1 FTSE 250 stock to watch this week
FTSE 250 retailer WH Smith (LSE:SMWH) is set to issue a trading update on Wednesday (4 June). And I’ll be watching very carefully when it does.
The company has just been through a transformation by agreeing to sell its high street stores. So I’m looking to see how things are shaping up.
Transformation
Until recently, WH Smith’s business had two parts to it. One involved stores that are based on the high street and in shopping centres and the other units in travel and other locations like railway stations, airports and even hospitals.
The high street business had been struggling for two simple reasons. One is that footfall on UK high streets has been declining and the other is it’s an extremely competitive environment for retailers.
AT the same time, the travel business has been faring relatively well. With no direct competition from the likes of Amazon or Tesco, it had achieved stronger sales growth and higher margins.
As a result, WH Smith recently sold off its high street stores and returned the cash to investors via share buybacks. It’s now 100% focused on travel outlets, but the big question is: what comes next?
What I’m looking for
The upcoming trading update should tell investors about revenues during the second quarter of 2025. And there’s a key metric I’m going to be keeping my eye on.
I’m expecting total sales to be up, but this isn’t the metric I’m focusing on. WH Smith is planning on opening 110 new stores in 2025, which should provide a short-term boost to revenue growth.
What I’m interested in, though, is like-for-like sales. This is a metric that measures growth of stores that were also operational in the prior year period – so it adjusts for the effect of opening new outlets.
The like-for-like sales figure gives a much clearer sense of how the business is faring. And I’m hopeful it’s going to provide a positive indication that the company – in its new form – is on the right track.
Godo strategy but risk remain
I think WH Smith’s decision to move away from the high street is a good one as UK retailers have been struggling to generate (like-for-like) sales growth recently. But it’s not entirely without risk.
Travel demand is cyclical and there will be times when consumers are more conscious of their spending, leading to downturns. That’s the big challenge for the firm.
In the short term, I expect WH Smith to be able to offset this by opening new stores. But over the long term, growth is going to come down to its ability to generate additional sales from its existing outlets.
That’s why like-for-like sales growth is so important – it’s the clearest sign of the firm’s long-term prospects.
Should I buy?
I’m generally wary of retail companies – the competitive nature of the industry can make it hard to maintain decent margins. But every rule has exceptions.
WH Smith’s focus on travel outlets insulates it from what I see as the biggest challenge for retailers. That’s why it’s on my list of stocks to consider buying at the moment.
The post 1 FTSE 250 stock to watch this week appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stephen Wright has positions in Amazon and WH Smith. The Motley Fool UK has recommended Amazon, Tesco Plc, and WH Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
