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WH Smith (LON:SMWH) |
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WIKI ANALYSIS
WH Smith (LON:SMWH) is a London retailer of books and magazines. The company also sells newspapers, impulse items, and entertainment items in its stores. WH Smith has two business segments: the travel division, which are small shops located for customers who want to purchase items on-the-go, and the High Street division, which are the large retail stores located on popular streets. The latter includes sales of the online retail site at www.whsmith.co.uk. [1]
WH Smith's main source of revenue is from the sales from its High Street division (69.5% of total revenue), which is impacted by overall consumer spending, as well as challenges such as online retail and a shift away from print. [2] In FY2008, segment revenues were $1,710 million [3] of total revenues of $2,462 million. [4]
WH Smith has expanded its travel division through several acquisitions. WH Smith acquired UNS Group in March 2008 for $37 million to expand its travel unit by adding stores in UNS's hospitals. [5]
Corporate Overview
WH Smith operates in the United Kingdom and over the internet. [1] The company is a retailer primarily of magazines and books. It currently operates 449 Travel units and 557 High Street stores. Travel units are located in airports, railways, hospitals, and motor stations, catering to people on the go, while High Street stores are more traditional commercial storefronts in urban areas.[1]
Business and Financial Metrics
In FY 2008, WH Smith had total revenue of $2,462 million, an increase of 4.1% from the previous year. Total EBIT was $138 million, an increase of 5.6% from the previous year. [4] The company was able to maintain its EBITDA margin, amidst the recession.
| WH Smith (in $millions) | 2006 [6] | 2007 [4] | 2008 [4] |
| Total Revenues | 2549 | 2619 | 2462 |
| EBIT | 105 | 133 | 138 |
| EBITDA margin | 8% | 8.5% | 8.5% |
Note: Currency exchange rates used for 2006 is 1.902 USD/GBP, 2007 is 2.016 USD/GBP, and 2008 is 1.821 USD/GBP. [7]
Business Segments
WHSmith High Street (69.5% of Total Revenue)
WH Smith has 557 High Street stores, which are comparable to stores of the American Barnes & Noble. Each store offers four types of products: news and impulse (includes newspapers, magazines, confectionery, etc.), stationary (greeting cards, etc.), books, and entertainment (video games, music, and etc.). High Street also operates the online retail business, www.whsmith.co.uk. The site averages approximately 250,000 visits per month. [2] Out of shopping websites, WH Smith is ranked 488 for the most website traffic. [9]
| UK Top 5 Book Sites (Excluding Amazon) | Market Share [9] |
| WH Smith | 7.78% |
| Waterstones | 6.18% |
| Abesbook UK | 5.41% |
| Ebay UK | 4.65% |
| Abesbook US | 3.92% |
In FY 2008, WH Smith High Street reported $1,710 million in revenue, a decrease of 2% from the previous year. The decline can be partly attributed to the strategy implemented in 2008 to focus on its core and high margin items of book sales and news and impulse sales. Thus, the entertainment sales declined 18% over the fiscal year. [10]
WHSmith Travel (30.5% of Total Revenue)
WH Smith owns 449 stores in airports, train stations, motor stations, and hospitals. [3] The selection of products offered in each store is comparatively limited in variety. Since the customers have less time to browse, these stores offer reading materials suitable for a trip and quick food and confectionery items. [3]
In FY 2008, WH Smith Travel reported $752 million in revenue, an increase of 22% from the previous year. The growth can be attributed to the major expansion for Travel. The company acquired UNS Group Limited for $37 million, which the business composed of 72 retail stores and 8 Caffe Nuovo coffee shops in 62 hospitals. The company also acquired Alpha Retail UK Limited, which the business is composed of 23 airport units. Furthermore, the company reached a franchise agreement with RoadChef to open 29 CTN units, which will enhance coverage for motorway. [11]
Trends and Forces
EBooks and Digital Readers cut into book profits
The current trend of decline in print sales are attributed not only to the weakening economy, but also the penetration of online retail. Online retailers such as Amazon offer the same products, including CDs, books, and DVDs, in addition to digital copies for some items. WH Smith has tried to capitalize on this penetration by launching its online retail site in 2001. [12]
In 2004, the large book retailers accounted for 38.6% of print sales while internet sales accounted for 6.6%. In 2008, the internet sales increased its market share to 13.4%, while large book retailers' market share fell to 34.0%. [13] Thus, internet sales have almost doubled its market share in 4 years.
