Shares in WH Smith lost more than a tenth of their value on Thursday after the group revealed hefty restructuring costs associated with shop closures and a reorganisation of its business, following another year of weak performance at its high street stores.
The retailer has boosted its dividend payout and will buy back £50m of its own shares, thanks to strong trading at its airports and train station outlets, which now provide two-thirds of its profits.
But WH Smith, which traces its roots back to a London street kiosk opened in 1792, said on Thursday that it would close roughly six high street stores. Additionally, the group said, it would “wind down” its WH Smith Local convenience outlets, a division chief executive Steve Clarke launched in 2013 in an attempt to bolster its struggling high street business.
“We are very committed to the high street,” Mr Clarke said, adding that the existing 80 WH Smith Local stores would remain operational, but that the group would not launch any more. The group will also close Cardmarket, its standalone brand that sells budget greetings cards, once the leases on the 24 existing stores expire.
WH Smith spent £9m on reorganisation projects in its past financial year, it said, adding that it would spend a further £5m in the year to September 2019.
By mid-morning in London, the group’s shares had fallen 14 per cent to £17.50, putting them on course for their sharpest decline since 2000. This came amid a sharp sell-off of equities across global markets, although by the same time on Thursday the FTSE 350 general retailers index had fallen by only 3 per cent.
On Thursday, WH Smith published results for the year to August 31 that showed trading profit at its high street stores dipped to £60m from £62m last year. Like-for-like revenues also fell 3 per cent.
Boosted by an increase in visits to Britain prompted by the weak pound, trading profits at WH Smith’s travel division rose 7 per cent to £103m in the year. Like-for-like sales at the unit increased 3 per cent compared with 2017. At its airport outlets, the largest part of its travel business by sales, like-for-like revenues rose 7 per cent.
Group pre-tax profits declined to £134m from £140m the year before, with the group attributing the fall to restructuring costs.
WH Smith raised its final dividend 13 per cent to 38.1p a share. The total payout will be 54.1p, a 12 per cent increase on the previous year. Mr Clarke attributed the share buyback to “cash generation and our confidence in the future prospects of the group”.
Richard Chamberlain, an analyst at RBC Capital Markets, said that WH Smith’s share price fall was part of a bout of risk aversion in global markets that had led to “a big sell-off” of stocks valued at relatively high multiples of their earnings. This week, that trend has also hit the shares of premium soft-drink maker Fevertree and fantasy figurines retailer Games Workshop.
WH Smith’s shares traded as high as 19 times forecast earnings per share in late August. The price-to-earnings ratio has now dropped to 16 times.
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