WH Smith shares leap

Bookseller and stationer WH Smith Group said yesterday its profitability had improved despite a fall in same-store sales, as full-year earnings beat market expectations.

Shares in the 750-outlet retailer jumped seven per cent after Chief Executive Kate Swann announced improving profit margins and further cost cuts.

Underlying profit before tax, goodwill amortisation and exceptional items for the 2004-2005 financial year was £73 million, a 59 per cent increase on the £46 million posted for the previous year.

In the main High Street Retail division, which incorporates the group's 542 town-centre stores and 200 outlets at airports and railway stations, profits rose 87 per cent to £43 million, while News Distribution profits improved to £37 million from £35 million last year.

Analysts polled by Reuters Estimates had tipped a headline profit figure of £71.8 million, and the market reaction was positive. By 11:30 a.m., the stock was up 6.7 per cent at 364 pence after a high of 368 pence, valuing WH Smith at about £660 million.

"The reaction is justified, the stock had sold off sharply following (poor recent results from rival) HMV, and people generally expected WH Smith would disappointing - it's not nearly as bad as people were saying," analyst Nathan Cockrell at Credit Suisse First Boston said.

"But it's a brave man that sticks his head above the parapet this close to Christmas and says things are going to better than expected," he added.

Total sales slipped one per cent to £2.5 billion, with retail like-for-like sales down two per cent and news distribution turnover flat.

The weakening sales trend had continued in the six weeks since the August 31 end to the financial year, Ms Swann said, with retail same-store sales two per cent lower and news distribution down one per cent - but the gross margin had improved.

Ms Swann told a news conference she now expected to achieve £18 million in cost savings over and above the £30 million announced last year in her three-year turnaround plan, with savings going right down to the level of introducing in-store label-printing machines for promotions.