Furthermore, with the advent of digital readers such as Amazon's Kindle 2, which can store over 1,500 books and access an e-store wirelessly with over 200,000 titles, WH Smith's print retail sales face a new competitor. The results can be seen from the weak retail environment, where WH Smith reported a decline in revenue, while Amazon reported a 7% gain on its books, music, and movies segment in Q1 2009.[14] Furthermore, online ebook sales reported a 54% increase from the 4QFY2008 to 1QFY2009. [15]
Bestsellers Drive Traffic to the Stores
Retail printed book sales are driven by the best sellers. Harry Potter and the Deathly Hallows was released in the first half of FY2008. A portion of the 27% increase in revenue from the second half of FY2007 to first half of FY2008 can be attributed to the Harry Potter and the Deathly Hallows book sales. [16] Thus, the large fluctuations in revenues from quarter to quarter for the retailer can be attributed to the release of different best sellers and seasonal promotions.
Competition
- Waterstone's Booksellers Limited is a retailer of books and music, whose parent company is HMV Group plc, a retailer of music, video, electronic games, and other entertainment products under HMV and Fopp names. It also offer its products online on hmv.com. HMV has opened 408 specialist entertainment stores and 314 specialist book stores. The company is a direct competitor to WH Smith, since it offers similar products. [17]
- Borders (UK) Limited is a retail store offering books, magazines, music, and DVDs through 40 stores throughout the UK. The company is a direct competitor since it offers the same products. The company was sold to Risk Capital Partners in 2007 for $40 million.[18]
- Amazon.co.uk is an online retail store that offers not only the product offerings of WH Smith, however the company offers a broad range of products, which include groceries, music, books, toys, jewelry, and more. Amazon is a direct competitor, since consumers can have the convenience of shopping online, instead of in store. [19]
| Company | Revenue ($mm) | EBIT ($mm) | # of Stores | Sales per store (000's) | 2007 Book Sales Market Share [20] | Online Market Share [9] |
| WH Smith plc [8] | $2,462 | $138.4 | 1,006 | $2,447 | 13% | .82% |
| Waterstone's Booksellers Limited [21] | $541.8 | $3.3 | 314 | $1,723 | 20% | .84% |
| Borders (UK) Limited [18] | $215 | -- | 40 | $5,375 | 8% | -- |
| Amazon.co.uk[22] | $137.4 | $(.9) | -- | -- | 16% | 76.06% |
- Note, for HMV financials, the exchange rate used was $1.462 USD/GBP (currency on 4/25/2009). Amazon.co.uk financials were translated using the exchange rate of $1.457 USD/GBP (currency 12/31/2008).
References
- ↑ 1.0 1.1 1.2 WH Smith Annual Report 2008 pg. 7
- ↑ 2.0 2.1 WH Smith Annual Report 2008 pg. 12
- ↑ 3.0 3.1 3.2 WH Smith Annual Report 2008 pg. 8
- ↑ 4.0 4.1 4.2 4.3 4.4 WH Smith Annual Report 2008 pg. 46
- ↑ Bloomberg "WH Smith Sales Decline as U.K. Shoppers Curb Spending" 5 June 2008
- ↑ Reuters SWMH.L
- ↑ Capital IQ
- ↑ 8.0 8.1 WH Smith Annual Report 2008 pg. 15
- ↑ 9.0 9.1 9.2 Booksellers UK Industry Report
- ↑ WH Smith Annual Report 2008 pg. 16
- ↑ WH Smith Annual Report 2008 pg. 10
- ↑ The Register "WH Smith jumps on ebook" 5 May 2001
- ↑ Booksellers UK Retail Report
- ↑ Reuters "Amazon beats Q1 sales, profit estimates, shares up" 23 April 2009
- ↑ IDPF Industry Statistics
- ↑ Reuters SMWH.L
- ↑ HMV
- ↑ 18.0 18.1 Hoovers Borders UK
- ↑ Amazon UK
- ↑ Booksellers Source: HSBC
- ↑ Hoover's Waterstone's Booksellers Limited
- ↑ Capital IQ Amazon.co.uk
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