WH Smith's books looking brighter

WH Smith's annual profits are up 4.5% thanks to a cost-cutting drive - again.

by Dave Waller
Last Updated: 08 Jul 2013
Having been crowing about improving its margins, the cost-cutting efforts by the newspapers, books and stationery retailer seem to have paid off again: revenue was down 3% to £1.27bn in the year to 31 August, but it still made a pre-tax profit of £93m. That compares with £89m 12 months earlier.

Smiths has more than 1,000 stores, comprising 581 high-street outlets, and 532 travel stores at airports, train stations, hospitals, workplaces and motorway service areas. Yes operating profit at the former hit £52m, up 2% on the prior year, while the impressive 8% increase in profit at its travel stores was hailed as a ‘record profit performance’ for the company.

It’s good to see an old high-street fave battling on, but we’ve been here before. Chief exec Kate Swann is persisting with her plan of cutting costs, and improving margins by focusing on more profitable products, better sourcing and better control of markdowns. The trouble is she’s been doing this for most of her time there (she arrived back in 2003), and in this latest period its like-for-like sales, which strip out the performance of new stores, fell 5%. There’s only so long you can operate on a model that simply relies on cutting costs quicker than the rate the sales are falling.

It will at least be good news for Swann, who came under fire last year for snagging a £4m bonus. She was responsible for ditching WH Smith’s entertainment arm in favour of its more traditional books, newspapers, magazines and stationery - just as the likes of Zavvi and Woolworths were going under. Shareholders will be content too: the full-year dividend has gone up 16%, and now sits at 22.5%.

Another disconcerting (yet hardly surprising figure) is that annual sales of books at WH Smith were down by 4%. Swann has responded by dragging the company into the eBook era, in a tie-up with Canadian eBook reader manufacturer Kobo - which will see Smiths selling two versions of Kobo's electronic book reader. Hardly the most radical move, but it should give the business another oar with which to paddle through the high-street mire. Smiths is billing it the ‘first WiFi touch screen e-reader widely available in the UK’. Although to find out whether the Kobo reader will be sell well here next to the Kindle you’ll have to skip ahead a few chapters…

Finance Retail

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