High street hero? WH Smith posts 6% rise in profits despite drop in sales

Cost savings have helped to give WH Smith another rise in profits and a second £50m share buyback for shareholders.

by Gabriella Griffith
Last Updated: 20 Oct 2015
The high street headline roller coaster continues this morning with an example of one of our oldest brands winning the battle against the odds. WH Smith, has demonstrated once again how cost-cutting can pay-off, with a pre-tax profit rise of 6% to £108m, despite a 4.5% drop in like-for-like sales.
 
Chief executive Steve Clark, who took the helm from long-serving boss Kate Swann in the summer, has continued with his predecessor’s cost cutting strategy to good effect. Clark announced the group had achieved £18m in cost savings in the year. With profits edging up, he has increased the brand’s cost-saving target to £22m for the next three years.

It’s good news for the brand but some might ask whether Clark has any other tricks up his sleeve. Cost savings have come with accusations of tatty, unloved stores - an investment into them will be necessary at some point.
 
Shareholders will be pleased to hear the group has decided to buy-back another £50m in shares, in addition to the £50m already announced in August. The firm has also raised its dividend payout by 14% to 30.7p. Shares in the 221-year old company have risen by 27% over the past year and are up 4.19% this morning at 870p.
 
(This won’t be good news for everyone however; WH Smith shares are the second most shorted stock on the FTSE indices).
 
The group’s international division, which focuses mainly on travel hubs such as airports, opened 40 new shops, bringing the total up to 141. This helped WH Smith’s overall travel division to post a 5% increase in trading profit (with a 4% drop in like-for-like sales).
 
The group’s high street division saw a 6% drop in sales but managed to pull off a 4% increase in profits to £54m.
 
WH Smith’s high street peers would do well to pay attention.
 
‘We continue to deliver on our strategy with a strong performance and good profit growth in both businesses. Travel increased profit to £66m and in high street profit increased to £56m,’ said a presumably chuffed Clark.
 
‘The group remains highly cash generative enabling us to invest in our businesses and in new opportunities, while returning cash to shareholders, including a further £50m share buyback announced today. Looking to the year ahead, we continue to plan cautiously in an uncertain environment, however we are a resilient business and are well positioned for continued growth in both the UK and internationally.’
 
No one would argue against the brand’s resilience. The news from WH Smith follows a string of bad news for the high street including a slowdown in sales for September and a reported drop in trust of consumers in the big retail names.
 
Clark’s success is a testament to the legacy of Swann, who headed up the group for ten years before stepping down in June. Swann expressed her interest in taking up another full-time post after the end of her tenure; MT suggests some of the UK’s more troubled high street brands might want to give her a call. Last we heard she was simply planning to finish the Fifty Shades of Grey trilogy.
 
‘I'm halfway through the third book and need to know what happens,’ she said shortly before her departure. Surely she’s finished by now…

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