WH Smith suffers 85% fall in sales

Sales at WH Smith crashed by 85 per cent last month as travel restrictions crushed its airport and railways business and the lockdown led to the closure of most of its high street shops.

The retailer said that sales in its travel business plummeted by 91 per cent in April as most of its 807 outlets in stations and airports have had to close and sales in high street shops have fallen by 74 per cent. The business has been able to keep open 203 of its 600 high street shops, because they have post offices, and 103 outlets in hospitals. The company is still losing between £25 million and £30 million a month during lockdown.

Shares in WH Smith slipped by 5p, or 0.55 per cent, to 911.5p in morning trading.

“The emergence of Covid-19 and the associated global pandemic has affected all of us in ways that were unimaginable only a short while ago”, said Carl Cowling, 46, who was promoted to chief executive only seven months ago.

WH Smith traces its roots back to 1792 and its first outlet in a travel location, Euston station, opened in 1848. Until the coronavirus outbreak the retailer was seen as one of the most dependable names in the sector as it has expanded its travel business overseas while running its high street business to protect profits rather than attempting to grow sales in a declining market. Analysts at Brewin Dolphin said that Covid-19 “could not have come at a worse time for WH Smith as it focussed on growing its travel arm”.

WH Smith said that the impact of the pandemic meant that it was not possible to forecast “with any certainty the timing of our store re-openings in our travel and high street businesses. Nor can we forecast the speed of recovery.”

The company said that it was planning for a phased reopening and that running the 300 shops that have remained open during lockdown had already given it experience of how to implement social distancing, source PPE equipment for staff and fit protective screens at counters.

The retailer said that it expected “a gradual improvement in passenger numbers from autumn 2020” in its railway and airport branches. The group said that its overseas recovery would initially be led by an increase in domestic travellers, particularly in the US where 80 per cent are domestic. WH Smith said that while its hospital outlets remained open to serve NHS employees, its sales had still fallen as a result of a reduction in visitor numbers as non-emergency operations have been cancelled.

The shock of the pandemic, shortly after WH Smith sealed its biggest takeover of the US retailer Marshalls, has already prompted WH Smith to tap investors for £162 million, negotiate a new £120 million bank facility and secure its eligibility for the government’s Covid corporate financing facility. The measures mean that the retailer has £400 million liquidity.

“We are a resilient and versatile business and with the operational actions we have taken, including managing costs and the new financing arrangements, we are in a strong position to navigate this time of uncertainty and are well positioned to benefit in due course from the normalisation and growth of our key markets,” Mr Cowling said.

In the six months to the end of February, before coronavirus hit the UK, WH Smith group sales grew by 7 per cent to £747 million, boosted by 19 per cent rise in its travel arm, which offset a 5 per cent fall in its high street business. Group pre-tax profits fell by 3 per cent to £63 million.

The business said that it had negotiated turnover-linked rents with landlords and had struck 40 per cent reductions on rents. WH Smith has 400 shops coming up for renewal over the next three years and it said that it would “only renew a lease where we are confident of delivering economic value over the life of that lease”.

The business said that before the coronavirus outbreak its Marshalls acquisition had been performing well and had 33 new airport shops due to open over the next four years after successful tenders.

Analysts at Peel Hunt said: “A circa £25 million monthly cash burn versus £400 million of liquidity isn’t the stuff of sleepless nights, so it is more crucial to try to estimate the shape of the recovery curve. It will probably be the high street and then domestic flights that lead the way but we do not expect a V-shape here at all. WH Smith will be able to pick up more square footage and maybe participate in M&A as others falter. It will come out of this relatively stronger.”

May 14 2020, The Times

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