WH Smith is asking shareholders for around £100 million in fresh capital after cutting its full-year profit guidance, blaming a sharp slowdown in its United States business and the fallout from the US-Iran conflict.
The travel retailer, which now generates the bulk of its earnings from airport shops around the world following the sale of its UK high street business to Modella Capital last year, said it now expects headline profit of between £75 million and £90 million for the current financial year, down from previous guidance of £90 million to £105 million.
The downgrade reflects “the ongoing uncertainty from the Middle East conflict and pressures on gross margins, including the recent deterioration in the North America division”, the company said.
Leo Quinn, the turnaround veteran installed as executive chairman in the wake of the accounting scandal that claimed former chief executive Carl Cowling, also warned that the group will write down the value of a number of contracts and acquisitions. Cowling departed after the discovery of a long-running accounting error in the North American business, a debacle that has since prompted a Financial Reporting Council investigation into PwC’s audit of the company.
“We need much greater capital discipline and a laser focus on returns,” Quinn said. “In recent years, the outcomes from certain acquired businesses and contract obligations have been very disappointing.”
The picture is mixed across the group. Like-for-like revenue rose 2 per cent in the 14 weeks to 6 June, a continuation of the momentum that has seen travel sales consistently outperform in recent years. But the past seven weeks have told a different story in the United States, where like-for-like sales in airports fell 4 per cent and the casino business slumped 11 per cent.
To shore up the balance sheet, WH Smith plans to place up to 26 million shares with institutional and retail investors, roughly 20 per cent of its existing share capital.
The company described the raise as “a prudent and proactive step which will strengthen the balance sheet, enable continued execution of the group’s growth and transformation agenda, provide greater confidence around the group’s leverage position, and reduce the group’s reliance on debt funding”.
The fundraising caps a bruising period for the 234-year-old retailer, whose shares have more than halved over the past year. Its former high street estate, now trading as TGJones under Modella’s ownership, has fared little better, with up to 150 store closures announced amid its own restructuring.
