WH Smith shares slid 2.8% to 1,436.6p in early morning trading on Wednesday, after the franchise reported strong FY 2022 travel sector performance, alongside a HY2 impact to its high street business following disruptions to its funkypigeon.com greeting card segment.
WH Smith confirmed its FY 2022 trading was in line with management expectations, with HY1 total group revenue against 2019 levels reaching 84%.
Travel across HY1 hit 82% of 2019 levels, alongside an 86% result across its high street sector.
Meanwhile, WH Smith confirmed HY2 total group revenues hit 112% of 2019 revenues, along with 129% in travel and 80% in its high street business.
“After June’s impressive trading update, expectations were perhaps running too high for WH Smith, with investors today seemingly disappointed it hasn’t raised guidance once again in its latest update,” said AJ Bell investment director Russ Mould.
“Given the fragile nature of the retail sector, the fact it remains on track must be seen as a positive, particularly when you consider that plenty of other companies on the high street or selling goods online have started to show cracks, with profit warnings creeping out.”
The company said its travel sector benefited from continued recovery in passenger numbers across all its key markets. The firm noted strong ATV growth and higher penetration, driven by its strategy to develop and enhance its ranges, including technology, and health and beauty.
“WH Smith’s business model is split into two – one part is to generate as much cash as possible from the high street stores and just keep them ticking over without expecting too much growth. The other, more exciting, part is to use the travel shops as the growth engine for the group,” said Mould.
“The fact travel sales are now above pre-pandemic levels is very encouraging as it shows its strategy of rolling out new stores and reengineering existing ones to include broader categories such as health and beauty is working.”
WH Smith reported strong recovery across the UK and US, with initial slower recovery in the rest of the world. However, Europe displayed the strongest recovery overall in FY 2022, with high growth levels in Australia and Asia.
The franchise noted a focus on cost efficiencies and the return on space in its high street sector, and announced further cost saving opportunities, most notably through rent reductions.
“There are still some levers it can pull to enhance the financials from the high street shops such as find more places to cut costs including deals with landlords to cut rent. The travel business is all about being clever with the floor space and planting as many new flags as possible around the world,” said Mould.
“For a business that most people associate with selling the Radio Times and a big packet of felt tip pens, there’s no getting over the fact that it has managed to move with the times and turn a seemingly tired brand into an ever-expanding retail group.”