WH Smith blames Sars and fall in CD sales for profits slump

WH Smith shares fell sharply yesterday after the high street retailer issued a profits warning blaming a "highly competitive sales environment", the Sars virus and the recent spell of hot weather.

The warning means the chief executive designate Kate Swann will face a tougher than expected challenge when she joins the company later this year from GUS.

Current chief executive, Richard Handover, who will move up to the chairman role when Ms Swann arrives, said the entertainment section of Smiths had borne the brunt of the pressure. He blamed the malaise of the music industry and a poor schedule of album releases but analysts said other factors were also at work.

The major supermarkets such as Tesco and Asda have been cutting the price of chart CDs to less than £10, damaging Smith's market share. The decision by Amazon.com to make permanent its free delivery offer for orders over £39 is also likely to have had an impact.

Smith's gross margins will fall by around 0.6 per cent, primarily as a result of margin decline in the entertainment division. Profits in the UK retail business will now be below expectations and analysts have cut their full-year profit forecasts from about £110m to £100m. The shares fell 7 per cent to 351.25p.

Mr Handover admitted that a profits warning is not quite the farewell he would have liked as chief executive. He said: "Of course it's not. We'd all like things to work out in a fairy tale way. But life is what it is and you just deal with it."

On the entertainment business, Mr Handover said: "We had a double whammy of much lower sales, particularly in music, and margins being under huge pressure as the market goes into massive discounting".

Credit Suisse First Boston analyst Tony Shiret said he thought entertainment sales were down an underlying 7 per cent in the second half with CD sales down in double digits.

Shares in other music retailers HMV and Woolworths slipped on the news.

Asked how WH Smith planned to combat the continued threat from the supermarkets to its entertainment business, Mr Handover said the stores would devote less space to this section with more made available to books and stationery which have performed well.

The hot weather has caused problems for many retailers who have said it was too hot to shop in August. The impact of the Iraqi war and Sars on airport passenger numbers have hit Smith's UK travel retail business which has stores in airports and railways stations.

Smith's said it was "continuing to review all its options" relating to its US travel business and will update the market in the next few weeks. This business includes stores in American airports and hotels and has been hit hard by 11 September, Sars and ongoing terrorist threats. Closure or sale are the most likely outcomes.

Kate Swann, who was previously head of the GUS-owned Argos chain, is under contract with GUS until the end of the year. Smith's is hoping she will be able to join sooner but her start date has yet been confirmed.

WH Smith has been the subject of bid speculation as it has strong cash generative businesses such as the news distribution operation. However, Mr Handover said he had received no approaches. He will become chairman when Martin Taylor retires.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
peopleMathematician John Nash inspired the film Beautiful Mind
News
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
music
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine