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Déjà vu for WHSmith: sales down, profits stable

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High street mainstay WHSmith remains confident on its long-term profitability despite reporting today a further drop in sales over its first-quarter period.

In the ten weeks to November 5th 2011 like-for-like (LFL) sales declined six per cent year-on-year and total sales were down three per cent as its high street operations continued to suffer amid constrained consumer spending.

Its travel stores continued to outperform traditional outlets but still saw LFL trading drop four per cent over the period compared to a six per cent LFL fall in high street revenues.

Despite declining sales, a statement from the retailer today emphasised its continued financial strength, saying: “Whilst the current climate continues to be challenging, we remain a resilient business and are well positioned for continued profitable growth.”

Extensive cost-cutting and efficiency initiatives have softened the blow of the retailer cutting down its loss-making entertainment segment of CDs and DVDs and helped it post profits of £93 million for the 12 months ending August 31st 2011, although LFL sales dipped five per cent over the same period.

Whilst this strategy of tight financial control has proved successful so far, Neil Saunders, Managing Director of Conlumino, argues that sooner or later the business will need to improve its customer offer if it is not to experience a slow decline.

“This is a business that is excellently managed in terms of financials but which is lacking in investment, creativity and flair. That’s beginning to show in shops which are looking increasingly shabby and an assortment that looks jumbled and confused,” Saunders said.

“Once cost savings run out – as one day they will – one has to wonder where growth is going to come from. The fear is that by that stage the business will have too weak a consumer proposition and will have been so starved of investment that significant expenditure will be required to increase sales.”

Published on Thursday 10 November by Editorial Assistant

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