Broker snap: WH Smith sales decline, margins improve

26th Jan 2011 11:14

Trading over the Christmas period at newsagent WH Smith was somewhat weaker than Peel Hunt had been expecting, even after taking into account the effects of snow, which were in keeping with the sort of disruption experienced by the rest of the retail sector. In the 21 weeks to 22 January, the newspaper, books and stationery retailer saw high street like for like sales fall by 6%, but there was good news on margins. "Up 160 basis points, gross margin is said to be ahead of expectations, with first half cost savings of £7m offsetting the fall in absolute gross profit," says analyst John Stevenson."On the downside, the growth of e-readers and tablets represents a medium-term threat to books and news, in our view, although management continues to point to low take-up of such devices amongst its core customer [base]."While the group has achieved a strong control of costs and margin delivery, the broker confirms a 'hold' rating and 475p target price.