WH Smith Shares Tumble to 17-Year Low Amidst Rising Costs and Travel Disruptions

WH Smith shares fell to their lowest point in 17 years on Wednesday, as the retailer announced that rising costs and promotional activities have impacted its profits. The company is also contending with ongoing travel disruptions, partly attributed to the war in Iran.

The retailer anticipates pre-tax profits of approximately £75 million, a figure at the lower end of its annual guidance. This represents a notable decrease from the £108 million in underlying profits reported for the 2024-25 financial year. The share price dropped by 1.6% to 357 pence, a level not seen since 2009.

The conflict in the Middle East has affected the travel industry, while escalating prices have led consumers to become more cautious with their spending. These factors, combined with other challenges, have prompted WH Smith to revise its profit forecast downwards twice in the past two months and to raise capital earlier this year. Despite a cost-cutting initiative and reduced interest expenses, these measures were insufficient to fully offset the impact of increased promotions and higher operational costs.

In its pre-close trading update, WH Smith reported a 3% decline in like-for-like revenue for its fourth quarter compared to the same period last year. However, there were some positive signs in airport sales, which saw a 2% increase during the peak summer season. Revenue from hospital sites grew by 8%, and sales from shops located in rail stations rose by 4% in the final quarter.

Challenges persist in the company's US business, which accounts for roughly a quarter of its revenue, with like-for-like revenue falling by 3%. The resorts division experienced a significant sales tumble of 26% year-on-year, attributed to lower visitor numbers.

Analysts note that WH Smith is facing difficulties in convincing the market that its problems can be resolved swiftly. The recent trading update has not provided a substantial boost to the share price, with the business appearing to be stagnating rather than progressing. The North American market has been a particular concern, and revenue growth in the fourth quarter slowed compared to the preceding three months.

The FTSE 250 firm has struggled to recover fully from a significant accounting error last year, leading it to seek £103 million from investors in June to strengthen its balance sheet. The company stated it is making good progress on its transformation agenda, which includes controlling costs and making targeted investments in its travel essentials offerings.

Analysts at Peel Hunt commented on the company's debt management, noting that it is expected to be around £325 million at the preliminary results. They maintained their existing forecasts, with £75 million likely for profit before tax. However, concerns about the US market persist, and concerns about next year's numbers remain, leading to a 'Hold' recommendation with a 10x price-to-earnings ratio.

Additional market commentary suggests that the rebound in oil prices since mid-summer could negatively impact WH Smith, as higher travel costs might dampen activity at its key travel locations. This rise in oil prices could further pressure consumer spending on travel-related purchases.