WH Smith ready to check out of US hotel shops

WH Smith signalled yesterday that it is preparing to retreat from its loss-making US hotel shops business after it was forced to take a further £35m hit to cover the collapse in the American travel market.

Richard Handover, the chief executive, said the group was "examining and reviewing all options" with regard to the US, "in particular about the hotel business, which is not strategic long-term for us."

The high street retailer revealed that its US arm, which includes more than 300 shops in hotel lobbies and 173 outlets in airports, made an operating loss of £9m in the six months to end-February. The new impairment charge comes on top of a £27m write-down taken in the previous financial year.

The group said the war in Iraq and concerns over the outbreak of the Sars virus were to blame for an 8 per cent fall in like-for-like sales across its US businesses in the six weeks to 12 April. It shut 33 hotel stores in the first half and has earmarked another 20 for closure. Mr Handover said he would make a further announcement about the future of its US operations "in the next few months".

Nick Bubb, an analyst at Evolution Beeson Gregory, said: "They are going backwards even though the comparisons are soft. They are having to cut central costs pretty hard just to stand still." Richard Ratner, at Seymour Pierce, said: "It appears to us that the company has decided to withdraw from the hotel business but keep the airport business for the time being and that losses next year will be much lower as a result."

After a bad Christmas for the group in the UK, where a strategy of focusing on building margins meant it lost market share, it said like-for-like sales in the six weeks to 12 April had recovered to rise 3 per cent. This was driven by a 7 per cent increase in underlying book sales after the retailer introduced a three-for-two offer on fictional books.

Smiths, which also has a UK news distribution arm and a publishing division, said profit at its core UK retail business was broadly flat at £83m in the first half. Overall, group profit before tax fell £6m to £54m although before the exceptional charge it edged up by £2m to £91m. Sales during the period were £1.56bn against £1.58bn a year earlier. The shares closed up 1.75p at 296.5.

Mr Handover said the group had taken 25 per cent out of its costs at its US head office in Atlanta. He noted that the hotels business, which the group acquired in 1986, had been profitable for the first 15 years. Sales in the outlets, which mainly sell souvenirs, have plummeted in line with the downturn in the leisure market since 11 September.