WH Smith warns on profit again as discounting hits margins
WH Smith has cut its profit target again after warning that intense discounting and “inflation headwinds” are hitting its bottom line.
The convenience retailer had initially told investors it could make as much as £105m in pre-tax profit this year, before slashing the target to between £75m and £90m. On Wednesday, the group reduced its expectations to no higher than £75m.
“This reflects lower trading profit margins driven by increased promotional activity, a reduction in brand marketing and inflation headwinds, offset by central cost reductions and lower interest costs,” the firm said.
WH Smith has struggled to gain momentum following the sale of its 480 high street stores to private equity firm Modella Capital.
The group has been forced to rely on sales at its train station and airport stores, which it has said are vulnerable to the slowdown in tourism caused by the Iran war.
The retailer’s £75m expected profit would mark a sharp fall from last year’s £108m. Only a few months ago, the group took £103m in an equity raise designed to bolster its balance sheet and drive its investment plans.
WH Smith saw sales inch up during its fourth quarter, as summer trading pushed revenue growth up from one to two per cent across the group.
In the UK, like-for-like revenue growth jumped from two to four per cent in the fourth quarter. The group’s hospital stores drove this uplift, as like-for-like revenue jumped by eight per cent.
WH Smith ‘needs to rebuild credibility’
WH Smith said it refurbished its shops in Heathrow, Liverpool, Belfast International and East Midlands airports in a bid to drive up the size of shoppers’ baskets in these high-footfall sites.
The group’s performance in North America has dragged on its overall growth in recent years. Like-for-like revenue in the region dipped by three per cent in the fourth quarter.
The retailer’s like-for-like revenue at its North American airport stores dipped by two per cent, dragged down by lower passenger volumes and “softer consumer demand”.
In June, WH Smith’s share price shed 16 per cent in one day after it warned that the slump in consumer confidence and airport traffic caused by the Iran war is hitting its sales.
The firm said on Wednesday that it is making “good progress” towards its turnaround plan. The group told investors it is working to cut costs, improve its cash management and boost sales in its more profitable “travel essentials” range.
Analysts at RBC Capital Markets said WH Smith has posted better-than-expected UK results, but is performing worse than hoped in the North American market.
“We think WH Smith needs to rebuild credibility with the market, with scope for the rating to recover over time if WH Smith can reassure the market that its recent missteps won’t be repeated,” they said.
Shares in WH Smith opened broadly flat in early trading, at 359p.