January 26, 2011 / 7:20 AM / 8 years ago

WH Smith's higher profit margin offsets weak sales

LONDON (Reuters) - The newspaper, books and stationery retailer WH Smith (SMWH.L) said higher profit margins offset a bigger than expected fall in sales over Christmas, due to disruptions caused by severe winter weather.

Pedestrians walk past a WH Smith shop, in London October 6, 2008. REUTERS/Alessia Pierdomenico

The 219-year-old group said on Wednesday sales at town centre stores open more than a year fell 7 percent in the eight weeks to January 22, compared with most analysts’ forecasts for a decline of about 5 percent.

However, the group said its gross profit margin improved ahead of its expectations.

“Resilient, reassuring and robust,” said Arden Partners analyst Nick Bubb, contrasting WH Smith’s performance with that of a string of British retailers that have lowered profit forecasts, blaming bad weather.

He kept his full-year profit forecast of 94 million pounds and his “buy” rating on WH Smith shares.

However, analysts are wary, particularly after much weaker than expected economic data on Tuesday, that an increase in VAT sales tax earlier in January will have weakened already fragile consumer spending.

Bubb said he believed weekly sales figures from department stores chain John Lewis, which has been outperforming the sector, would show a fall of 5-6 percent in like-for-like sales when they are published on Friday.

WM Smith said underlying sales at its town centre stores were down 6 percent over the 21 weeks to January 22.

Sales at travel outlets open over a year were down 3 percent over the same period.

The group did not give an eight-week figure for its travel arm.

“Overall performance for the period was in line with expectations,” it said.

“Looking ahead, we expect the trading environment to remain challenging and we have planned accordingly.”

WH Smith shares have lagged the UK general retail sector .FTASX5370 by about 6 percent over the past year. They closed at 480.8 pence on Tuesday, valuing the business at about 704 million pounds.

($1=.6324 pounds)

Editing by Erica Billingham, Greg Mahlich

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