Removal of travel restrictions sees WH Smith’s profits take off

The rebranding of WH Smith plc (WH Smith) from long-beleaguered high street retailer to travel convenience store seems to have paid off, with the preliminary FY 2022 results reporting a return to profit. WH Smith saw its annual revenue recover to £1.4bn (FY 2021: £886m), which in turn translated into a pre-tax profit of £61m, considerably more than the £104m loss that the group suffered during FY 2021 amid the tail end of the coronavirus (COVID-19) pandemic’s restrictions. The retailer disclosed a trading statement on 7 November and then its preliminary results on 10 November, which saw its share price soar at the start of November 2022 and only continue to climb. WH Smith’s share price is now up 19.1% on where it was on 31 October 2022, and it currently shows no sign of slowing down. Finally, the results announced the reinstatement of a final dividend of 9.1 pence per share for shareholders, which it stated was reflective of the company’s ‘strong current trading and the Board's confidence in the future prospects of the Group’.

However, a more detailed analysis of WH Smith’s results allows one to discern that the company’s recent upturn has not been entirely due to improved business success along a broad front. Indeed, some parts of the group have proved more successful than others. The second half of FY 2022, saw headline profits of £89m from WH Smith’s travel operations, considerably better than the £39m loss made during the same period for FY 2021. Broken down by region, this was £54m (2021: -£32m), £31m (2021: £6m) and £4m (-£13m) in headline profit for the UK, North America and the rest of the world respectively. This coincides with the removal of travel restrictions in the aftermath of the coronavirus pandemic, and the widespread return to holidays abroad worldwide, especially over the summer period.

The retailer’s high street operations also saw increased headline profits of £33m, compared to £19m during FY 2021. This means that during FY 2022 high street profits were less than half of that of travel, and only just above that of WH Smith’s North American travel business. The fact that the company’s travel operations outshone those of its high street business is not a new phenomenon, with travel accounting for approximately two-thirds of WH Smith’s trading profit during FY 2019 (ie pre-coronavirus pandemic).

More recently, the company has focused on the ongoing expansion of its North American travel business. Since WH Smith’s acquisition of electronic and headphone store InMotion on 30 October 2018 and travel retailer Marshall Retail Group (MRG) on 17 October 2019, the company’s North American operations have gone from strength to strength. According to WH Smith’s 2021 annual report, as of 31 August 2021 the company has 291 stores in North America, compared to just 127 across North and South America as of 31 August 2019. Moreover, WH Smith expects its North American travel business to grow further during FY 2023:

‘2022 has been a successful year for WHSmith and we enter the new financial year with the Group in its strongest ever position as a global travel retailer with multiple growth opportunities across the world. 

We have opened 98 new stores in the year and we have a pipeline of 150 new stores yet to open across 16 countries and in airports as varied as Los Angeles, Salt Lake City, Brussels, Oslo and Melbourne.

We continue to grow our North America business at pace and we have a very strong pipeline of new store openings. In the current financial year, our North America business is set to become larger, in profit terms, than our UK High Street business and we see significant opportunities to grow this business further.’

On January 2022, WH Smith suffered a considerable shareholder revolt at its annual meeting, with 45.6% of votes cast against its remuneration report (for more information, see: Shareholder revolt at WH Smith as investors target CEO’s £550,000 bonus). However, at the time of its 2022 AGM the retailer had just undergone a rough couple of months, with its air and rail outlet revenues being hit particularly hard due to the coronavirus pandemic and the restrictions imposed on travel. It will be interesting to see if WH Smith’s shareholders will be quite so aggressive on executive pay at WH Smith’s upcoming 2023 AGM, given the recent reversal of the company’s fortunes and the reinstatement of a dividend.