Of the many stories to catch my eye over the bank holiday weekend was news that books and stationery seller WH Smith (LSE: SMWH) had been voted the worst retailer on the high street in a survey of over 10,000 shoppers published by the consumer group Which?
It’s the eighth year in a row that the Swindon-based business has captured the worst or second worst spot on the list and follows on from recent bad publicity in which it was accused of selling tubes of toothpaste for almost eight times their high street price at UK hospitals — something it claimed was due to “pricing errors“.
In response, the £2.2bn cap claimed that only 184 people had actually given feedback on its stores — a very small number relative to the 12 million that it serves each week.
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Having declined 14% since the start of the year, however, it would seem many investors are also becoming increasingly dissatisfied with the company. Considering that only one of its two divisions is really performing, that’s understandable.
Total revenue and trading profit at its travel division were up 7% and 5% (to £41m) respectively over the six months to the end of February thanks to “continued investment” and “ongoing growth in passenger numbers“.
On the high street though, it was a different story. Here, total revenue fell 5% and trading profit declined 6% (to £50m) compared to the same period in the previous financial year. With consumers still complaining about excessive prices, rude staff, and products being out-of-date, the numbers could get even worse going forward.
Trading on 18 times forecast earnings for the current year, I continue to believe that WH Smiths looks expensive for such a business in the current, challenging retail environment. The balance sheet, historic returns on capital employed and growth prospects for its travel business may be great but its ongoing unpopularity among increasingly-savvy shoppers (as opposed to convenience-seeking travelers) suggests that it’s resting far too heavily on its laurels. Time for an M&S-style rethink on its high street presence, perhaps?
Punctured profits
Also making the list of poorly-rated shops was motoring and cycling product retailer Halfords (LSE: HFD), capping off a week many of its owners would probably prefer to forget.
Last Tuesday’s full-year results weren’t exactly inspiring with the company reporting a 2% rise in like-for-like revenue to £1.14bn and a 5% fall in underlying pre-tax profit to £71.6m — the latter the result of an extra £25m in costs due to currency headwinds.
While the double-digit fall in the share price on suggestions that FY19 underlying pre-tax profit would likely stay flat was perhaps over-the-top, Halfords certainly has the feel of a fairly pedestrian investment at the current time. It may be a “good business” in the eyes of new(ish) CEO Graham Stapleton but unless his long-term plans for the company — due in September — are sufficiently exciting, I fail to see how the shares will motor ahead in the short-to-medium term.
Having once changed hands for 550p, the stock has been trading stubbornly within the 300p to 400p range for almost two years now. While the current valuation of 11 times forecast earnings may interest value hunters (and the forecast 5.3% yield looks secure for now), I’d need to see clear evidence that the company was successfully taking the battle to its online competitors before even considering making an investment.
