BAD TO WORSE AT WH SMITH

Richard Wachman
Sunday December 14, 2003
The Observer

Despite the brief euphoria that accompanied the arrival of Kate Swann as chief executive in November, I understand that things have gone from bad to worse at WH Smith.
The mighty Tesco is driving down prices for things such as DVDs and CDs, while rumours are rife that Smith faces distribution problems. Even the tills in the shops are said to be breaking down more than usual.

And Smith is still between a rock and a hard place as it loses custom to the supermarkets and specialist retailers such as HMV. Brokers are slashing their current-year profit forecasts, so it is not surprising that since Swann, a former head of Argos, took over from Richard Handover, the shares are down 15 per cent at 296p.

Swann needs to do something and fast. In April, she must unveil a mission statement, and the City will want to hear that she has come up with a winning formula.

An announcement that the company has at last sold its loss-making US operations would help. But Smith's UK business needs radical surgery. The stores must differentiate themselves from the competition, and become more than glorified corner shops, where consumers periodically pop in for a newspaper or a notepad.

Here is my advice: demerge the retail chain from the company's other businesses - publisher Hodder Headline and the newspaper wholesaling arm. Splitting Smith in two would provide a degree of focus, and make it easier to attract bids from cash-rich venture capitalists.

A break-up and sale is the only way forward for this dysfunctional company and Swann should say as much in four months.

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WH SMITH WARNS OF RISK TO DIVIDEND
By Richard Fletcher (Filed: 14/12/2003)
Sunday Telegraph


WH Smith, the troubled high street retailer, has signalled that it may have to cut its dividend for the first time in more than a decade.

In the latest annual report and accounts, sent to shareholders last week, Martin Taylor, the outgoing chairman of WH Smith, raises concerns about the sustainability of the dividend.

"The pressure on profits leaves dividend cover undesirably low on both a cash and earnings basis," writes Taylor, who officially stepped down last month to be replaced by Richard Handover, the former chief executive.

Taylor's comments have sparked fears that WH Smith will announce plans to cut its dividend at its annual meeting in January.

"We think there is a growing and significant risk that the dividend will be cut on the back of a poor Christmas," wrote Nick Bubb, a retail analyst at Evolution Beeson Gregory, in a note sent to clients on Friday.

The appointment of Kate Swann as chief executive increases the likelihood of a cut, added Bubb. City fears have also been heightened by reports of poor trading at WH Smith in the run-up to the crucial Christmas period.

Over the past three months shares in WH Smith have fallen by more than 17 per cent.

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TOP JOBS TO GO IN WH SMITH CRISIS
Teena Lyons, Mail on Sunday
14 December 2003

BELEAGUERED High Street retailer WH Smith will kick off the New Year with a dramatic profits warning - and the disclosure of hundreds of job losses at head office, including senior figures.

According to sources at the country's biggest newspaper and book retailer, new chief executive Kate Swann has earmarked early January for a 'significant profits warning' and will use the opportunity to outline a shake-up of head office.

At least half of WH Smith's eight-strong retail board are likely to be axed, including Beverley Hodson, managing director of UK retail business, who was at one time tipped to take over as chief executive.

Hodson recently received a special payment of 112,200 after being passed over for the top job.

Also on Swann's hit list are 'hundreds' of the 1,000 staff at the head offices in London and Swindon, Wiltshire.

Next month's announcement will also confirm what many in the City have forecast - that WH Smith will have a disappointing Christmas.

The retailer has been dogged by problems with its distribution systems and left with empty shelves at the most crucial time of year.

Even the much-heralded new-format store in Guildford, Surrey, which features comfortable chairs for magazine browsers and a full-time children's host to demonstrate crafts and read stories, is said to be losing money, according to the company sources.

Since Swann joined last month from GUS, the Argos-to-Burberry conglomerate, she has employed teams of consultants to look into every aspect of the business.

Although the exercise is incomplete, headhunters have already been briefed to search for replacements for the senior managers who are earmarked to go.

WH Smith issued two profits warnings this year before Swann joined.

The latest, in August, blamed flat sales at its 550 stores on tough competition and the long, hot summer when people turned their backs on High Street shopping.

As a result, analysts downgraded their profit expectations for the year by 12 million to 105 million. However, broker Credit Suisse First Boston went still further last week and lowered its forecast to 99 million.

Sales of entertainment products such as CDs and DVDs, which make up 20% of total WH Smith sales, were blamed as well as huge competition in the gifts market.

WH Smith said: 'We are not in any position to comment on our trading performance or any other operational issues until we have been through the Christmas trading period, which is a critical time of the year for all retailers.'

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Already mentioned the above news on another thread, but WH Smith is a big enough name to require a thread of its own.

The only thing likely to cushion its fall tomorrow is the upward whoosh the market will gain thanks to news from Iraq.


Edit (21 Dec): Apologies to Brian and Graham for having started another thread here. Although I have contributed to WHSmith threads started by both of you, neither of them came up in searches on the day I started this one. They do now! I frequently find the search facility throws up blank results when it shouldn't.

Not sure what's going to happen there, just how low will they go? is the big question. They may follow John Menzies idea a few years ago and sacrifice High Street to save the rest of the group, idle speculation of course.

Smiths may have a problem as long as they are competing with supermarkets that can offer a "whole deal" - as the Little Woman chases round the isles buying jumbo friskies and special-offers, Men can read through the latest Car-mag/Computer etc and buy on impulse, along with the Weekend Papers ( and Shares! - although not at My Tesco!)- it's an easy purchase.
To go to Smiths needs a special High-street journey, that involves the Local Authority charging 1 for a car-space which makes buying one mag a bit expensive. The other items WHS sells are not "exclusive" so if you see them elsewhere you can buy - if you don't see them there are on-line stores for "must-have" books, presents etc.

I do frequent my local WHS, but only if I'm parked in the Supermarket, or I cycle to get Shares ( subscription would be cheaper, but it's just too much agro ( something Shares needs to address!))....

Where does that leave WHS? Between a rock and a hard Place IMHO - -and that's why profits are under pressure. They need an in-store card perhaps so buying a subscription gets them an introductory fee - but it also cuts future sales in two ways: 1) You don't buy the Mag and 2) You don't go in to buy it! ( losing impulse buys).

Sell.

And so it came to pass..

The warning came. The price dived first thing, and then bounced, the way they do. And then paused around the previous low.

I agree hangon - WHSmith needs to invent something that cannot be found elsewhere. Some reason to go there specially. Something to make it a 'destination shop' which at present it isn't.

I notice they point out that costs have risen 4%. And that was during a year in which they already knew they were in trouble and had supposedly already attempted to trim (except for all the dosh the bosses have been handing out among themselves of course - making sure they are comfortable before savaging the workforce).

LONDON (Reuters) - Brokerage Seymour Pierce has slashed its 2004 profit forecast for newspaper and bookseller WH Smith after the group issued a profit warning.

Seymour Pierce said in a research note on Friday it had cut its pre-tax profit forecast to 68 million pounds from 108 million pounds. It kept a "weak hold" rating on the stock SMWH.L .

"Not good news and although we had pencilled in a worst case scenario of 88 million pounds, what has emerged can only be described as disastrous,"