Shares in newsagent chain WH Smith reached an all-time high on Thursday as the company raised profit guidance for the year and announced a new share repurchase programme.
The company, which has returned £377m to shareholders through dividends and share buybacks since the end of August 2007 has earmarked another £50m to repurchase shares for cancellation between September 1st 2012 and August 31st 2013.
While other retailers with overlapping product lines such as Woolworth, HMV and Borders have either gone to the wall or struggled on in reduced circumstances, WH Smith has hung in there, churning out cash, cutting costs and concentrating on improving margins rather than chasing sales.
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The doubters are still out there, however. "While the formula of falling like-for-like sales as the product mix shifts, rising gross margins and reduced costs has been enormously shareholder value accretive, it is not sustainable in the long run," said Panmure Gordon, which rates the shares as a hold. The broker is expecting sales to pick up on a 12-month view.
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"The board expects the outcome for the year to be 'at the top end of market expectations', which suggests around £100m pre-tax, compared with our forecast for £97.6m," Panmure Gordon analyst Philip Duggan speculates. Duggan took the hint and nudged up his full-year forecast to £100m.
Somewhat to the market's surprise, WH SMith has even revealed that its High Street stores has seen an improvement in the sales trned of books, following the recent positive publishing schedule. In this e-book age where Amazon calls the shots, this sort of revival was not supposed to happen. It can't all be down to the popularity of 'Fifty Shades of Grey'...
Looking back, the group's decision to get out of the music and DVD business looks like a well-timed and well-executed strategic decision, while the group's historic focus on travel hubs continues to hold it in good stead.
Train fares rising much faster than inflation might be a concern but the train companies have commuters over a barrel, and until remote working becomes more of a feature of office life, WH Smith is likely to continue enjoying lots of passing trade generating impulse purchases.
JH
