WH Smith rejigs high street business to remain 'fit for future'

WH Smith will shut some stores as part of a restructuring of its high street business, taking some one-off costs that put a slight dent in full-year reported profits.

If one-off costs from closures and restructuring are ignored, underlying pre-tax profit in the year to end-August was up 4% to £145m, with trading profit from the travel business up 7% to £103m and down 3% from the high street business. Reported profits fell 4% to £134m with earnings per share down 5% to 98.2p.

This profit came as gross margin improved across both sides of the group on revenue up 2%, as revealed six weeks ago in a pre-close trading statement. Like-for-like sales were flat as 3% growth from travel was wiped out by an equivalent decline on the high street.

Despite the ongoing high street decline it was the third highest profit delivered by the division over the last 15 years as a 70 basis point improvement in gross margin came as costs savings of £12m were achieved.

Over the coming year another £9m of savings has been identified. Furthermore, the leases on more than 240 stores expire over the next three years, offering opportunities to renegotiate property costs.

Chief executive Stephen Clarke said despite this good performance he was "not ignoring the challenging conditions being experienced on the high street more generally" and had undertaken a detailed review of the businesses to ensure it remains "fit for purpose now and for the future".

As a result, the decision has been made to increase the focus on core categories, restructure some operational activities and close around 6 high street stores, particularly those impacted by onerous leases. The costs of these changes were £9m in the year, with around £5m expected in the next financial year.

A new agreement was signed with the Post Office to franchise a further 40 outlets and bring the total number of franchised Post Offices within WHSmith High Street stores to 208.

The travel business continued to excel, driven by an ongoing investment in stores and growth in air passenger numbers.

"We have a fast growing international business with 286 units open across 27 countries and 50 airports. We are pleased to have won 42 new units this year including some significant tenders in South America and Europe," Clarke said.

The board proposed a 13% increase in the final dividend to lift the total 12% to 54.1p and also announced a further share buyback of up to £50m.

"While there is some uncertainty in the economic environment, we are pleased with the start to the new year in both businesses, and will continue to focus on profitable growth, cash generation and new opportunities to profitably invest for the future. We are well positioned for the current year and beyond."