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(Sharecast News) - WH Smith cut profits guidance for the second time this year on Wednesday, sending shares in the retailer tumbling, as war in the Middle East curtailed travel and weighed on consumer demand.
Updating on trading in the 14 weeks to 5 June, the British retailer - which has around 1,300 shops in airports, rail stations, hospitals and resorts worldwide - saw global sales rise 2% on a like-for-like basis.
Weighing on the figure were British airport sales, which eased 1%, and ongoing issues in its troubled North America division, where a 9% slide in resorts saw overall like-for-like sales in the region weaken 1%.
WH Smith sold its high street division last year to Hobbycraft-owner Modella Capital to refocus exclusively on its travel business.
However, it then emerged that accounting errors in its US arm had gone on for years, prompting chief executive Carl Cowling to quit and forcing the retailer to restate earnings. War in the Middle East has also dampened international travel, with airlines cutting capacity, reignited inflationary pressures and rocked consumer confidence.
WH Smith confirmed air passenger numbers in both the UK and US had been impacted by both the war and weaker consumer confidence. Margins also came under pressure in North America as the chain boosted promotional activity in response to weaker demand.
As a result, the FTSE 250 firm now expects full-year headline profits before tax and non-underlying items to come in between 75m and 90m.
As at 1030 BST, shares in the FTSE 250 stock had plunged 19% to 398p. The stock has now shed 63% over the last year.
It is the second time WH Smith has warned on profits this year, after it cut its outlook in April to 90m and 105m from an initial forecast, made in December, of between 100m and 115m. It also suspended its dividend in April.
The group, which is undergoing a restructuring, also announced plans for a capital raise representing 20% of its share capital.
It said the fundraise was a "prudent and proactive step which will strengthen the balance sheet, enable continued execution of the group's growth and transformation agenda, provide greater confidence around the group's leverage position and reduce the group's reliance on debt funding as it executes its long-term growth strategy".
Richard Hunter, head of markets at Interactive Investor, said the fundraise could WH Smith's "last roll of the dice".
He continued: "Further investment into WH Smith will require something of a leap of faith.
"If the previous annus horribilis seemed uncomfortable, matters have now taken a turn in what could be an existential time for the company.
"For the time being, any obvious strengths for WHSmith has been swept aside. The announcement has seen a further raft of investors rushing for the exit and the market consensus of the shares as a 'hold' can only come under intense downward pressure from here"
Dan Coatsworth, head of markets at AJ Bell, said: "WH Smith is in a tricky situation, with a downturn in trading coming off the back of an accounting hiccup. It's not the best conditions to go cap in hand to shareholders.
"Shareholders might take the view that its long-term prospects are still good, but their patience has already been tested by the company's recent overstatement of profits and share price collapse.
"They will want as big a bargain as possible on the fundraising to warrant the risk of putting up even more money to back WH Smith."
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