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WH Smith First-Half Underlying Profit Up 7%

WH Smith, the newspapers, books and stationery retailer, has reported a slightly better-than-expected 7% increase in first half underlying pretax profit and said that although it remains cautious about consumer spending in its markets it is confident in the outcome for the full year.

The group also announced a deal with Post Office Limited to open 70 Post Offices in WH Smith high street stores, and detailed current trading.

In the six weeks to April 14, like-for-like sales were down 5%, while gross margin was up on last year.

The group noted that due to the difference in the timing of Easter, this year's current trading period is not comparable with last year's current trading period.

For the six months to Feb 28 2007 the 672-store group, which is being squeezed by the supermarkets, specialists and online players, made a profit before tax and exceptional items of £59 million.

This compares to analysts' consensus expectations of about £57 million and £55 million in the prior year.

The outturn reflects chief executive Kate Swann's strategy of focusing on cost-cutting and improving gross margins by shifting the mix of products, rather than driving top line sales.

Total like-for-like sales fell 6%, while gross margin improved 290 basis points year on year.

The CEO has re-balanced the mix of the business towards its core categories of stationery, books, newspapers and magazines, and away from entertainment products - CDs, DVDs and computer games.

Swann, a former Argos executive, joined WH Smith in November 2003 and set out a three to five year programme the following summer to rebuild the retailer "as Britain's most popular bookseller, stationer and newsagent".

She has disposed of the group's travel businesses in the US and Far East, the publishing business, Hodder Headline, and last September de-merged the news distribution operation, now separately listed as Smiths News.

The interim dividend is 3.7 pence, up 19% on a proforma basis following the demerger.

Shares in WH Smith closed Wednesday at 432 pence, valuing the business at £789 million.