The WH Smith (LSE: SMWH) share price plunged 4% in morning trading Thursday (14 November) after its full-year 2024 results failed to impress. The high street segment dragged down results for the popular UK stock, which were otherwise good in its travel division.

It noted a 16% rise in annual profits with underlying pre-tax profits of £166m for the year to 31 August. This was up from £143m in 2023. Total group revenue increased 7% to £1.9m.

Transport hub locations saw a 15% rise in trading profits but earnings were flat in high street stores. It’s already closed 14 such stores and is in discussions regarding the lease renewals of 100 more. It plans to open 40 new transport-related stores this financial year.

“As we grow travel, the high street division will become a smaller part of the overall group”, it said in today’s results.

A key announcement was a 16% increase in the total dividend. The new final dividend of 22.6p will bring the total up to 33.6p for the year. The dividend yield now stands at 2.4% and with a 64% payout ratio, dividends look sufficiently covered by earnings.

Steady expansion

Since opening one of the first-ever platform-based newsstands at Euston station in 1848, WH Smith has become synonymous with railway shops. For 176 years, it’s been selling newspapers, magazines and snacks to commuters. In that time it’s expanded to include high street stores, airports, hospitals and motorways.

Yet the basic business model of selling reading material and confectionary at transport hubs remains largely unchanged. Now with over 1,700 stores worldwide, it’s grown into a £1.7bn FTSE 250 company.

Over the years, the business has attempted several means of expansion, including a travel division, DIY chain and record store. Many of these failed or were eventually sold, but ones that stuck include Marshall Retail Group, curi.o.city gift stores, and the airport electronics chains InMotion and Tech Express. 

These have helped it find a foothold abroad in the US, Canada, Australia and South East Asia.

Risks and growth potential

A key risk with WH Smith is both the cyclical and unpredictable nature of travel. Naturally, the pandemic hit the company hard, shaving 65% off the share value. But similar hikes and dips occur with events like the Paris Olympics, football’s Euros and general changes in consumer travel habits. A continued decline in high street store revenue could also hurt the share price.

Earnings are forecast to grow 87%, giving it a forward price-to-earnings (P/E) ratio of 14, below the industry average of 17.2. The average 12-month price target from 13 analysts is £15.82, a 21.6% rise from the current level.

Debt remains high, at £481m, giving the company a debt-to-equity ratio of 144.9%. This is a bit high but it’s manageable. Operating income’s 3.6 times interest, so that’s sufficiently covered.

All things considered, it appears to be in good shape. Sadly, my investment budget for this year’s maxed out but with a decent valuation and moderate growth potential, I think the stock’s worth considering.