‘Resilient and agile’ WHSmith reports £33m full-year Travel trading loss

By Andrew Pentol |

WHSmith has reported a full-year trading loss of £33 million/$43.4 million across its travel division in the full-year ended 31 August 2020. This compares to a profit of £117 million a year ago.

Total revenue across the division amounted to £553 million during the period (£817 million in 2019). This represents a -32% drop compared to last and 43% decrease on a like-for-like basis.

As of 31 August 2020, the Group’s Travel business (including Marshall Retail Group and InMotion) operated from 1,174 units (1,019 units as of 31 August 2019). Of the 1,1,74 units, 650 were open as of 31 August 2020.

Regarding the Group’s UK Travel business, the Group experienced a significant decline in passenger numbers. This was the result of travel restrictions in the second half of the financial year.

Total revenue across the UK Travel business was £344 million (2019: £565m), down 39% on the previous year. In the air segment, total revenue was down 48%, with like-for-like revenue also down 48%. In the rail sector, total revenue dropped 42%, with like-for-like revenue down -40%. This resulted in a trading loss of £1 million (2019: profit of £97M).

Group revenue reached £1,021bn, a -27% decrease compared to the same period last year (-33% on a like-for-like basis).

SECOND UK LOCKDOWN TO IMPACT RECOVERY

The Group said: “Recent trading in UK Travel has been impacted by quarantine measures and reduced passengers on public transport. Revenue in September and October was 32% of 2019 sales.

“Following the announcement of the second lockdown in England, we expect to be further impacted and for the recovery not to begin until the second half. We have worked hard across all our channels to implement a robust plan focusing on key priorities within our control that support us in the immediate term and will enable us to emerge stronger when our markets recover.”

Total revenue across the WHSmith Travel division amounted to £553 million during the full-year period ended 31 August 2020. Source: WHSmith

Key focus areas include cost management, increasing conversion and average transaction value, category development and identifying opportunities for further growth.

In the air segment, while WHSmith noticed some early signs of recovery from leisure passengers in July as lockdown restrictions were eased, passenger numbers stalled as quarantine requirements were broadened.

“Despite the reduction in passenger numbers, we have continued to build on our strong position in this channel by focusing on increasing conversion and our average transaction value.

“This has been achieved by further extending our categories and existing ranges into new categories such as health and beauty and hygiene and wellbeing products. We have seen some positive results with scope to do more,” the Group said.

WHSmith has reported a full-year trading loss of £33 million across its Travel division. Source: WHSmith

During the second half, the company opened a new flagship shop at London Heathrow Airport Terminal 2. This new format store builds on the success of its combined WHSmith and pharmacy format outlet that opened at London Gatwick Airport in the previous year.

The Group added: “Our experience shows that we can deliver higher sales per passenger from these large stores, through improved layouts, increased capacity and by providing a one-stop-shop for time pressed passengers.

“With over 5,000 sq ft of selling space, this flagship store features an extensive news, books and convenience offer with the addition of a world class health and wellbeing department with specialist staff.

“The health and wellbeing department comprises a comprehensive range of over 3,000 products curated through our partnership with market leading, global brands.

“In addition, the pharmacy counter offers healthcare advice, along with a wide selection of medicines. We have received very positive feedback from our customers and landlords. While this format is not suitable for all locations, we expect it to be of interest to landlords as they reconfigure their space in the future.”

‘AN IMPORTANT CHANNEL’

Meanwhile, rail remains an important channel for the company with significant long-term investment in new lines and station redevelopments.

WHSmith opened a new flagship shop at London Heathrow Terminal 2 earlier this year.

During the year, performance was impacted by travel restrictions in the second half. Things started to improve in July, but this was stalled by further government restrictions in early September.

“Similar to the air sector, we have focused on extending our ranges and increasing average transaction value. We now have c.60% of our UK Travel store estate open. We have focused on all areas of cost across our UK Travel business.

“As a result of the significant decline in passenger numbers, we took the difficult decision to review our store operations in August 2020, reducing headcount across the Travel business.”

WHSmith says travellers will be inspired by the new store design and the retailer’s world-first LED fascia in the new London Heathrow flagship.

Regarding the company’s International Travel division, North America now represents c.50% of the Group’s stores outside the UK.

