WH Smith braves the snow to boost profit margins
Despite the cold weather disruption, WH Smith is still on track to meet City forecasts of around 93m in annual profits
WH Smith suffered a big fall in sales over Christmas due to the snow, but stressed that the sales shortfall has been offset by cost savings and higher profit margins.
One of last retailers to report on Christmas trading, the newspaper and stationery group said like-for-like sales at its highstreet stores were down 7% in the eight weeks to 22 January. However, excluding entertainment products - CDs, DVDs and computer games - which the company plans to stop selling altogether - sales were just 3% lower.
Tight cost control coupled with changes to the sales mix have resulted in better profit margins, which means the company is still on track to meet City forecasts of around 93m in annual profits.
"During the period we saw a resilient performance across both our high street and travel divisions, despite challenging weather conditions," said chief executive Kate Swann. "Our staff worked extremely hard during this period to maintain the best possible service for our customers. With gross margin ahead of plan and costs tightly controlled, overall performance for the period was in line with expectations."
The snow chaos at Britain's airports last month dragged like-for-like sales at WH Smith's travel arm down by 3% in the 21 weeks to 22 January.
"We know from HMV/Waterstone's and BAA's experience that the high street and Heathrow weren't easy in December and WH Smith did not escape scot-free, even though it has largely moved out of the disaster area that is the entertainment market," said Arden Partners analyst Nick Bubb.
But he noted that weak sales were balanced by a much higher than expected gross margin - up 160 basis points - and with lower costs, he is happy with his pretax profit forecast o! f 94m fo r the year to August.
"Christmas is not the busy time of year for the travel division and the second half should bring recovery versus the ash cloud disruption of last April (remember that?), although we need airport traffic levels to start improving soon," Bubb wrote in a research note.
John Stevenson, analyst at Peel Hunt, said while WH Smith's trading was weaker than he had expected, it is in keeping with the snow disuption seen across the retail sector.
"International expansion of travel also provides an attractive medium-term growth opportunity for the business. On the downside, the growth of e-readers and tablets represents a medium-term threat to books and news, in our view, although
management continues to point to low take-up of such devices amongst its core customer," he said.
Shares in WH Smith rose by 1.7% this morning, to 489p.
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