Travel boom slows at WH Smith

WH Smith’s (SMWH) half-year results were in line with expectations, but the market seemed disappointed. Its shares slumped by 7 per cent after the figures were published, with one analyst branding them “ok-ish”. 

Total group revenue rose by 8 per cent to £926mn in the six months to February 2024. Progress was driven by the retailer’s travel division, which now accounts for over 70 per cent of revenue. 

However, there were some stark discrepancies between different countries. While the UK travel arm is booming, with like-for-like sales up by 13 per cent in the period, organic growth was flat in North America, despite the region being labelled the retailer’s “most exciting opportunity for growth”. 

Similarly, while adjusted trading profit from the UK travel section increased by 19 per cent to £37mn, North American profits were flat at £14mn. Management partly blamed this on the timing of store openings and heavy investment in new shops.

Investors may also be nervous about the growth outlook. WH Smith has experienced lower growth rates in the second half so far, as a result of the strong recovery in passenger numbers in the second half of 2023. Total travel revenue rose by 9 per cent in the seven weeks to 20 April, compared with 15 per cent in the first half. 

There is still a lot to like in WH Smith’s results, however. Profits are moving in the right direction when you ignore £16mn of adjusting items, most of which relate to a one-off impairment. The group also intends to open 110 stores this year, with 50 planned for North America, and the “rest of the world” division is also delivering good sales growth. 

Much will depend on WH Smith’s performance in the second half of this year. However, we agree with brokers at Peel Hunt that it has an interesting growth profile, and think it is a good option for investors with a longer time horizon. The group’s forward price/earnings multiple of 13.2 times doesn’t look unreasonable given the international opportunities on offer – although everything hinges on how the expansion is implemented. Buy.

Last IC View: Buy, 1,206p, 1 Feb 2024