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The books and stationery store chain, WH Smith Plc, flagged a profit warning in its trading update released on 12th March 2020 for the first half of the fiscal year 2020 because of the coronavirus pandemic which has led to a major drop in shoppers at its airport outlets.
The Travel & Tourism industry is the worst impacted now as most of the countries are banning the visas and encouraging their people to refrain from travelling unless necessary. According to the market experts, WH Smith Plc drives all its revenue and profit streams from airports and train stations. The European travel ban by the US will further exacerbate the level of impact on the revenue streams of the company. The sudden plunge in the number of commuters visiting the stores amid coronavirus crisis will take a toll on the revenues of WH Smith and would lead to a plunge in profits this year.
WH Smith Plcâs key priority had always been safety and health of its business partners, employees, and customers. Since the outbreak started spreading across the Travel, Tourism & Leisure industry, the company has been closely examining the overall impact of the Coronavirus pandemic.
Since February, there has been a material impact on the business coming from the Asia Pacific region, which accounts for roughly 5 per cent of the total Travel's revenue generated for the company. Furthermore, in the last couple of weeks, the company saw a significant reduction in travellers (excluding people of Asia Pacific region), which contribute around 60 per cent to the total Travel's revenue generated for the company. A quarter of the revenue contribution to the company comes from the travellers from the United States, which is being dented now due to the travel ban imposed by the US president on the EU travellers.
The Groupâs primary objecting in these turbulent times is to reduce its cost base and do whatever it takes to achieve this and see through this period of struggle. Â Based on current trading and valuations, in the second half, the effects of Coronavirus will lead to a reduction in the expectations for revenue and profit across the Travel business as believed by the Group. Assuming these challenges to transcend in the third quarter of the fiscal year 2020, the Group provided its guidance in full-year results capturing Covid-19 impact along with the expectation of a modest normalisation in the fourth quarter.
For UK Travel, the companyâs revenue for the six months is expected to plunge by 15 per cent. With Airports being the most affected channels for the company, the revenue is expected to plunge by 35 per cent in March and April.
For US travel, with significant reductions in March and April, the revenue in the second half of the fiscal year 2020 is expected to plunge by 20 per cent. The revenue from the international business is expected to go down by 20 per cent as well. As of now, there is no significant impact on its High Street business, but the company believes that Covid-19 could potentially result in reduced high street footfall.
As a result, the Group currently estimates an adverse impact in the range of £100 million and £130 million on the Group's revenue and between £30 million and £40 million on underlying Group profit before tax for the fiscal year 2020.
WH Smith Plc possesses a strong balance sheet and sound financial health with a resilient business model. The Group is backed by strong management and shall adapt to the evolving market conditions. The Group has expressed its confidence about its strategy to do well in the long term.
The Groupâs total revenue was up by 7 per cent; like-for-like (LFL) revenue was down by 1 per cent for the first half of the year to 29 February 2020. In Travel, Total revenue was up by 19 per cent with LFL revenue moving up by 2 per cent. Total revenue was down by 5 per cent with LFL revenue declining by 4 per cent in the High Street division.
The company is expected to release its half-year results on 22nd April 2020 and is confident that underlying profit before tax would be in line with the market expectations.
Business overview: WH Smith Plc
Headquartered in Swindon, United Kingdom, WH Smith Plc (LON:SMWH) is into the retail business. The Group has presence across the globe in countries such as Australia, India, South-East Asia, the Middle East and the United Kingdom. The Group has two business divisions, namely - the High Street business and the Travel business. The Group operates mainly in motorway service areas, railways stations, hospitals, airports and workplaces. The companyâs High Street business is all about retailing of Books, Magazines, Stationery items, and Entertainment products across its stores. The Group has more than 600 stores across the United Kingdom. The Group has a representative base of around 14 thousand, primarily in the UK. The shares of the Group are quoted for trading on the London Stock Exchange in its main market. There the shares of the Group also form part of the FTSE 250 index. The shares trade with the ticker symbol SMWH.
WH Smith Plc -Stock price performance
Daily Chart as on 13-March-20, before the market closed (Source: Thomson Reuters)
On 13th March 2020, while writing at 01:18 PM GMT, WH Smith Plc shares were clocking a current market price of GBX 1,275 per share, which surged by 1.76 per cent as compared to the previous day closing price level. The companyâs market capitalisation was at £1.44 billion at the time of writing.
On 30th December 2019, the shares of WH Smith Plc have touched a new 52-week high of GBX 2,660.00 and reached the lowest price level of GBX 1,218.60 on 13th March 2020 in the last 52 weeks. The companyâs shares were trading at 52.07 per cent lower from the 52-week high price mark and 4.63 per cent higher than the 52-week low price mark at the current trading level, as can be seen in the price chart.
The volatility of the companyâs stock was 35 per cent higher as compared with the index taken as the benchmark, as the beta of the companyâs stock was recorded at 1.35 with a gross dividend yield of 4.64 per cent.
The shares of the company have delivered a negative return of 49.12 per cent in the last quarter. From the start of the year to till date, the companyâs stock plunged by 50.88 per cent. Since the last month, the companyâs stock has given investors 48.25 per cent of a negative return.Â
