Strong profits lift WH Smith shares

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Shares in WH Smith received a boost on Thursday as the stationery and books retailer reported better-than-expected underlying annual profits and a 20 per cent rise in its dividend.

Defying the trend of high street gloom, shares in WH Smith, which also announced the departure of its finance director, closed up 34p at 355¾p.

The company said it was coping well with increased pressure on sales at airports. Trade has been affected by a slowing rate of growth in demand for air travel.

Kate Swann, chief executive, said rents in airports were paid as a proportion of sales, mitigating the impact on profits.

“While no one likes losing sales, this doesn’t have a huge impact on the bottom line,” she said.

Elsewhere in the travel arm, sales in railway stations and motorway service stations were robust while sales in hospitals were up.

The retailer has expanded during the year and “would not be surprised” if it opened another 50 outlets in hospitals in the next five years – in addition to the current 80.

Travel profits expanded 14 per cent to £41m while high street profits rose 7 per cent to £47m.

WH Smith has pursued a strategy of focusing on core categories – allowing entertainment (CDs and DVDs) to wither – and shoring up margins with a mix skewed towards more profitable products.

It is set to launch DHL delivery services in 400 high street stores this autumn.

Alan Stewart, finance director and a former chief executive of Thomas Cook, will leave to pursue other business interests. Analysts reacted positively to news that insiderRobert Moorhead, currently finance director for the retail division, would take over.

Underlying group profits rose 15 per cent to £76m. Total sales rose 4 per cent to £1.35bn for the year ended August 31.

Reported pre-tax profits were level as last year’s figure was flattered by an exceptional £10m gain related to the closure of its defined benefit pension scheme.

Earnings per share were 36.4p against 34.3p. The proposed final dividend is 9.7p, taking the total to 14.3p (11.8p).

FT Comment

Analysts joked that the average retail update in the past few months has felt more like a wake. In contrast, Thursday’s meeting with WH Smith was likened to a birthday party. Not many shopkeepers are showing this kind of confidence, encapsulated by a 20 per cent increase in the final dividend. Along with better-than-expected profits, another surprise to pop out of the cake was an additional £10m of cost savings. A price/earnings multiple of about eight times 2009 earnings looks mean, given WH Smith’s convincing defensive position – its average transaction value is about £5 – and opportunities for growth.

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