Investors growing fearful again and WH Smith’s travel sales almost obliterated

“Two bad days in a row for the markets doesn’t bode well for investors hoping we were on a sustained path for rebuilding February and March’s portfolio destruction. The market now seems to be growing more cautious about the pace of economic recovery,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 slipped another 1.3% to 5,828 with only five stocks in positive territory at the market open. The big fallers were travel companies, oil producers and banks.

“Gold prices nudged ahead by 0.2% to $1,719 per ounce, meaning the precious metal price has now risen by 33% in the past year."

WH Smith

“WH Smith has had the rug pulled out beneath its feet. Before coronavirus it astonished the world by proving it was capable of maintaining a profitable operation despite operating in a struggling channel (the high street) and selling products in a declining market (newspapers and magazines).

“Its profits were driven primarily by stores in train stations, airports and motorway service stations where there is limited or no competition. Customers were often in a hurry and accepted high prices because they didn’t have the time or opportunity to go elsewhere. This business model enabled WH Smith to successfully expand beyond the UK.

“Coronavirus has now dramatically hurt WH Smith’s business, as illustrated by half-year results which show what could be its final period of the old glory days before life changed for everyone. The figures show a very small dip in profit but they are irrelevant because the reporting period is pre-lockdown for its main operating countries.

“Comment on the start of the second-half period is more important. The 91% sales decline in April for its travel arm shows the extent of the damage to its business. To get back on its feet WH Smith needs airports and train stations to be busy and global travel to be whirring back into action. It suggests that could start to happen in the autumn but this could prove to be over-optimistic.

“For now, it must simply rely on people buying books through its website, steady sales through its hospital stores and Post Office concessions luring people into its stores in the hope they also pick up a few more products.”

These articles are for information purposes only and are not a personal recommendation or advice.