What WH Smith (SMWH) Said on Its H2 Earnings Call

Key Points

• Profit fell sharply: WH Smith’s annual headline pretax profit dropped 30% to £76 million, despite revenue rising 5% to £1.6 billion. It forecast fiscal 2027 pretax profit of £75 million to £85 million amid a cautious trading outlook.
• North American store overhaul: The company plans to close about 100 underperforming shops and open roughly 100 higher-return stores, reducing its regional estate by around 10%. It aims to grow Travel Essentials’ share of North American revenue from 42% to 70% over the medium term.
• Costs and trading remain pressures: Higher U.K. rents squeezed margins, while group like-for-like revenue was flat in the first 10 weeks of the new year and North American like-for-like revenue fell 5%. WH Smith is targeting cost reductions and lower capital spending as it streamlines operations.

WH Smith LON: SMWH reported a 30% decline in annual headline pretax profit and outlined plans to close about 100 North American stores as it shifts investment toward its Travel Essentials format.

Headline pretax profit fell to £76 million for the year ended August 31, 2026, from £108 million a year earlier, despite a 5% increase in group revenue to £1.6 billion. For fiscal 2027, the travel retailer expects headline pretax profit of £75 million to £85 million, citing a cautious near-term trading outlook.

Executive Chair Leo Quinn said the company had pursued growth too quickly in some areas and had spent heavily on stores without generating adequate returns. Its priorities now include reducing costs, simplifying the portfolio and applying tighter controls to capital spending.

Higher U.K. rents weigh on profit

Group trading profit declined to £130 million from £159 million, while the trading margin narrowed to 8% from 10%. Finance Director Max Izzard said the decline was concentrated in the U.K., where trading profit fell by £23 million to £107 million as airport contract renewals increased rent costs and consumer conditions remained challenging.

Rent increases reduced the fiscal 2026 U.K. margin by about 230 basis points, Izzard said. The company expects a further impact of 30 to 50 basis points in fiscal 2027 from renewals already agreed and those still to come. A cost-reduction plan is intended to help keep U.K. headline trading profit broadly flat in the new year.

U.K. revenue rose 4%, including like-for-like growth of 2%. Hospital stores led with 6% like-for-like growth, while air and rail each grew 1%. Izzard said air trading was affected by store development disruption and the Middle East conflict.

North American trading profit was unchanged at £15 million. Revenue in the region rose 9% at constant currency, but like-for-like sales were flat. Travel Essentials performed better than other formats, with like-for-like growth of 3%, while InMotion fell 3% and resorts declined 8%.

North American overhaul

Quinn said WH Smith plans to close about 100 North American shops that are not making sufficient money and open about 100 higher-return stores. He said the overall store base would fall by about 10%.

The company aims to increase Travel Essentials’ share of North American revenue from 42% to 70% over the medium term, alongside approximately 20% revenue growth and an increase in the regional margin from 3% to 8%. Quinn said secured airport opportunities, including at Orlando, JFK, Seattle and Nashville, would account for half of the planned revenue increase.

Quinn acknowledged that airport landlords may still require a mix of specialty stores. WH Smith could take a head lease and sublease some space to other operators, leaving them responsible for their own capital and operating risk, he said.

In the rest of the world, the company plans to focus direct operations on four countries and use more franchise arrangements elsewhere. Quinn described the franchise model as requiring less capital and carrying less risk.

Cash costs and current trading

WH Smith recorded £164 million in non-underlying charges in fiscal 2026, including £103 million of impairments and onerous contract charges, largely related to its North American store estate review. Cash payments against non-underlying items were £48 million, including payments related to prior-year charges.

Izzard said the company expects approximately £30 million of non-underlying charges in fiscal 2027, excluding impairments, and around £20 million in fiscal 2028. Expected cash outflows are approximately £40 million and £25 million, respectively. He said management had a high degree of confidence in its restructuring and rationalization plans, although regulatory-related costs were less within the company’s control.

Free cash flow fell to £52 million from £63 million, while headline net debt stood at £325 million at year-end. A £103 million equity placing and cash generated by the business helped reduce debt, Izzard said. Capital expenditure is expected to decline to approximately £85 million in fiscal 2027 from £94 million in fiscal 2026.

Trading remained subdued in the first 10 weeks of the new financial year. Group like-for-like revenue was flat, while total revenue rose 1% at constant currency. North American like-for-like revenue fell 5%; Izzard cited soft passenger numbers and continued weakness in resorts and InMotion. He said the company still expected low-single-digit total revenue growth in North America for the year, supported partly by new space.

About WH Smith (LON:SMWH)

WH Smith PLC operates as a retailer in the United Kingdom and internationally. It operates in two segments, Travel and High Street. The Travel segment offers news, books, and convenience for travelling customers. It operates stores in airports, hospitals, railway stations, and motorway service areas. The High Street segment sells stationery products, including greeting cards, general stationery, art and craft, and gifting products; news and impulse products, such as newspapers, magazines, confectionery, and drinks; and books.

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