WH Smith has reported a sharp fall in annual profit despite higher sales, as costly airport contract renewals, inflation and a troubled North American business squeezed its margins.

The travel retailer said on Thursday that revenue rose 5% to £1.63 billion in the year to 31 August, with like-for-like sales up 2%. But headline profit before tax fell to £76 million from £108 million a year earlier, and on a statutory basis the group swung to a pre-tax loss of £107 million, against a £2 million profit the year before.

The gap between the two profit measures comes from £164 million of non-underlying items, up from £92 million, covering transformation costs and writedowns. Around £103 million of that was writedowns and onerous contract costs, mostly on North American stores, The Market Reporter reported.

UK profits hit by airport rents

In the UK, trading profit fell to £107 million from £130 million. The company blamed higher airport rents, inflation and heavier discounting as shoppers grew more cautious. Hospitals delivered the strongest like-for-like performance in the UK business. North American revenue rose 9% and the rest of the world grew 1%, but margins there were under pressure too.

Headline earnings per share fell 30% to 30.3p. Net debt fell to £325 million from £390 million, helped by a £103 million share placing in June. There is no final dividend.

WH Smith is now almost entirely a travel retailer, with most of its shops in airports, railway stations and hospitals, after selling its high street business. That leaves it exposed to passenger numbers and to the rents landlords charge at airports — both of which worked against it this year.

Flat start to the new year

Trading in the first ten weeks of the new financial year was flat on a like-for-like basis. UK sales rose 1%, but North America fell 5% as passenger numbers softened. The group now expects headline pre-tax profit of between £75 million and £85 million for the year to August 2027, broadly in line with market expectations — and little better than this year’s £76 million.

The company also said it would close all its Resorts fashion stores in North America by April, and that revenue in the rest of the world division would fall by 10% to 20% as it pulls out of several countries.

Leo Quinn, the former Balfour Beatty boss who became executive chairman in April, has blamed years of “forced growth” for leaving the retailer with unprofitable shops, according to The Times. WH Smith is now pressing ahead with a transformation plan to refocus on its travel business, with margins expected to stay broadly flat while the work continues. The Retail Bulletin reported the results on Thursday.