been responsible for profit warnings elsewhere in UK leisure and retail.

Barclays said: 

“The track record of delivering free cash flow from this mature business remains impressive. “

They added that there was significant long-term potential in travel, which is on course to account for about two-thirds of group earnings in 2018.

With stronger growth rates expected from travel over its forecast period, Barclays believes there’s more to come from WH Smith shares.

Its target price of 2270p is based on annual growth in earnings per share of 5% from 2017 to 2020 and a free cash flow yield of 6%. The dividend yield of 2.5% is backed up by a strong balance sheet, with net cash of £12 million expected at the end of 2018.

Q3 is a seasonally quiet quarter for WH Smith, ahead of the peak summer period for travel and after the Christmas period for high street stores. Total sales rose 4%, with like-for-like sales up 1% compared to last year.

Chief executive Stephen Clarke said:

“We continue to focus on profitable growth, cash generation and investing in the business to position us well for the future. We remain confident in the outcome for the full year.”

Last week, consumer group Which? placed WH Smith bottom of a survey in which it asked 10,000 shoppers to rate their experience in buying non-grocery items at 100 major retailers. However, WH Smith pointed out that just 184 shoppers had commented on its stores in the survey.

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