WH Smith turnaround takes hit as profit misses targets

Wh Smith, the London-listed travel retailer, has reported a profit of £73 million in the year to August, which is 28% lower than the previous year. Despite multiple profit warnings and the reduction of profit targets to £75 million, the company failed to meet this even lower goal. Leo Quinn, who joined WH Smith as a turnaround specialist in April, has commenced a "fundamental reset" of the company amid soft consumer confidence and travel disruption caused by the Iran war.

Quinn, previously responsible for comebacks at Balfour Beatty and Qinetiq, highlighted the impact of "forced growth" on the company, citing increased costs, loss-making stores, ineffective acquisitions, and high organizational complexity. In response to the weaker consumer sentiment, the UK division, which includes stores at airports, train stations, and hospitals, had to cut marketing spend and discount more products.

The hospitals' stores showed the strongest performance, with revenue growth of 9%, compared to 3% at train station stores. WH Smith's UK arm reported a 4% growth in takings, reaching £870 million. The firm's suppliers have adopted a more cautious approach due to the macroeconomic and geopolitical backdrop, primarily caused by the conflict in the Middle East.

The company's airport stores, which have become more reliant since selling its high street estate last year, experienced flat like-for-like growth, attributed to the macro environment and reduced passenger volumes. The retailer's revenue at its North American arm grew by 9% to £437 million, but this growth was hampered by lower passenger volumes in North America, coinciding with a flat like-for-like growth.

Quinn's turnaround plan aims to transform WH Smith into a group capable of generating attractive returns and significant annual free cash flow in the medium-term.