WH Smith warns on profit again as discounting hits margins
WH Smith has cut its profit target again after warning that intense discounting and “inflation headwinds” are hitting its bottom line. The convenience retailer had initially told investors it could make as much as £105m in pre-tax profit this year, before slashing the target to between £75m and £90m. On Wednesday, the group reduced its [...]
Wh Smith has once again lowered its profit expectations due to intense discounting and inflation headwinds affecting its financial performance. Initially projecting up to £105 million in pre-tax profit for the year, the retailer has now slashed its target to £75 million. The reduction is attributed to lower trading margins from increased promotional activity, reduced brand marketing, and inflation headwinds, which have been partially offset by central cost reductions and lower interest costs.
Following the sale of 480 high street stores to private equity firm Modella Capital, WH Smith has had to rely on sales at its train station and airport stores, which analysts have flagged as vulnerable to the slowdown in tourism caused by the ongoing Iran war. Despite a modest sales increase during the fourth quarter, driven by summer trading, the group's performance in North America remains a concern.
Like-for-like revenue in the region dropped by three percent in the fourth quarter, hit by lower passenger volumes and softer consumer demand.
In an effort to boost sales, WH Smith refurbished its shops in Heathrow, Liverpool, Belfast International, and East Midlands airports to increase the size of shoppers' baskets in these high-traffic locations. The hospital stores, however, have been instrumental in driving the group's performance, with like-for-like revenue jumping by eight percent.
The retailer's North American airport stores, on the other hand, saw a two percent decline in like-for-like revenue, mainly due to lower passenger volumes and weaker consumer demand.
Despite posting better-than-expected UK results, WH Smith faces challenges in regaining the market's trust and credibility. Analysts at RBC Capital Markets believe the firm needs to rebuild its reputation with investors, as recent missteps could be repeated. The company is working on cost-cutting measures, improving cash management, and focusing on its profitable "travel essentials" range to revive sales.
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