WH Smith FY underlying pretax down 13 pct; trading 'extremely testing'
LONDON (AFX) - WH Smith PLC, the retail and publishing group that issued a
profit warning in August, reported a 13 pct fall in underlying full year profit
and cautioned that trading conditions in the new year remain 'extremely
testing'.

In the six weeks to Oct 11, total UK retail like-for-like sales were flat.

'This year has started the way we finished last year, with extremely testing
trading conditions,' said chief executive Richard Handover.

'As we enter the all important Christmas trading period our markets remain
intensely competitive. However we believe that we have strengthened our offer in
terms of product, value and advertising compared to last year.'

For the year to Aug 31, pretax profit before exceptional items and goodwill
amortisation was 102 mln stg, down from a restated 117 mln last time.

Sector analysts had forecast a pretax pre-ex and goodwill of 100-105 mln stg.

'Weak sales within the entertainment category, reflecting the challenging music
market, continued throughout the year and severely restricted overall
profitability,' said Handover.

Total sales were down 1 pct to 2.9 bln stg, with sales in the core UK retail
business down 2 pct to 1.48 bln stg. UK retail profits fell 7 pct to 90 mln stg.

News distribution sales were up 1 pct to 1.08 bln stg and publishing sales were
up 5 pct to 144 mln stg.

Last month, WH Smith announced the disposal of its US businesses for 49 mln
stg.

The group booked exceptional items before tax of 46 mln stg -- 35 mln stg for
asset impairment in USA Travel Retail and a 12 mln stg surplus property
provision.

Pretax profit fell 38 pct to 52 mln stg.

EPS before exceptional items and goodwill amortisation was down 10 pct to 29.1
pence. EPS was down 51 pct to 9.4 pence.

The final dividend was maintained at 13 pence, leaving the total unchanged at
19 pence.

In the six weeks to Oct 11, like-for-like sales in the USA Travel business were
up 3 pct, while at ASPAC Retail, they were up 7 pct. News Distribution's
comparable sales were up 4 pct and publishing's sales were up 12 pct.

Handover will move to the chairman's role when Kate Swann, currently managing
director of GUS PLC's Argos, takes over as chief executive on Nov 4.

WH Smith shares closed Wednesday at 375-1/2 pence, valuing the company at 940.4
mln stg.

The shares are again labelled "SELL" in Investors Chronicle, repeating advice they gave some weeks ago. Comments from the outgoing boss suggest they intend relying on "3-for-2" and other discount offers to boost sales over the vital Xmas period. That bodes ill for margins which are already down. Plus they are buying in masses of Xmas lines they've never tried before; how much of that untried stock will have to be discounted to clear? Sounds like desperation.

Seems to me they just don't know how to turn things around. Competitors are knocking holes in everything they do. Incoming boss Kate Swann will of course launch "a wholesale review" and will presumably make the noises all new bosses make, followed by some costcutting promises and some "repositioning" plans.

Whatever. There are surely better retailers to invest in. Especially if Swann's initial assessment includes any hint of trimming the dividend, and if she is honest enough to point out that things will take a year or more to sort out.

jzl

Oh Dear. More negative stuff this weekend (eg: S.Times). I remain short.