The Week Ahead: Figures due from WH Smith, Game Digital and Burberry
- Credit: Archant
The fortunes of the UK high street will be in focus this week as WH Smith notches another year of profits growth and Game Digital marks its revival with its first set of results since returning to the stock market.
WH Smith is poised to achieve another boost in annual profits on Thursday as it continues its dual policy of cutting costs at its high street shops and expanding its travel business.
The books and magazines retailer, which runs 607 high street shops, should report full-year profit up 9.7% to £113million as chief executive Steve Clarke continues with a strategy he inherited from previous boss Kate Swann.
The group also runs 701 travel outlets at airports, railway stations and at motorway services, including 118 international units in Europe, the Middle East, Australia, South-East Asia and India.
In April, Mr Clarke told investors he planned to open around 30 travel sites in the UK in this financial year and had won contracts to open 15 further international sites.
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Like-for-like sales in both parts of the group have been consistently negative since 2005 but the retailer’s strategy of focusing instead on margins is admired by City analysts.
However, the growing travel business posted flat like-for-like sales in a June trading update and could report a positive performance in the full-year results.
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The business, which sells over 1.1m magazines a week, is also coming to the end of one of its regular share buyback programmes that is distributing £50m to shareholders.
Numis analyst Matthew Taylor said he expects the group to deliver another year of solid progress and thinks it will “stick with a strategy that has served shareholders so well in recent years.”
The stock has risen over 20% during the last 12 months.
Brokers at Barclays last month added that the group could potentially generate large profits from its card and gift website Funkypigeon.com, its international unit and WH Smith Local – a trial of franchise stores that are set to expand to 15 by the end of December.
The history of the business stretches back to 1792 when Henry Walton Smith and his wife Anna opened a small newsagents in Little Grosvenor Street, London.
Game Digital is expected to report a strong set of annual results on Thursday, just two years after the video gaming retailer collapsed into administration.
The company, which has 327 UK stores and 233 in Spain, is on course for a doubling in adjusted earnings to £51.1m, according to Canaccord Genuity.
The business, which returned to the stock market in June, said in an August trading update that sales rose by around 30% over the year as its UK and Spanish businesses gained market share.
Analysts at Canaccord said the business was taking advantage of strong demand from the latest generation of gaming consoles, PS4 and Xbox One, while brokers at Liberum add it has been boosted by top selling games such as Watch Dogs.
Game added that during the last 12 months it signed another one million customers to its reward card programme, bringing its total membership to 16macross the UK and Spain.
Game Digital chief executive Martyn Gibbs said: “Our consistent focus on improving the group’s specialist customer proposition has delivered a strong performance and positions the business well for the future.”
In June, a 35% stake in the company was sold in the flotation, allowing shareholders to secure £101m and the company to book proceeds of £20m.
Hedge fund Elliott Advisors, which owned more than 90% of Game after backing a rescue deal led by private equity firm OpCapita, retains a significant stake in the business.
Game’s turnaround comes after administrators and its new owners shut around half of the outlets to scale back a costly store base which, coupled with heavy competition from online rivals, led to its demise.
It now claims to be debt-free after reportedly owing creditors around £180 million when it filed for administration in March 2012.
Luxury goods retailer Burberry’s run of strong growth due to Asian and online sales should continue when it posts a half-year update on Tuesday.
Brokers at Nomura are forecasting a 9% sales lift for the second quarter of the financial year from a 12% rise in the previous quarter – a slower rate but still enviable for a retailer.
The broker expects difficult trading conditions in Europe will be a key factor in the weaker sales rate at the brand known for its classic trench coats.
An easing in the strength of the pound is likely to benefit Burberry by between £10 million and £15m in the second half of the year, Nomura added.
This is in contrast to earlier in the year when sterling was close to six-year highs against the US dollar and Burberry warned this would lead to a £55m hit to profits compared with the previous financial year.
Apart from strong sales across large parts of its Asian business, online sales are expected to continue to offset declining footfall at its stores.
Bank of America Merrill Lynch said: “Burberry online sales are delivering significant growth.”
Burberry has 216 retail stores, 224 concessions, 55 outlets and 69 franchise stores around the world.
The group is expected to report an adjusted annual pre-tax of £450m, up 5.2% on a year ago.