WH Smiths does it again - less revenue, more profit

Profits at WH Smiths are up 4% despite a fall in turnover of 2%. How long can it keep this up?

by Andrew Saunders
Last Updated: 15 Oct 2015

The high street and travel retailer continues its now time-honoured tradition of boosting profits on falling sales, up 4% to £72m despite a 2% fall in like-for-like sales for the six months to 28th February.

It also upped its interim divi by 12% to 12.1p per share as it announced savings of £6m,with a further £5m to come in the second half. Great news for investors but the question that many Smiths customers are now asking is; how long can this go on?

Cutting cost to boost earnings is an established and shareholder-friendly way of buying time to fix an ailing firm, but Smiths appears to have turned it into a long-term strategy. Former chief exec Kate Swann started the trend back in the noughties and Stephen Clarke - who took over in 2013 - seems to be eagerly following in her footsteps.

Many of its 621 High Street stores are now showing their age thanks to the resulting lack of investment. Not many firms can boast (if that’s the word) of customers who take to Twitter to document the increasingly threadbare state of the carpets, but that’s what @whs_carpet is all about and it has getting on for 5,000 followers.

But then you might say that this doesn’t really matter, as it’s the 740-branch strong travel side of the business that is motoring anyway. High street sales fell 4% while those branches in railway stations, motorway services airports and even hospitals saw sales rise by 3% in contrast. Smiths has worked out that all those people waiting to catch the train or plane are a classic captive market, either in a tearing hurry (in which they are prepared to pay more for a shop that is on the spot) or with time to kill (in which case they will spend money to relieve the boredom). What’s not to like about that?

Last autumn it also unveiled plans to open a chain of low-cost greetings card shops called Card Market, intended as an experiment in exploiting short-lease, low rent locations (of which there are anincreasing number available). So you can’t say that the firm has been entirely resting on its laurels.

All the same, as every good retailer knows, you can push your customers so far and no further without feeling the consequences. WH Smiths management has done a great job over the past decade or so of keeping the city well and truly onside. Maybe now it’s time to share the love with customers too?

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