WH Smith shares crater after outlook slashed on Iran war travel chaos
WH Smith shares have cratered after the retailer slashed its profit forecast amid the prolonged slowdown in global travel and slump in consumer confidence caused by the Iran war.
Shares in the FTSE 250 retailer slumped by 16 per cent on Wednesday’s market open to 415p, leaving the stock down more than 35 per cent in the year so far.
The firm now only operates outlets at airports, train stations and hospitals, having sold its nearly 500 high-street stores to private equity firm Modella Capital last year.
WH Smith had previously insisted it was making “good progress” despite global headwinds, but said on Wednesday that a recent “deterioration” in its North American division has soured its outlook.
The firm slashed its best-scenario forecast for profit before tax by £15m, cutting its range from between £90m and £105m to between £75m and £90m.
The retailer said its outlook reflects the “decline in passenger numbers and weakening consumer demand across all divisions”.
WH Smith is also set to suffer from “a reduction in brand marketing, increased promotional activity and inflation headwinds,” it said.
Profit target slashed by £15m
The firm’s like-for-like revenue in the last 14 weeks jumped by two per cent year on year, as sales in its airport businesses dropped by one per cent.
On top of lower passenger numbers, falling consumer confidence means WH Smith is suffering from lower spend per passenger, it said.
WH Smith blamed the recent downturn in its outlook for the “deterioration” of its North American arm, where like-for-like revenue dropped one per cent in the last 14 weeks, and four per cent in the last seven weeks.
Travel disruption is beginning to affect consumers in North America, the retailer suggested, citing a two per cent decline in like-for-like sales at its airport stores in the region.
This reflects “reduced passenger numbers following recent air fare inflation and a reduction in airline capacity linked to the Middle East conflict”.
Higher plane fares and lower airport capacity have driven down store footfall and consumer demand, leading to lower spend per passenger growth, WH Smith said.
WH Smith launches capital raise to balance books
The retailer has launched a new capital raise in a bid to strengthen its balance sheet and reduce its reliance on debt.
The firm has kicked off the capital raise with the placing of 26m new shares, accounting to 20 per cent of its existing share capital.
The retailer said it “assumes no near-term improvement in consumer confidence and that jet fuel supplies can be maintained,” but pointed out that its trading profit tends to be heavily weighted towards the end of the financial year.
Duncan Ferris, an investment writer at Freetrade, said that WH Smith’s offloading of its high street stores may have helped its focus but has left the company “vulnerable to travel sector pain”.
“Revenues are edging higher, but travel disruption and low consumer confidence have hit footfall and how much customers are willing to spend. This has translated to margin pressure and particular weakness in North America,” he said.