WH Smith lifts profits to £45m

Caution on sales in second half leads to disappointment in City. Report by Martin Flanagan
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The Independent Online
Caution about prospects in the second half took the lustre off good Christmas trading at WH Smith, the retailing and newspaper distribution group.

While retail analysts were impressed that a 6.6 per cent jump in sales to £1.22bn was not achieved at the expense of gross profit margins, the group's confirmation of high street fickleness turned the shares down 8p to 429p.

Sir Malcolm Field, chief executive, announcing a 1 per cent rise in interim pre-tax profits to £45.2m (£44.7m), said trading had been difficult. It was also premature, he said, to forecast sales trending upwards in the second half. "Consumer behaviour isvolatile, price deflationary pressures are strong and volume growth in most of our markets will remain in low single figures," he said.

Although figures for the half-year to November met City expectations, most brokers cut full-year profit forecasts to between £135m and £140m. A median figure of £137m prices the shares on 12 times prospective earnings, slightly below the retailing sectoraverage of 13.5.

"Not dynamic, but definitely solid," one analyst said.

British and European retailing profits dipped £2.3m to £29.8m, mainly due to the cost of opening 110,000 square feet of new trading space that contributed little by way of additional sales.

Music and video were strong performers. Music sales - the company owns the Our Price chain - jumped 17 per cent to £170.8m. Video sales increased 13 per cent to £58m. Overall like-for-like British retailing sales in the four weeks to Christmas rose 5.5 per cent, broadly in line with the festive performance outlined by the rival John Menzies earlier this week.

WH Smith's losses at the Do It All do-it-yourself chain, its joint venture with Boots, fell from £5.2m to £2.3m. In the US, operating profits eased to £3.8m.

The distribution businesses, ranging from newspapers to books and office supplies, advanced profits to £19.9m (£18.5m), although the newspaper price war is spotlighted by WH Smith News sales rising just 0.7 per cent.

However, the group is seen as having wrong-footed Menzies through its recently-negotiated agreement with Rupert Murdoch's News International, which has overnight pushed its share of distributed NI titles from 12 to 18 per cent.

Menzies' share has declined from 22 to 19 per cent.

The NI deal has drawn admiration because high volumes and low margins tend to be the principal dynamics of newspaper distribution, with market share tending to be disproportionately influential.

WH Smith's interim dividend rises 5 per cent to 5.25p.

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