Few brands have remained constant on the high street over the past decade. WH Smith is a rare exception.
Amid a retail bloodbath that has seen off BHS, Woolworths and Toys ‘R’ Us, Smiths has survived remarkably unscathed. Its diet of cost-cuts, selective investment and two-for-one offers on Dairy Milk has allowed it to ride out this wave of change.
Its store count on the high street has gone up since 2007. It has 610 outlets with 2.8m sq ft of space, versus 544 and 3m sq ft a decade ago. Those stores are selling less, but making more money. Annual sales are down from £961m to £610m over the decade, but profits are up from £44m to £62m.
Milking its high street stores for cash has come at a cost, leaving many looking shabby and unloved — spawning a Twitter account, WHS_Carpet, that mocks the quality of the in-store floor coverings.
Tough times on the high street have dragged down its shares, which have shed 17% since the turn of the year. After a strong run since 2014, they are now trading at £19.44, valuing the chain at £2.1bn.
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Yet the battered high street is just one half of the Smiths story. The 226-year-old chain has long been a tale of managed decline on the high street and growth in travel.
Its travel business, which spans stations and airports, is the driving force. Travel outstrips the high street division for profit, making £96m last year, with sales density per square foot of space about four times greater. It has more than 840 sites, of which about 260 are overseas.
Smiths’ chief executive, Stephen Clarke, wants to open more sites in airports such as Rio de Janeiro and at smaller UK rail stations. There, he sees scope to combine the traditional staples of stationery and magazines with a coffee shop at about 50 stations.
All of this should help WH Smith to close the valuation gap with its nearest rival, the travel food business SSP, and continue its strong record of paying back surplus cash to shareholders. Still, Smiths’ high street exposure increasingly looks like an anomaly as the gulf grows between its two divisions.
Clarke has been creative in eking profits from the estate, such as selling more stationery and sub-letting space to the Post Office, but there is a natural limit to how much cost can be squeezed from tired stores. Clarke says he is happy with the size of the estate, but sooner or later, something will have to give. As long as travel continues to outpace its high street decline, Smiths is a buy.