WH Smith posts solid travel growth, maintains full-year outlook

WH Smith reported a 7% year-over-year increase in total travel revenue on a constant currency basis for the 13 weeks ending May 31, 2025, reaffirming its full-year expectations; RBC Capital Markets maintained a neutral view, noting stable trends with slight U.S. slowdown offset by robust UK and international performance. Growth was driven by increased retail space and passenger traffic, with the company expecting further acceleration in Q4 and maintaining its focus on global travel retail following the planned divestiture of its UK High Street business, though competition from Avolta and Paradies Lagardere remains intense.

Analysis

WH Smith's Q3 trading update for the 13 weeks ending May 31, 2025, demonstrates sustained strength in its global travel retail operations, with total travel revenue rising 7% year-over-year on a constant currency basis, reinforcing its trajectory towards meeting full-year financial targets. Performance varied regionally: the U.K. Travel division recorded a 6% like-for-like (LFL) revenue increase, slightly under RBC Capital Markets' projection, while North America saw total revenue grow 7% (constant currency) but experienced a modest LFL revenue growth deceleration to 2% from 3% in the first half. Conversely, the Rest of the World division exceeded expectations with a 12% total revenue surge and a 7% LFL gain, driven by recovering passenger volumes. Expansion of retail space contributed approximately 2 percentage points to group revenue growth, a figure anticipated to climb in Q4. The imminent divestment of the U.K. High Street business by June's end will sharpen WH Smith's focus as a dedicated travel retailer. Despite a robust pipeline for new outlets and a praised "forensic approach to retailing," the company commands only 3% of the international market, facing significant competition from Avolta and Paradies Lagardere. RBC Capital Markets maintains a neutral outlook, highlighting stable trends and reiterating a group profit before tax forecast of at least £142 million (excluding divested units), while noting the impact of a stronger British pound and an anticipated minor U.S. market slowdown.

Key Decisions for Investors

• Evaluate WH Smith's growth trajectory in global travel retail, particularly its international expansion efforts given its current low market share, against the backdrop of intense industry competition and the noted slight LFL revenue slowdown in North America.
• Monitor the pace of new store openings and their contribution to revenue in the upcoming quarters, especially during the peak summer season, as the company aims to accelerate retail space growth.
• Consider the implications of the U.K. High Street divestiture on future profitability and the company's focused travel retail strategy when assessing investment, noting RBC Capital Markets' neutral stance despite positive performance indicators.