Is this FTSE 250 retailer set for a dramatic recovery in 2026?

Shares in FTSE 250 travel retailer WH Smith (LSE:SMWH) fell 7% on Friday (19 December) after the firm reported its 2025 results. It’s been a bad year for the stock, but is it set to bounce back in 2026?

The company has spent the last four months doing a thorough job of tackling its issues and there’s still more to be done. But investors do have reason to be positive in the year ahead.

A turnaround story

Despite an accounting scandal that sent the stock down 34% in a day, WH Smith has had some genuine highlights in 2025. It’s done a good job of focusing its business on travel retail.

To this end, the company has divested its high street stores and online greeting card operation. Both of these look like good moves to me and I think the travel business looks promising.

In the year that ended in August, the company registered overall sales growth of 7% with the majority of this coming from higher like-for-like sales. That’s a decent result.

The accounting irregularity in the US business however, meant profits fell during the year. But investors do at least have clarity about where the company is. 

Where are we now?

In terms of where it’s heading, WH Smith’s guidance is for similar revenue growth and profit margins from the US division are expected to double. Those are encouraging signs. 

It’s worth noting though, that the business has made a slow start to the year. Like-for-like sales growth’s fallen to 3%, led by a weaker performance in UK train stations.

There’s also still some ongoing uncertainty. The company doesn’t have a permanent CEO and it’s a pity Sir Dave Lewis isn’t available – this might have been right up his street.

Investors though, can have confidence in the accuracy of the firm’s numbers and this hasn’t been guaranteed of late. And it’s extremely important from an investment perspective.

Investment analysis?

The latest decline implies a price-to-earnings (P/E) ratio of around 15. There are definitely cheaper retail stocks available, but they generally face higher competitive pressures.

Travel retail’s shielded from a lot of competition from other retailers and – more importantly – e-commerce. That’s why WH Smith has been shifting its focus to this part of the business.

One thing investors can ignore, at least for the time being, is the 5% dividend yield. In its latest update, the company’s cut its final payment by 73%.

This is in line with the firm’s general policy for shareholder returns. But a consequence of restating its earnings over the last couple of years is the dividend is set to fall. 

2026 and beyond

I think 2026 is likely to be a year of consolidation for WH Smith. The issues it’s been dealing with are real and serious and I expect the share price to reflect this.

As a result, I don’t think it’s a top opportunity for investors right now. I own the stock in my portfolio and I’ll be monitoring the situation, but I’m looking at other opportunities right now.

The post Is this FTSE 250 retailer set for a dramatic recovery in 2026? appeared first on The Motley Fool UK.

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Stephen Wright has positions in WH Smith. The Motley Fool UK has recommended 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.

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