“We continue to see further opportunities to growth this business. Outside North America, we still have a relatively small market share of the international news, books and convenience market and we believe there is good long-term potential for us to continue to grow our space.”

During the first half of the financial year, WHSmith’s strategy to grow its International Travel business progressed well. In line with its UK Travel business, the second half was adversely impacted by the coronavirus (Covid-19).

Total revenue for the year, including Marshall Retail Group and InMotion, was £209m (2019: £252m), down -17% versus the previous year. Like-for-like revenue, on a constant currency basis, was down -43%. The trading loss for the year was £32m (2019: profit £20m).

In North America, WHSmith, completed the acquisition of US travel retailer Marshall Retail Group in December 2019. The combination of WHSmith, Marshall Retail Group and InMotion now enables the Group to participate in the entire North American airport speciality retail market.

Although impacted by Covid-19 in the second half, Marshall Retail Group won a further eight stores, including stores at San Francisco, Denver and Newark airports.

During the second half, Marshall Retail Group opened a new walk-through store format at New York, La Guardia International Airport. This format is a first in North America. All these stores are operated by Marshall Retail Group with the digital accessories range provided by InMotion.

An interior shot of the new Marshall Retail Group new walk-through store format at LaGuardia International Airport in New York.

“This is the first InMotion implant within Marshall Retail Group. We believe there is scope for further opportunities for InMotion to be part of the Marshall Retail Group assortment of products and brands and for InMotion to open further stores in resorts.”

The InMotion portfolio comprises of 116 stores across 43 airports in North America. During the year, InMotion opened eight units, at locations including San Francisco, Washington Dulles and Salt Lake City International Airports.

“While Covid-19 has had a significant impact on our North American business, approximately 85% of passengers in the US are domestic with leisure passengers an important segment. We, therefore anticipate a faster recovery in this market versus the rest of the world.”

REST OF THE WORLD DIVISION

In the Rest of the World division (outside the UK and North America), the WHSmith international business is experiencing broadly similar trends with passenger numbers significantly down year-on-year.

Similarly, to the UK, the Group remains focused on areas within its control, including increasing average transaction value, re-negotiating rents and extending leases. Of the 307 WH Smith stores outside the UK, 159 have re-opened to date.

WHSmith Australia re-opened its two Sydney International Airport Terminal 1 arrivals stores and T1 Pier B and Pier C Express stores in October.

“Recovery in these markets is likely to take some time and we are planning accordingly. We will temporarily close stores if they become uneconomic and as airlines adjust volumes and schedules. Revenue in September and October was at 18% of 2019 levels.

“Despite the disruption in the second half, outside of North America we won 26 new WHSmith units internationally in the year and opened 16 units, making a total of 307 WH Smith international units as of 31 August 2020.

“We will continue to use these three economic models flexibly in order to create value and win new business. In total, across our global Travel business outside of the UK, we are now present in over 100 airports and 30 countries with 277 units open in North America, 83 units open in Europe, 104 in the Middle East and India, and 120 in Asia Pacific.”

STRONG FIRST-HALF PERFORMANCE

Carl Cowling, Group Chief Executive, commented: “The Group delivered a strong first half performance and traded strongly prior to the outbreak of Covid-19.

“Since March, we have been heavily impacted by the pandemic. Despite the many challenges faced, we responded quickly and took decisive actions to protect our colleagues, customers and the business, including strengthening our financial position.

“While passenger numbers continue to be significantly impacted in the UK, our North American business, where 85% of passengers are domestic, is beginning to see some encouraging signs of recovery. In addition, we continue to open new stores in the US and win significant tenders across major US airports.”

The retailer unveiled its 170sq m ‘The Bookshop by WHSmith’ concept at Gatwick Airport’s North Terminal in August 2019.

He added: “We have a robust plan across all our businesses focusing on cost management and initiatives within our control which support us in the immediate term and position us well to emerge stronger as our markets recover.

“I have nothing but enormous admiration for all our colleagues across the business, be it in stores, our distribution centres or our head offices. Their support and commitment has been outstanding during this difficult period and I would like to thank every one of them for how they have responded.

“We are a resilient and agile business. The actions we have taken have put us in a strong position to navigate this time of uncertainty and we are well positioned to benefit as our markets return to growth.”

 

 

 

 

 

 

 

 

 

 

 

 

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