Thursday, October 11, 2007

WH Smiths Beats Estimates

For some reason AOL Europe put this article at the top of their search results for WH Smith this morning. As the article is six months old you might want to look at more recent results here.


Good news for UK book retail this morning in the results for WH Smith's. Annual revenues and profits were higher versus last year on the back of better results in their railway and airport stores. City center stores continue to plague the business and revenues were off 6% versus last year; however, the company indicated that market conditions are masked in this result as they continue to realign their store product mix.

Highlights from the company press release:

Profit before tax and exceptional items up 29% to £66m (2006: £51m). Profits from trading operations are:
• High Street profit up 5% to £44m (2006: £42m)
• Travel profit up 16% to £36m (2006: £31m)
• Total Group profit before tax of £76m (2006: £44m).
• Like-for-like (LFL) sales down 4% reflecting our strategy to rebalance the mix of our High Street business towards our core categories.
• High Street LFL sales down 6%, with total sales down 6%
• Travel LFL sales up 2%, with total sales up 6%
• Gross margin has improved by 230 basis points year on year.
• Cost savings of £10m, with £3m delivered ahead of plan; further incremental cost savings of £11m identified.
• Strong free cash flow of £81m (2006: £68m).
• Underlying earnings per share2 up 26% to 29.3p (2006: 23.3p).
• Basic earnings per share up 82% to 33.1p (2006: 18.2p)3.
• Final dividend proposed of 8.1p, up 31% on the prior year. Total dividend per share of 11.8p
up 27% on prior year4.

Specific to books the company stated:
Books LFL (like for like) sales were up 1% as we continued to focus on rebuilding our authority as a popular book specialist and maximising profitability. Excluding the Harry Potter release in the second half, LFL sales for the year were flat, with gross margin slightly down including Harry Potter and up excluding Harry Potter. We maintained our strong performance versus the general high street, a trend which has continued for over 2 years now. We are particularly pleased to have maintained this performance during the second half of the year in the face of very strong competition on Harry Potter. During the year, we saw strong shares in some of the front list books, both over the key Christmas period on titles like Peter Kay, The Sound of Laughter, and then with further strong shares on key summer titles such as Cook Yourself Thin and the Richard & Judy Summer Read. Improvements to category planning and management have delivered good results, notably through improved ranges, innovative promotions and a focus on specific genres, such as Kids.

The High street revival is part store remix (DVD and CD sales are rapidly declining) and also based on the integration of post office concessions. The company has announced plans to integrate these concessions in 71 of its 544 high street stores and while operationally complex they have said they are on plan to achieve their goals. Currently they have 23 concessions in operation. The company has previously said the object of installing the concessions in the stores is to provide increase foot traffic and in prior interviews Kate Swann (CEO) has said their assumptions of the impact of this strategy is being borne out.

The company is naturally guarded about the coming year and warns that the marker should not expect too much by way of a rapid turn-around in the High Street stores. Regardless, shareholders and the publishing community generally should be relieved at these results which show significant performance improvement.


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