In January, group finance director John Warren, who joined the board in September 2000, reduced the company’s current year profit forecasts after disappointing Christmas sales.
The chartered accountant, who began his career at Ernst & Young, reported a 2% drop in like-for-like sales on last year in the crucial Christmas period, the five weeks to 11 January. Sales in the 20 weeks to 18 January were down 3%, below sector analyst forecasts. Sales in its airport outlets and US hotels also fell.
The lower sales led Warren to trim the 2003 year-end pre-tax profit forecasts to £129m-£134m, which will start in October. City analysts also cut forecasts to £118m-£122m.
Today’s interim results are likely to mirror the tumble in profits that took place in April 2002, as WH Smith reported that half-year profits had fallen by more than one third to £63m.
The company admitted it had lost ground to its UK high-street competitors who, in a bid to increase their business, had slashed prices. But it insisted that it had managed to improve profit margins, despite lower sales figures and a gloomy outlook, which it took as a good sign.
Chief executive Richard Handover admitted the retailer had lost 0.5% of book market share to rivals such as Waterstones and Ottakar’s, but stressed the losses were in fiction rather than non-fiction and that they would be recovered.
But he added the company had intentionally gone against the grain. ‘A deliberate decision was taken not to chase unprofitable sales. The sales performance reflects this tactical position,’ he said.
City analysts were shocked as they saw a drop of 3% drop in like-for-like book sales, while entertainment product sales (music, DVD and VHS) fell 6% over the 20 weeks. Stationery, news and express were all flat.
Nick Bubb, retail analyst at Evolution Beeson Gregory, said: ‘WH Smith is one of those companies that always under-achieves, always disappoints.
Of late profit forecasts have fallen every time the company has reported and it’s a case of deja vu all over again today. The market leader in books can’t afford to lose market share to the specialists like Waterstone’s and Ottakar’s, who both did well last Christmas.’
But Handover maintained that, although annual sales predictions had been cut, WH Smith was on solid ground going forward. ‘Looking ahead, we believe that we have now established a strong operational platform to enable a roll-out of innovative and exciting products with a strengthened value proposition which will allow the business to regain sales momentum,’ he said.
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