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Investing.com -- WH Smith (LON:SMWH) shares fell over 2% after the company posted a modest beat in first-half results but cut FY26 earnings per share guidance by 15%, citing the impact of the High Street disposal and higher interest costs from refinancing, on Wednesday.
The FY25 outlook remains unchanged, but investor focus shifted to the lowered midterm expectations and broader macro risks.
First-half pre-tax profit came in at £45 million, down 2% year-on-year but around 5% ahead of consensus forecasts.
UK Travel drove the outperformance with revenue up 7% and EBIT up 8% to £40 million, above Barclays’ £39 million estimate.
The US showed improving trends, with like-for-like sales up 3% and EBIT up 7% to £15 million, just shy of forecast. Rest of World returned to profit with £1 million in EBIT, ahead of expectations.
High Street EBIT dropped 32% to £15 million, in line with expectations due to anticipated phasing. WH Smith expects stronger second-half performance, forecasting 9% growth in H2 PBT to £175 million, supported by peak travel trading and improved High Street contribution.
In the US, Travel Essentials like-for-like sales rose 8%, while Air grew 4%. Resort sales fell 3%, which the company attributed to Easter phasing and the anniversary of the Super Bowl.
Management said US revenue remains positive “despite a softening in passenger numbers.” UK like-for-like growth remained strong at 7%.
The company reported no specific trading data post-H1 but said “the second half of the financial year has started well” and highlighted a major contract win at an East Coast airport.
Barclays (LON:BARC) cut FY26 and FY27 EPS forecasts by 15% and 13%, reflecting the removal of £24 million in EBIT from the disposed High Street business, higher interest costs, and only partial offset from lower central overheads.
FY25 forecasts were largely unchanged, with slight adjustments to UK and US Travel EBIT. FY25 EPS was trimmed by 0.1%, and PBT raised 0.2%.
The FY25 dividend per share is now forecast at 33.9p, down 9%, reflecting the one-third interim payment already made. Dividend cover, weakened by the High Street exit, is expected to rebuild to the group’s 2.5x target by FY27.
Net debt is now projected at £400 million for FY25, up from prior guidance of £340 million, due largely to separation and restructuring costs. Non-underlying charges in H1 totalled £70 million, of which £25 million were cash, including spend linked to the transformation programme. Barclays noted that these costs will need to fall post-disposal to avoid being seen as recurring.
Cash interest was revised upward to reflect previous understatements tied to the convertible debt.
Share buybacks remain in forecasts through FY27, despite leverage being slightly above target. The company has yet to update its capital allocation plans following the High Street exit.
Barclays lowered its price target to £13.50 from £15.90 due to a recent disposal and reduced valuation multiples, specifically UK Travel is now valued at 11x EBIT down from 12.5x and International Travel at 13x down from 14x, aligning with market-wide de-rating, and at this revised target the shares are projected to trade on a FY26 P/E of 16x, falling to 15x in FY27.
Despite near-term earnings pressure, Barclays maintained an “overweight” rating, pointing to WH Smith’s long-term positioning as a pure-play global travel retailer.
“At the current share price, the company trades on an FY26 PE of just 11x,” it said, with forecast shareholder returns of £84 million in FY26 — a 7% yield.