WH Smith looks to India

Thu 15 Oct, 2009 09:37

By James Davey

LONDON (Reuters) - Retailer WH Smith (SMWH.L) said it would return up to 35 million pounds to investors, as it met forecasts with an 8 percent rise in full-year profit and announced plans to move into India.

The 217-year old seller of newspapers, books and stationery said on Thursday it would return cash through a share buyback and a 17 percent hike in the full-year dividend to 16.7 pence.

WH Smith also said it would open six units at Delhi airport in India next year, having started trials at Shannon in Ireland, Copenhagen, and Stockholm-Arlanda earlier this year.

"These trials really provide us with a very low risk way of seeing what opportunity there is," chief executive Kate Swann told reporters.

WH Smith, which trades from 565 high street stores and 490 outlets at airports, train stations, hospitals, motorway service stations, and work places, made a pretax profit before exceptional items of 82 million pounds in the year to August 31.

That compared with analysts' consensus forecast of 81.4 million pounds, according to Thomson Reuters I/B/E/S.

WH Smith shares were up 1.6 percent at 505 pence at 10:20 a.m. British time, valuing the business at 779 million pounds, having earlier touched 521 pence. The stock has increased in value by 22 percent over the past six months, outperforming the FTSE All Share General Retailers Index by about 4 percent.

"The company's resilience in the face of difficult trading conditions and its leverage into a recovery, courtesy of its travel division, represent an attractive combination," said Altium Securities analyst David Stoddart.

WH Smith's full-year sales fell 1 percent to 1.34 billion pounds, while like-for-like sales fell 5 percent. The gross margin improved 220 basis points. A further 14 million pounds of cost savings have been identified. Swann's strategy is based on cutting costs and improving gross margin by focussing on more profitable products, better sourcing and better control of markdowns, rather than driving top line sales.

The mix of products has been re-balanced towards core categories and away from entertainment products -- CDs, DVDs, computer games and consoles.

WH Smith has a low average transaction value of about 5 pounds in its high street business and 3.50 pounds in travel, so has tended to be less impacted by recession.

"Trading conditions do remain tough, however we planned for them to be tough and we are well positioned to benefit further when consumer spending does recover, particularly in air (airports)," Swann said.

Swann, who has been with WH Smith since 2003, is seen as a possible chief executive at clothes, food and honewares retailer Marks & Spencer (MKS.L) when Stuart Rose steps down as executive chairman next year.

Bookmaker Ladbrokes quotes her as a 12/1 shot. Swann refused to rule herself out. "I've never commented on speculation and I don't plan to start now," she said.

(Editing by Hans Peters and Dan Lalor)