WH Smith is a restless company that has had more than its fair share of missteps in the past few decades. Remember its DIY chain or television channel? Not many do.

Yet hope springs eternal, so when this month it said that it was going to launch cafés under the Smith’s Kitchen banner, its share price rose. After all, it’s always welcome to see a company striking out in a new direction, a sign of entrepreneurial spirit that is all too rare these days.

Never forget, though, that with potential reward comes risk.

Although the company used to be indelibly associated with books, newspapers and stationery, it now describes itself not as a newsagent but as a global travel retailer. Smith’s has sold food for a decade, nowadays dispensing 11 million meal deals a year in hospitals, airports and other travel points. Food is sold in half of all customer visits.

The new bit in the latest development is the delivery method. After 232 years distributing newspapers, the business is used to selling products with a limited shelf life, but newspapers don’t usually spill orange juice on the floor.

The cafés will stock coffee, freshly baked pastries, hot and cold breakfast items and products from the Smith’s Family Kitchen range, launched in May in its travel stores. The initial emphasis will be on serving hospitals, apparently a hot spot in the catering sector these days.

Carl Cowling, the group chief executive, started at WH Smith as managing director of its travel division and before that ran Dixons Travel, the airport end of the electricals retailer. Not much food there, but Andrew Harrison, his successor in charge of the airport, station and hospital shops, has run Manchester and Stansted airports and chaired the John Smiths Stadium in Huddersfield, so he should know which side of a sandwich to butter.

Smith’s is broadly moving away from its historic role as a newsagent, understandably in view of declining sales of physical newspapers and the migration of books to Kindle and the like. The company is opening no more high street branches and many of the survivors are being jazzed up with Toys ‘R’ Us in-store concession shops.

In June Cowling reported: “The transformation of the UK Travel business to a one-stop-shop for travel essentials is delivering strong results, increasing average transaction values and returns.”

The surge in travel helped to balance the downturn in the high street business. Total revenue from travel, the biggest part of the group since 2017, rose by 8 per cent year-on-year in the quarter that ended on June 1, being the main contributor to overall sales growth of 5 per cent, despite a 4 per cent drop in earnings from the high street.

North America, where Smith’s has been boosting snacks and sweets and installing more chillers, has been disappointing. Sales there rose by only 3 per cent and were flat on a like-for-like basis. But the rest of the world, which covers Europe, China, Australasia and Asia, was ahead by 15 per cent. The group is also the world’s largest technology retailer in travel locations through the InMotion brand.

Investors will be watching keenly to see where the latest initiative takes it. If cafés work in Britain, presumably they will be rolled out elsewhere, with local variations.

The next trading statement, scheduled for September 11, will yield the first estimate of the financial year to the end of this month. We may have to wait a little longer for a meaningful taste of how Smith’s has taken to catering.

In April last year this column recommended buying the shares at £15.20 because it was thought that North American expansion could spur the price higher. After touching £16.44, they slid to £12.17 because the American expansion story turned out to be less dramatic than billed.

At the interim stage, analysts at Peel Hunt, the broker, predicted 93p-a-share earnings for the year just ending, followed by 102.3p and 111.6p. At that rate, the priceto-earnings ratio will shrink from 13.3 to 11.1. For comparison with the food retailing sector, McDonald’s is on 24, Greggs 21. Peel Hunt expects the dividend to rise from 36p to 56p by 2026, for a prospective 4.5 per cent yield.

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Fuller Smith & Turner

Another company changing with the times is Fuller Smith & Turner, which brewed beer for 400 years until it sold its production division to Asahi, of Japan, in 2019. Since then it has been expanding its pubs estate.

However, as pubs have been dropping down the pecking order of night-time destinations, it has become essential to add value. Fuller’s answer has been to build a collection of characterful hotels and inns, many of the latter with bedrooms, in locations such as Somerset, the Midlands and London.

Its latest addition is Lovely Pubs, with seven countryside inns in affluent areas of Worcestershire, Warwickshire and the West Midlands. The deal was funded by selling 38 pubs in London and the southeast for £38.3 million earlier in the year.

This is also a story of a long return to normality after the pandemic, with its associated cost of living crisis. Simon Emeny, Fuller’s chief executive, said in June that there had been an increase in sales as tipplers trickled back to workplaces near the group’s pubs, led by central London hostelries such as The Astronomer in Liverpool Street. “With inflationary pressures easing, our margins are recovering,” he said. “In terms of people going to offices, it is better than last year, but still down on pre-Covid levels.”

Fullers, which has about 400 managed and tenanted pubs, announced pre-tax profits of £14.4 million in the 12 months to then end of March, up from £10.3 million the previous year. Annual revenue rose by 9 per cent to £359.1 million. Dividends were 17.75p, making a sustainable 2.35 per cent yield. Adjusted earnings per share should rise from 24.48p to 30p for the prersent year, making a demanding 25 price-to-earnings ratio.

Fullers believes there is more to come. “We don’t feel that the journey towards full recovery is over yet,” Emeny said. Nevertheless, the new government’s labour laws may slice off a layer of profits that will have been boosted by Euro 2024, a bonus that will be absent in the year beginning next April.

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