Profits gloom for WH Smith

WH SMITH is expected to be forced to issue another devastating profits warning early in the New Year as competition and sluggish sales bite into profits in the run-up to Christmas.

The ailing High Street company has introduced a welter of special deals to lure shoppers, suggesting that it has seen a fresh decline in sales in its most crucial period.

The company, headed by chief executive Kate Swann, is unlikely to say anything until Christmas is out of the way and analysts have been told that executives see no reason to cut forecasts of a £64m annual profit.

But the City suspects that WH Smith might be forced to issue a statement early in the New Year. After a poor Christmas last year, the company issued a warning on 2 January.

The profits forecasts have been calculated assuming that WH Smith achieves little or no increase in sales and a modest 1.5% rise in profit margins.

However, one analyst said: 'The assumption that sales will be flat looks increasingly implausible.' He predicted a fall.

Some retail-watchers are now pointing to a profits figure nearer £50m. In the 12 months to August this year, WH Smith declared a loss of £135m - but that was after huge exceptional charges. Underlying profits were only £67m.

Last spring, Swann admitted that the store's special deals had been too muddled. In a presentation-she said: 'Customer communication is confused.' But months later, WH Smith is still running overlapping cut-price offers. The chain has separate promotions on hardback books, paperbacks, children's annuals, CDs, DVDs and Christmas cards.

Customers spending £25 or more can buy a £25 medical encyclopedia for £5. In addition, for the past two Thursdays, WH Smith has offered an across-the-board discount of 10%.

Many retailers are struggling to meet profits forecasts as consumers show an increasing reluctance to spend. 'But the estimates for Smiths must be among the most vulnerable,' said one analyst.

Some investors are already voting with their feet. On Friday, US fund manager Fidelity cut its stake from 5.9% to

4.8% - the second time in a week that it had sold the retailer's shares.