KATE SWANN, chief executive of WH Smith, insisted that the retailer would be able to drive profits through margin growth for at least three more years, as she predicted another tough year on the high street.
The comments came after the paperclips-to-books retailer admitted that underlying sales, which strip out the impact of new store openings, continued to decline over Christmas.
Shares dipped 1.6 per cent or 6½p to 395¾p, as WH Smith said underlying sales at its high street stores fell by 6 per cent in the 21 weeks to January 21, below most analysts’ expectations.
Sales of CDs and DVDs declined by double-digit percentages while the value of book sales also fell as WH Smith faced heavy price competition, particularly in the last fortnight before Christmas.
Ms Swann admitted that WH Smith had lost market share in books as she had refused to “buy unprofitable sales” as competition intensified. Analysts held their profit forecasts as a 2.5 per cent improvement in gross margin at the high street stores in the 21 weeks to January 21 came in well above the 2 per cent expected.
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Total underlying sales for the retail divisions were boosted by a 3 per cent rise in underlying sales at WH Smith’s railway station and airport outlets.
However, sales at its newspaper and magazine distribution division slid 2 per cent in the 21 weeks against the same period a year before.
Analysts said that Ms Swann’s strategy of increasing margins by cutting down stocks of low-margin CDs and DVDs was working. However, analysts questioned how long this strategy could deliver profit growth if sales did not rise. David Jeary, of Credit Suisse, said that without the faster flow-through of planned cost cuts, he would have trimmed his profit forecast.
Ms Swann said WH Smith’s turnaround plan was not predicated on sales growth and this offered a level of protection in comparision to rival retailers.