-Earnings upgraded to upper end of market forecasts
-Revenues surpass pre-pandemic levels for first time
-Strong position to exploit growth opportunities
Shares in resilient retailer WH Smith (SMWH) rallied 5.3% to £14.30 after the books, stationery and snacks seller said it expects full year profits will be at the higher end of analysts’ expectations following bumper third quarter trading.
The FTSE 250 retailer said its travel arm, the growth engine of the business, continues to perform strongly following the lifting of Covid restrictions.
WH Smith expects this performance to be ‘maintained into the peak summer trading period’, hence the pleasing earnings guidance upgrade.
Encouragingly, WH Smith continues to benefit from the ongoing recovery across all its key travel markets, with group revenue in the 15 weeks to 11 June 2022 ahead of 2019 levels for the first time at 107% as passengers returned to the skies and airports benefited from heavier footfall.
In the third quarter, travel sales as a percentage of 2019 revenue were 123%.
HIGH STREET STRUGGLES
However in the high street business, third quarter sales were only at 79% of 2019 levels, with a good performance from the retailer’s Platinum Jubilee ranges offset by the impact of an April cyber attack on its online greetings card and gift business Funky Pigeon.
WH Smith, which previously reported a return to profit for the six months to 28 February, insisted it is in ‘a strong position to benefit from the significant growth opportunities across the global travel retail market and currently have over 125 stores won and yet to open. In addition, there are a large number of ongoing tenders across our markets.’
Neil Shah, director of research at Edison, pointed out WH Smith’s North America business ‘also showed strong momentum, with total revenue during the 15 week period at 111% of 2019 levels, in spite of Transportation Security Administration data recording passenger numbers for May at 90% of 2019 levels.’
Shah also noted that WH Smith continues to win further stores across the pond, ‘including four in Chicago O’Hare. As passenger numbers recover around the world, WH Smith will look to enhance its ranges in health and beauty and technology to capitalise on post-lockdown opportunities.’
AJ Bell investment director Russ Mould commented: ‘The current UK airport chaos works both ways for the company. On one hand, if your flight is cancelled then WH Smith loses out on potential business. On the other, if you’re already in the airport and find out you’ve been switched to a different flight later in the day, you might be stuck and find yourself filling up on £8 bars of Toblerone and £3 bottles of fruit juice.
‘The fact that WH Smith believes its full year results will be at the higher end of expectations comes as surprise given the difficult backdrop for consumer spending. Most retailers are being very cautious about their outlook, so it’s welcome turn of events that WH Smith can be upbeat, albeit recognising the uncertain economic outlook.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
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Issue Date: 15 Jun 2022