WH Smith sales fall but profits up

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The Independent Online

WH Smith reported a sharp slide in sales at its core high street chain over Christmas but compensated for the shortfall by strengthening its profit margins and cutting costs.

Although the 6 per cent fall in underlying sales at the group's high street retail chain looked poor, Kate Swann, the chief executive, defended her decision not to chase unprofitable sales. "We did exactly what we said we'd do. Our turnaround is about profitability," she said.

The group is shedding low-margin business and increasing its direct sourcing from the Far East to rebuild its margins instead of slashing prices to woo consumers.

For the seven weeks to 21 January, like-for-like sales at its retail chain fell 5 per cent, boosted by a 3 per cent increase in sales at its stores in airports and railway stations. Its gross margin improved by 250 basis points, which was better than analysts had expected.

Analysts said stronger margins and additional cost savings had protected the group's profit forecasts. The group is expected to save £18m a year compared with the £12m it had initially outlined under its five-year recovery plan.

Ms Swann said the company remained "cautious" about the outlook for consumer spending and was "not planning for an upturn in sales" during the rest of 2006. In the 21 weeks to 21 January, underlying sales at its magazine and newspaper division fell 2 per cent.

The group, which has already stopped stocking CD singles, will continue to slash the amount of low-margin entertainment products it sells. Its shares, which have soared in value since October, fell 11.25p to 391p.

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