Paper Profits by Finance News Bulletin

Published: 17/10/07

position platform paper seller WH Smith (LSE: SMWH) today signalled a arresting 29% jump in pre-profits to £66m for the year ended 31 imposing Net profit per share rose almost 26% to 293p and the final bonus has been lifted 31%But don't get overwhelmed by too much elation

Sales were lower and the company is making the kind of cautious noises we have recently learnt to wait for from UK retailersThe headline numbers surely grabbed my attention, although on closer examination, returns from ongoing operations were rather less impressivefar above the ground street profits grew only 5% on sales down 6%, and while the journey division made 16% more than during the previous twelve months, like-for-like sales greater than before just 2% There was a hefty gross margin trek as sales of CDs and DVDs were replaced by flogging more profitable sweets and books (the ubiquitous Harry Potter working the the supernatural, but the main reason for the pre-tax profit jump was financial

A mixture of higher investment income and lower funding costs led to a fall in mesh finance charges from £9m to £1m, while the cost cutting programme kicked in faster than predictableWH Smith operates 18 outlets at London's Heathrow airfield, famous for its extended delays and lengthy safety checks Though for every cloud there's a gray lining Frustrated passengers are shelling out more on food, drinks and magazines to while absent the hours

And Smith has been cashing inNow I tend to avoid motorway repair areas But WH Smith takes a dissimilar view and has been opening up outlets so fast, it's now in front of schedule There are now 50 Moto and 35 Welcome smash food open, which the company claims are trading well

Indeed, so ‘encouraging' has been the customer reply that Smith is now looking to get bigger further at sites of other motorway service region operatorsFurther, the retailer is tacking on as many as 71 Post Office concessions to its high street food and has so distant opened up 23, with the balance planned for the rest of this year and in 2008Now that the one-off charges relating to the earlier information distribution unit spin-off are out of the way, WH Smith will require to deliver top-line sales growth to keep those proceeds stacking up There's a limit to how distant margin widening and cost cutting will force the bottom line

And this is where the company joins the rest of the retailing organization in expressing a fair amount of caution about the future Citing the consumer environment as unsure', Smith expects the key Christmas period to be very competitive, but reckons it has ‘planned so'Perhaps in keeping with overall impressions of the company, the stock valuation looks OK without exactly being extremely appealing Having fallen from a high of 460p at the start of this year to 392p nowadays, on a prospective price to earnings ratio for 2008 of some 12

5 times at a yield of 33%, the shares aren't particularly expensiveBut you almost certainly won't be rushing to fill your boots at this height Nor me, though if the price falls back to recent lows near 360p, and with a share cash in programme in the offing, I might be tempted

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