Market snapshot: latest from Wall Street and WH Smith

WH Smith (LSE:SMWH) enters the important summer season in fine fettle, with strong recent trading providing some promising momentum.

The sale of the high street business, a strategically sound move which establishes a clear direction of travel for the remaining units, is due to complete by the end of this month. This leaves the group as a “pure play travel retailer”, where the reasons behind this burgeoning business are largely due to what the company describes as “structurally advantaged growth markets”.

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WH Smith benefits from captive customers in many of its key sites, such as railway stations, motorway services, hospitals and, in particular, airports, which sets it aside from much of the retail competition. The return of near normality in air travel has been a particular boon to this segment of the group.

In addition, and at each of its locations, the group is aiming for a one-stop shop approach by expanding its more traditional books and newspaper offering to include health and beauty, technology, food and pharmacy products. Technology is a relatively new area of focus, with the group’s InMotion brand often in adjacent stores to the main space, and where the group is keen to expand its international presence. The overall offering is thus able to provide time-pressed customers with all their travel essentials under one roof with a fast and convenient shopping experience.

The potential in North America is substantial in the group’s view, where passenger numbers are forecast to grow in air travel 2.5 times before 2050, and where the group is observing more opportunities for airport retailing. The store opening programme continues apace, and in the 13 weeks to 31 May Air revenues (which include the Travel Essentials and InMotion businesses) saw like-for-like growth of 4%, or 9% on a constant currency basis.

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Overall revenues grew by 7% on a constant currency basis, underpinned by like-for-like hikes of 7%, 6% and 3% in Air, Rail and Hospitals respectively in Travel UK. The group has maintained its outlook for the full-year and is set to continue its focus on cash discipline, while a dividend yield of 3.3% sits in the background as an adequate bonus.

Unfortunately, the group has inevitably been impacted by the wider economic uncertainty, especially in its key UK and North American markets. At the same time, part of its product suite such as books can be purchased online prior to travel, while an increasing international business adds the potential complication of currency headwinds. These factors are quite apart from the growing competition for share of customer spend, especially at railway stations and airports.

Investors are nonetheless buying into the story and the group looks strongly positioned leading into the peak summer trading period. However, there is a mountain to climb if the shares are to recapture its former glories. The price has declined by 38% over the last two years and is 61% lower than the pre-pandemic peak of December 2019. Over the last year, a drop of 12% compares to a gain of 1.4% for the wider FTSE250 in what has been a weak last six months.

Despite this underperformance, the refocused strategy is one which has gained the seal of approval and the market consensus of the shares as a buy reflects this optimism.

Market snapshot

US markets remain on edge as the latest tariff deadlines are due to take effect today, but investors sought solace in the fact that the US and China are due to speak this week at the highest level with the possibility of some compromise.

In turn, this lifted stocks which could benefit from a warming of relations, most notably NVIDIA Corp (NASDAQ:NVDA), which gained almost 3% and, given its market dominance, helped to drive the main indices to a positive close. The move was sufficient to finally return the Nasdaq to a positive return this year, with the index now ahead by 0.5%, while the wider S&P500 has added 1.5% with the Dow Jones all but flat on a decline of just 0.1%.

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Challenges undoubtedly remain and the stains from the “Sell America” trade have yet to become apparent as the uncertainty lingers. In the meantime the next GDP update, quarterly reporting season and 90-day tariff pause expiry are not due until July which, all things being equal, could leave markets relatively rudderless for the remainder of this month.

This has left investors searching for asset alternatives and, quite apart from the obvious flight to the likes of gold, the UK is slowly gaining a reputation as a favoured investment destination, despite a relatively flat opening set of trades today. The premier index is seemingly gathering an array of international investor admirers given the stability and maturity of its constituents, with the FTSE100 now up by 7.5% this year and continuing to edge towards the previous record level which was set in March.