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UK shares: here’s one retail stock I am avoiding!

On the lookout for UK shares to add to my portfolio, I often decide some stocks aren’t for me. WH Smith (LSE:SMWH) is one example of this.

One of the UK’s oldest retailers

WH Smith is one of the UK’s oldest high street retailers. Its roots date as far back as 1792. As I write, it has over 600 high street locations selling books, stationery, and other convenience items. It also has 600 travel concession locations strategically located at airports, train stations, hospitals, and motorway service stations. WH Smith also has an online presence too.

As I write, shares in WH Smith are trading for 1,670p. A year ago, shares were trading for 1,484p, which is a 12% return. In January 2020, prior to the pandemic and market crash, shares were trading for over 2,500p. It has struggled to return close to these levels over the past 18 months or so. I don’t think it will return to those levels for some time due to inflation, competition, and the supply chain crisis.

Why I’m avoiding WH Smith

WH Smith’s recent preliminary full-year results did not make great reading for me. It reported an overall loss as well as the fact that trading had not returned to pre-pandemic levels. There are other UK shares I am interested in that have confirmed their trading has surpassed 2019 levels.

There are lots of macroeconomic pressures and activity that will affect WH Smith. Firstly, rising inflation will see costs rise and these costs could affect any recovery as well as eat away at margins. Secondly, the UK’s supply chain crisis will affect its retail outlets and store operations. Finally, there is currently a labour supply issue in the UK. For a firm that relies on its large physical store footprint for margins and profit, this is not good news. WH Smith mentioned all these issues in its preliminary results too.

I believe WH Smith’s competitors are better equipped and placed. An example of this is Amazon. If I want a book for example, I instantly think of clicking a few buttons on my smart device of choice and getting it delivered to my door the next day. The rise in technology and ease of online shopping could hamper WH Smith, despite its own online offering.

Despite my bearish stance on WH Smith currently, it does possess some positives, albeit not enough to sway my decision. Its historic roots and track record are not to be ignored. A company that can last as long as it has, adapting to the changing times and society must be applauded. Furthermore, its travel concession locations should benefit from reopening and pent up demand as more travel takes place.

Other UK shares are enticing

Overall, I will avoid WH Smith shares for my portfolio right now. I will keep a keen eye on developments, however.

I believe that other UK shares could offer me better returns. For example, I believe Greggs, the bakery giant, is a good pick and could be an excellent growth play for my portfolio.

The post UK shares: here’s one retail stock I am avoiding! appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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