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WH Smith High Street Division Set for Sale to Hobbycraft Owner in £76 Million Deal
Iconic British retailer WH Smith is poised to disappear from UK high streets as the company has agreed to a £76 million sale of its high street business to Modella Capital, a London-based investment firm. This move marks a significant shift for WH Smith, allowing the company to concentrate on its more profitable travel retail sector.
Rebranding to TGJones
The retailer, known for its stationery, books, and convenience items, has been in discussions with potential purchasers since late January. This decision to sell the high street division reflects the dwindling sales in this sector, contrasted with the thriving performance of WH Smith’s outlets in airports and railway stations.
WH Smith informed investors on Friday that it would divest the high street unit to Modella Capital, the current owner of Hobbycraft, on a cash and debt-free basis. Modella Capital is also reportedly considering a bid for kitchenware retailer Lakeland.
Focus on Travel Retail
The WH Smith brand name itself is not included in the transaction. The company stated that this sale would enable them to “focus on seizing the considerable growth prospects within its crucial travel markets,” aiming to boost shareholder value.
Group Chief Executive Carl Cowling described the sale as a “critical juncture” for the company and its “goal to become the foremost global travel retailer.”
Currently, approximately 75% of WH Smith’s revenue and 85% of its trading profit originate from its travel division. This segment encompasses over 1,200 stores across 32 countries, highlighting the company’s global presence in travel locations.
High Street Business Remains Profitable
Despite the strategic shift, WH Smith emphasized that its high street business remains profitable and generates cash. It currently employs around 5,000 individuals across approximately 480 stores in prime UK locations, supported by its Swindon-based headquarters.
Funkypigeon.com’s Future Under Review
The high street division, presently led by Sean Toal, will transition to new ownership. Significantly, the personalised online greeting card service, funkypigeon.com, is not part of this sale. However, WH Smith announced on Friday that it is also evaluating “strategic options” for Funkypigeon.com, which may include a potential sale of this online business.
Potential Store Closures Anticipated
Analysts have cautioned that the sale of the high street business, which will eventually be rebranded as TGJones, could lead to the closure of almost half of the existing stores as the new owners streamline operations and optimize profitability.
Financial Benefits and Future Growth
WH Smith anticipates that the sale will bolster revenue growth and improve profit margins. It is also expected to assist the group in maintaining robust cash flow generation, strengthening its financial position.
The company underscored projections for increasing air travel volume in the next quarter-century, alongside continuous investments in airport infrastructure, as key drivers for long-term structural growth in its travel sector.
WH Smith elaborated that its travel business, which achieved nearly £1.5 billion in sales in the past year, will prioritize increasing customer spending per passenger, expanding passenger numbers, optimizing retail space utilization, and pursuing expansion in both new and existing international markets.
CEO Cowling concluded, “Given the sustained strength of our UK Travel division and the magnitude of growth opportunities in both North America and the Rest of the World, we are in the strongest position we have ever been to achieve enhanced growth as we move forward as a focused travel retailer.”
He added, “With a well-defined strategy, a robust balance sheet, and operations within high-growth and appealing markets, we are ideally positioned to generate substantial growth and value for all stakeholders.”