2017 was a stellar year for the retail stock. Starting at £15.77, a relatively slow first half of the year ramped up significant after summer, with WH Smith eventually closing out December at an all-time high of £23.38. That’s a whopping 48% rise over 12 months, staggering for a company that sits in the Amazon (NASDAQ:AMZN) shadow by being both a bookseller and a high street staple.
The bubble has burst since 2018 began, however. The company was on the back foot throughout the first quarter, at one point hitting a sub-£19 6 month nadir in late March. WH Smith now sits at a current trading price of £19.75.
While the company was falling before its end of January trading update, it certainly didn’t help. For the 20 weeks to 20th January, total sales were flat, with group like-for-likes down 1% ‘against a very successful period last year’. The retailer also said that while gross margins were up year-on-year, they were ‘slightly less than anticipated’ due to ‘lower sales of high margin spoof humour books’.
As ever there was a stark difference between the Travel and High Street divisions. The former saw a healthy 7% jump in total sales and a 3% rise in like-for-likes, boosted by its continued international expansion and a pair of new ‘large’ airport stores at Gatwick and Stansted. However this growth was countered by the latest set of ropey numbers from the High Street, with the business seeing a 5% drop in total sales and a 4% decline in comparable sales.
In terms of Thursday’s results, the reaction will likely be based on how much the spoof humour book sales flop has actually weighed on margins, and what that’ll mean for its interim pre-tax profit (which saw a 4% rise to £83 million this time last year).
WH Smith (LON:SMWH) has a consensus rating of ‘Hold’ alongside an average target price of £20.34.
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