WH Smith has once again revised down its annual profit outlook and revealed plans to raise approximately £100 million from investors through issuing new shares.
The retailer attributed the move to a reduction in passenger numbers across its travel hubs, which it linked to the ongoing Middle East conflict.
The chain, which operates numerous outlets in airports and train stations, also highlighted that consumers are tightening their budgets. It now anticipates reporting a pre-tax profit of between £75 million and £90 million for the full year, a significant decrease from its earlier guidance of £90 million to £105 million.
This marks the second time this year that the company has lowered its profit expectations.
Following the announcement, WH Smith’s share price plummeted by around 15 per cent in early trading on Wednesday. The company stated that the changed outlook reflected “the observed and anticipated decline in passenger numbers and weakening consumer demand across all divisions”.
Revenues from its UK airport shops dipped by 1 per cent in the 14 weeks to 6 June, compared like-for-like with the same period a year ago.
This was partly driven by flight cancellations and disruptions to the Middle East over the period, according to the firm.
In its US market, the disruption to airport traffic was more pronounced with fewer numbers of passengers linked to the conflict and also as a result of rising air fares.
However, revenues from hospital shops in the UK were up by 7 per cent year-on-year, and rail revenues rose by 2 per cent, offsetting the decline at airports to lead to 2 per cent sales growth in the UK overall.
Meanwhile, WH Smith also said it was planning an equity raise through the issuing of up to 26 million new shares representing about 20 per cent of its existing share capital, alongside a separate offer for retail investors in the UK.
It hopes the plans to raise around £100 million will bolster its balance sheet and help drive investment plans.
Company directors including executive chairman Leo Quinn and its finance chief are set to participate and intend to contribute about £1.73 million, WH Smith said.
Mr Quinn said: “There is no doubt that current economic uncertainty and its effect on consumer appetite for spending has created headwinds.”
He said the equity raise was a “proactive step to accelerate our transformation of what is, at heart, a good business with some great people and clear opportunity for profitable growth”.
The chairman also said WH Smith had been taking steps including to “sell, exit or renegotiate loss-making or low-returning situations” including replacing company-owned shops with franchises.
WH Smith sold its high street chain of shops to private equity firm Modella Capital last year, which was subsequently rebranded to TG Jones.
Richard Hunter, head of markets at Interactive Investor, said WH Smith’s capital raise “could prove to be the last roll of the dice for the company”.
“The capital raise comes at a time which will severely test investors’ patience and loyalty to the cause,” he said.
“Indeed, further investment into WH Smith will require something of a leap of faith as weaker consumer confidence has affected spend per passenger, a reduction in flights in the US has impacted airline capacity, while the Middle Eastern conflict has generally disrupted any progress which the group had been making.”
On Tuesday, the UK’s accountancy watchdog said it had launched an investigation into PwC over its auditing of WH Smith in the wake of a damaging accounting saga in its US division.
WH Smith admitted last year it overstated profits for its North American business by as much as £50 million because of issues with its audit process.
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