ii view: WH Smith sells high street chain to focus on travel
Offering exposure to expected growth in air travel and with an overseas store portfolio that other food-on-the-go retailers don't have. Buy, sell, or hold?
28th March 2025 11:26
by Keith Bowman from interactive investor
Sale of UK high street business
Chief executive Carl Cowling said:
"As we continue to deliver on our strategic ambition to become the leading global travel retailer, this is a pivotal moment for WHSmith as we become a business exclusively focused on Travel.
"As we look forward as a simplified, travel-focused Group, I am excited about the Group's future prospects. With a clear strategy, a strong balance sheet, and operations in high growth and attractive markets, we are well-positioned to generate substantial growth and value for all stakeholders."
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ii round-up:
WH Smith (LSE:SMWH) today announced the sale of its UK high street stores, leaving the retailer with its expanding travel related business in both the UK and overseas.
A portfolio of 480 UK high street stores are being sold to Hobbycraft owner Modella Capital for £76 million, with the new shops to switch names to TG Jones. The remaining travel business, operating more than 1,200 stores across the UK and 31 other countries in locations such as airports and railway stations, will continue to use the WH Smith brand, offering potential for enhanced sales and profit growth.
Shares in the FTSE 250 company fell 1% in UK trading having dropped by 8% year-to-date. That’s similar to fellow seller of food-on-the-go and tech accessories Marks & Spencer Group (LSE:MKS) and Currys (LSE:CURY). The FTSE 250 index itself is down almost 4% in 2025.
Trading profit for the UK High Street business fell 9% over the retailer’s last financial year to 31 August and accounted for just a quarter of total group revenues and 15% of trading profits.
Excluding the High Street business, WH Smith’s proforma revenue growth would have been 10% versus the 7% reported, with headline profit growth of 15% versus the 13% reported.
WH Smith’s personalised online greeting card business, funkypigeon.com, is not included in the sale. Management is however now exploring strategic options for the business including a possible sale.
The sales of the high street business is expected to complete in the final quarter of the current financial year ending 31 August 2025. Gross cash proceeds are expected to be £52 million and about £25 million once transaction and separation costs are included. The money will be deployed in line with the company's capital allocation policy.
We're told that group trading overall remains in line with current analyst forecasts, with first-half results scheduled for 16 April.
ii view:
Started by Henry Walton Smith in 1792, the Swindon headquartered retailer today sells a variety of items including newspapers, books, stationery, technology accessories and food on the go. Travel related stores operate across the UK, North America and Rest of the World, with the latter region including around 146 European stores, 92 in the Middle East and India and 118 in Asia Pacific. Also located in travel locations such as motorway service stations and hospitals, other group brands include its InMotion branded technology related stores, often sat next to its travel related stores.
For investors, technology and its impact on group product categories such as newspapers and books should not be overlooked. Currency headwinds may now increase given a higher proportion of overseas sales following disposal of the UK high street business. Volatile geopolitics such as the West’s souring of relations with Russia three years ago warrant consideration, while group net debt rose 12% over its last financial year to £371 million.
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To the upside, the sale of the high street division removes a non-growth business, leaving Smiths fully focused on its expanding Travel business which opened a net 38 stores over the last financial year. Supply chain and store lease efficiencies support both previous and planned cost savings. A historical dividend yield of around 3% has previously been supplemented with share buybacks, while a sale of the non-core greetings card business funkypigeon.com is also being considered.
Smiths shares are a long way from their peak in 2019 and have been in a downward trend since the Covid boom ended in 2021. Investors will hope that the company's focus on a growth area will turn its fortunes around, but may decide to sit on the sidelines until evidence of this emerges.
Positives:
- Product and geographical diversity
- Exposure to expected growth in air travel
Negatives:
- Uncertain economic outlook
- Overseas ops bring currency volatility
The average rating of stock market analysts:
Buy
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