WH Smith profits rise by 3% as cost cutting pays off
WH Smith saw its headline group pre-tax profit rise by 3% to £70 million in the first half of its financial year as the book and stationery retailer continued to make cost savings in line with strategy.
The group said its travel division increased its trading profit by 3% to £30 million with further improvement in gross margin and good cash generation. Total travel sales rose by 2%, with like-for-like sales dropping by 1%, to reflect an improvement in UK air passenger trends and a continued focus on space management. WH Smith plans to open 30 new travel units in the UK this year and 38 outlets overseas.
The retailer’s high street store division grew its profit by 2% to £49 million although sales were down 7% on a total basis and by 6% on a like-for-like basis as a result of some challenging markets and weaker publishing in the period. However, savings of £9 million were delivered in the half, with a further £5 million identified in the second half. As at 28 February 2014, the retailer operated 607 high street stores.
Across the group, total sales declined by 4% with like-for-like sales also falling by 4%.
Commenting on the results, WH Smith group chief executive Stephen Clarke said: "The group has delivered another strong performance, with profit growth in Travel and High Street, demonstrating the continuing success of our strategy.
"The group remains highly cash generative. During the first half we returned £47 million to shareholders through the dividend and share buyback announced in October 2013 and today we have increased the interim dividend by 15%.
Liz Faulkner, retail consultant at Conlumino, comments: "Once again, WH Smith has reported rising profits (up 3% versus last year), despite persistently declining sales. This has been achieved off the back of stringent cost management – its High Street division delivered £9m worth of savings in this first half with a further £5 million earmarked for H2 - and tight margin control.
"While WH Smith might not be the most glamorous player, you have to admire its determination. Primarily an entertainment retailer, faced with a shrinking sector, WH Smith did what many, such as HMV, failed to do and bit the bullet; it began to diversify, bringing in new product categories and tapping into the travel space. Its commitment to testing new product categories and its focus on cost and margin control is laudable.
"In the longer run, however, once this has run its course – there will be a point where no more fat can be cut - WH Smith will need to take its product mix and space optimisation learnings and, while retaining its cost and margin control, present us with a focused brand proposition. The problem is that WH Smith does not yet stand for anything, apart from perhaps a retailer with slightly messy stores that consumers are surprised to see is still around."
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