WH Smith's Success Driven By Olympics, Fifty Shades Of Grey And Ruthless Efficiency Drive

More Than Just 'Mummy Porn' Driving WH Smith Success

Positivity surrounding British high street giant WH Smith, sparked by a market announcement of its latest share buyback, is driven by more than just mummy-porn, according to analysts.

Much has been made in the press about the Fifty Shades of Grey effect, where the hype surrounding the renowned novel and a series of subsequent 'me-too' authors has caused a surge in book sales - but the real story behind the positivity is less shallow.

Since the financial year ending 31 August, 2007 WH Smith has returned £377m to shareholders through dividends and share buybacks, including a repurchase programme of £50m which was completed on 7 August this year.

The buybacks are good news as it shows WHSmith has a strong balance sheet. So confident is the board of the retailer, it announced a further share repurchase programme of up to £500m for the financial year to 31 August 2013.

Speaking to The Huffington Post UK, David Jeary, retail analyst at Investec, acknowledged the 'Fifty Shades' phenomenon, but said there were other factors at play.

"The average amount someone spends in WH Smiths is small - no more than a fiver usually - which means people don't spend a lot of time thinking about it. It's easier to say, 'yes, I'll buy a few sweets and a magazine', rather than pay up if you can really afford to spend thousands on a new television," he said.

"The travel shops also benefitted from the Olympics; not because the tourists were buying books at the airports and train stations, but because of the high margins on drinks and confectionery."

Jeary also highlighted the ongoing programme of cost savings since chief executive Kate Swann took the helm in 2008 - £17m has been saved this year alone, and most of that was from the high street shops, rather than the travel bureaus.

"She's perpetually nibbled at cost savings," he said, citing the increase in self service tills, central distribution of books and a general relentless search for improved efficiency as examples.

Seymour Pierce analysts Kate Calvert and Freddie George also said in a note to investors, reported on the Telegraph, that they believe there’s more to come from the company.

“We view WH Smith as a core holding and believe the market is undervaluing this highly cash generative business,” they wrote, adding the group “is one of the few retailers in our universe to have grown profits through the current downturn”.

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