Sometimes, a FTSE business that’s been around for generations can reignite and blast into a new phase of growth.
That’s what appears to be happening with retailer WH Smith (LSE: SMWH), which is currently in the FTSE 250 index.
Higher revenue
In this morning’s (26 January) trading statement for the 20 weeks to 20 January, the company posted a currency adjusted revenue increase of 9% compared to the prior year.
That’s not earth-shattering. But within that figure, the travel division delivered a constant currency increase of 16%. That figure makes me sit up and take notice.
For context, WH Smith divides its overall business into two divisions: Travel and High Street. The difference between the two is all about location and the mix of products being sold.
We find the firm’s travel stores at airports, train stations, hospitals and the like, with the other stores falling under the High Street division.
So far, so predictable. After all, most of us grew up buying chocolate bars and magazines from WH Smith before boarding trains and planes to various destinations. I’d assumed the business was in long-term decline because it had been around for so long.
Fast expansion abroad
Maybe it was once, but not any more. To my amazement, the company has expanded well beyond British shores. The UK geography has around 580 stores, but there are another 320 in North America and 320 again in the rest of the world.
Who’d have thought it? In terms of the number of locations, the firm is bigger abroad than in its domestic market. On top of that, the business executes digital sales via its websites Whsmith.co.uk, Funkypigeon.com, Cultpens.com, Treeofhearts.co.uk, and Dottyaboutpaper.co.uk.
It’s not the staid old enterprise I thought it was, and there’s a bright-looking growth future ahead of it.
Chief executive Carl Cowling said in today’s report the travel business is growing “strongly” with a “notably strong” performance in the UK – the company’s largest business segment.
Meanwhile, progress in North America is “excellent”, Cowling said. There are “substantial” growth opportunities in that geography and the firm’s on course to open 50 new stores there this trading year. Overall, WH Smith plans a further 110 stores business-wide.
Positive outlook
Looking ahead, Cowling is “confident” of another year of “significant” expansion in 2024.
I think the longer-term growth potential here is worth exploring. However, there are risks. For example, the business is cyclically sensitive and it also shows a fair old chunk of debt on the balance sheet. Cyclical operations and big debt-piles can be a toxic mix if general economic condition deteriorate.
However, overall, I see the current valuation as fair. With the shares near 1,219p, the forward-looking dividend yield is just above 3%. That could provide handy income while waiting for further progress to unfold.
Meanwhile, City analysts have pencilled in a double-digit percentage for earnings growth ahead. On balance, I’m keen to dig in deeper with research now with a view to capturing some of the company’s potential by owning a few of the shares.
