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WHSmith to Expand Travel Stores

WHSmith StorefrontWHSmith – the books, newspapers and stationery retailer – is planning to expand its focus on travel stores domestically and internationally. It wants to open new locations at travel hubs and in growing markets overseas, where sales are helping the company offset its weakness on the high street in the UK. On Thursday, WHSmith said that its profits before tax increased to £66 million during the last half year, ending February 29. This is up £2 million compared to the same period last year.

The retailer runs more than 1,100 shops – most of which are in Britain. It’s revealed that it’s planning to open 20 new stores in Australia, India, Dubai, Gibraltar, Saudi Arabia, Qatar and Fiji. The company noted that it wants to continue to expand its international network in a low risk, sensible way by using its different models of operation. This will bring its total number of stores opened in or planned for overseas to 80, which are operated through a mix of direct leases, joint ventures and franchises.

The company says its travel business – which includes shops at airports, motorway service stations and train stations – had a good performance during the period. Operating profit was up 8% from £25 million to £27 million, and it plans to open 17 new stores in Britain in the second half of this year. At its high street division, operating profit was flat at £47 million, and like-for-like sales were down 5%. Despite the decline in sales and flat profit, the high street unit achieved a cost savings of £8 million during the first half. This is £2 million more than it had planned, while the company is aiming to save another £3 million during the second half.

This comes as wage growth has remained frozen and unemployment high for Brits, which has meant incomes are squeezed. Many high street retailers have struggled or gone bankrupt due to this. WHSmith chief executive Kate Swann said that they expect a challenging trading environment looking forward, but they are a resilient business. They also have a consistent record of cash generation and profit growth, with opportunity for growth in Britain and around the world.

Swann noted that the high street has had another resilient performance, demonstrating the business model’s strength – especially during challenging trading conditions. She doesn’t expect the Olympic Games to boost profitability this summer, because operating costs are due to rise at its London shops with limitations on when products can be delivered to its shops.

Analysts seem to be pretty positive about the figures. Panmure Gordon analyst Philip Dorgan said WHSmith had another strong performance with a 14% growth in earnings per share. Shareholders have been given a nice 15% increase in the dividend, and they think the incentive for a share price re-rating is an improved outlook for travel passenger numbers, he added. Investec analyst David Jeary said WHSmith’s travel unit will continue to be the key driver of growth, with good prospects both domestically and internationally. Passenger trend numbers are still lower than average, but they expect this to improve as the economy returns to normal, he added.

Seymour Pierce broker Freddie George said they are keeping their buy recommendation for WHSmith due to its strong management, good cash flow and defensive qualities. Additionally, they believe the opportunity to negotiate better terms with high street landlords has been underplayed, and the company is starting to pick up momentum with its global development plans, he added.

Peel Hunt broker John Stevenson says that a £66 million profit before tax for the first half met expectations – with sales attrition offset by margin gains, more money than planned was saved in its high street business, and profits continue to grow in its travel division. Although they are concerned by the week underlying market in books, which WHSmith keeps outperforming due to competitor weakness, cash generation continues to be strong, he added.




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