WH Smith looks overseas to make up for low growth in UK

Reuters

LONDON (Reuters) - British books, newspaper and stationery retailer WH Smith (LSE:SMWH) plans to open up to 40 stores a year in overseas markets as far-flung as Azerbaijan and Fiji as it seeks a new profit stream to add to its mature UK high street business.

The 221-year-old group said on Thursday its travel division, made up of outlets at airports, railway stations, motorway service stations, hospitals and workplaces, had secured contracts for 20 new units - including six in Australia, four in Ireland, four in the Middle East and two in Russia.

WH Smith now has 141 shops outside the UK, either open or soon to open. Its travel business has 673 outlets.

"The world's a big place and in the long term the potential is very big," chief executive Steve Clarke, who took over in July, told reporters.

He was speaking after the firm posted a 6 percent rise in annual profit, slightly ahead of expectations; raised its dividend 14 percent; and said it planned another 50 million pound ($80 million) share buyback to go with one carried out last year.

Shares in WH Smith, up 27 percent over the last year, were up 5 percent at 876.50 pence at 1020 GMT.

Data and surveys indicate that the outlook is improving for UK consumer spending, which generates about two-thirds of gross domestic product, but retailers remain wary as inflation continues to outpace wage rises.

WH Smith made a pretax profit of 108 million pounds in the year to August 31, beating analysts' consensus forecast of 107 million as well as its 2011-12 result of 102 million.

IMPROVING MARGINS, CUTTING COSTS

The outcome was driven by a strategy that focuses on improving profit margins and reducing costs rather than expanding underlying sales.

Total sales fell 5 percent to 1.19 billion pounds, with sales at stores open more than a year also down 5 percent. However, the firm said its gross margin improved 180 basis points due to better buying and a more profitable product mix.

The travel division posted a 5 percent rise in trading profit to 66 million pounds, while the firm's traditional high street business made 56 million pounds, up 4 percent.

Clarke said that, while WH Smith's 615-store high street business was "a low-growth story" in terms of sales, it was still an attractive cash generator. He expected sales in the travel business to begin growing again when the number of passengers setting off from UK airports returned to pre-recession levels.

The firm ended the period with net cash of 31 million pounds, down from 36 million, and is paying a dividend of 30.7 pence.

Including the additional share buyback and the proposed dividend, the firm will have returned 536 million pounds of cash to shareholders since 2007 - about half of its current market capitalisation.

Analysts at Conlumino said that, while WH Smith's financial management continues to be "razor-like", they had concerns at the neglect of the high street store estate, saying that in parts it was "just plain tatty and has about as much aesthetic appeal as a 1970s job centre".

(Reporting by James Davey; Editing by Kevin Liffey)

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