11th Oct 2018 12:19
LONDON (Alliance News) - WH Smith PLC shares dropped on Thursday after the books, newspaper and stationery retailer announced an overhaul of its troubled UK high street unit, which has fallen victim to the challenging conditions befalling the UK retail sector.
WH Smith shares were trading down 13% at 1,766.0 pence on Thursday, the second worst performer in the FTSE 250 index. The stock is down 15% so far this year.
"High Street delivered a good performance despite the well documented challenges of the UK high street," WH Smith said of the division.
For the year to August 31, the unit's trading profit slipped to GBP60 million from GBP62 million a year prior. Total revenue decreased by 3% year-on-year.
"Despite the good performance from our High Street business, we are not ignoring the challenging conditions being experienced on the high street more generally," the firm added.
The retailer decided to close around six of its high street stores and take a "forensic" approach to its cost base to ensure the business remains "fit for purpose".
It will also "wind down" non-core activities such as WH Smith Local and Cardmarket, a budget greetings card chain.
Brick-and-mortar retailers have struggled in recent years due to the changing face of the retail sector, leading to a disparity in performance between online retailers and their store-based counterparts.
Nowadays, retailers more-often-than-not, offer more sophisticated online offerings with consumers choosing to buy items from their homes or on-the-go, as opposed to purchasing directly from a physical store.
As such, pressure has cranked on traditional store-based retailers, which has seen high-profile names such as Marks & Spencer, Debenhams, New Look and House of Fraser fall victim to the online shift.
"Retailers across the board are have having a tough time, and when you take into account the firm was voted the 'worst high street retailer' earlier this year, it sales aren't too bad. Shopper's complained about rude staff, high prices and tired stores. The group should address these issues, and not sit back and rely on transport hub stores," David Madden, Market Analyst at CMC Markets UK, said.
Madden's colleague at CMC Michael Hewson concurred stating that WH Smith's management has long neglected the High Street business by shifting all its focus to the Travel division, which operates outlets in airports and other travel hubs.
For the year to August 31, the retailer posted overall pretax profit down 4% to GBP134 million from GBP140 million, after incurring a GBP11 million charge on restructuring and store closure costs.
Meanwhile, revenue increased to GBP1.26 billion from GBP1.23 billion a year prior, lifted by WH Smith's more healthy Travel business.
"We have delivered a good performance across the group," Chief Executive Officer Stephen Clarke said.
The group's Travel business, which accounts for half of the company's sales and two thirds of profits, saw revenue up 8% compared to last year and trading profit up by 7% to GBP103 million.
"The Travel business is attractive because it's often one of only a handful of outlets available where consumers can grab a bite to eat, or something to read. This has proven a winning formula for sales and profit growth, and with plenty of blank space on the map, Smith's Travel business should remain an attractive roll-out story," George Salmon, analyst at Hargreaves Lansdown said.
Despite the fall in profit, WH Smith hiked its total dividend by 13% to 54.1p per share from 48.2p after proposing a final dividend of 38.1p.
The increase in dividend was described by Madden as "a bid to keep shareholders on side".
"Seeing as the group is undergoing restructuring, it seems odd that the company has decided to allocate funds this way. There is a case to be made for conserving cash while they are reorganising the business," the analyst added.
Looking to the future the company said it sees "some uncertainty in the economic environment" but despite that it is "pleased with the start to the new year in both businesses".
WH Smith said it "will continue to focus on profitable growth, cash generation and new opportunities to profitably invest for the future. We are well positioned for the current year and beyond".
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