UPDATE 2-UK's WH Smith weathers retail storm

(Adds CEO, analyst comments, shares)

By Chris Wills

LONDON, April 17 (Reuters) - Bookseller and stationer WH Smith Plc (SMWH.L) said its town centre stores did better than expected in the first half, helped by Christmas sales of books from celebrity chef Jamie Oliver and comedian Russell Brand.

The retailer, which is less vulnerable than some others to the economic slowdown because customers on average spend an affordable 5 pounds per visit, said pretax profit rose 8 percent to 64 million pounds ($126 million), lifting its shares more than 2 percent.

"The economic environment remains uncertain and whilst we continue to be cautious we are confident in the outcome for the full year," said Chief Executive Kate Swann. Underscoring the company's improving prospects it proposed an interim dividend up 24 percent on last year at 4.6 pence per share.

Analysts had expected pretax profit of between 57 million pounds and 59 million, leading Swann to predict upgrades to forecasts for the company's full-year earnings of at least 3 to 4 percent.

WH Smith had been a casualty of changing consumer habits such as the growth of out-of-town retail malls and online retailing. In 2004 a takeover bid was withdrawn partly because of the company's pension liabilities.

But the company has proven resilient to changing trends and its shares have risen 15 percent since the start of the year, helped by a 90 million pounds share buyback announced in January.

OUTPERFORMER

Its shares rose 1.6 percent to 371.75 by 0841 GMT, valuing it at around 585 million pounds. Its shares have outperformed the UK general retail sector .FTASX5370 by almost 50 percent in the last 12 months.

WH Smith (SMWH.L) said like-for-like sales were down 2 percent in the first six weeks of its second half, as expected, having been 2 percent lower for the first half to Feb. 29.

Brokerage Cazenove raised its earnings per share forecasts by 4 percent for 2007/08 and 5 percent for 2008/09, while analysts at Citibank who rate the stock "buy" said they expect analysts to upgrade pretax forecasts by around 6 percent to 74 to 76 million pounds for the full year.

"We see significant further upside in the shares over the medium term," said analyst Steve Oldfield at Cazenove in a note with an "outperform" recommendation.

While total group sales rose 2 percent in the first half, boosted by a forecast 14 percent growth at stores in airports, stations and hospitals, sales at town centre stores fell 3 percent despite strong sales of stationery and books including Russell Brand's "My Booky Wook" and Jamie Oliver's "Jamie At Home".

The company said it was expanding its travel stores by purchasing 23 units in 11 airports from Alpha Retail UK Ltd. It bought the stores, which have annual sales of around 25 million pounds, for an undisclosed sum.

The airports include Heathrow's Terminal 1, Cardiff, East Midlands and Birmingham.

Later this year it plans to open two bookstores at Manchester airport and five units at Copenhagen airport, a rare foray outside the UK.

The company expects its Travel stores to contribute an increasing proportion of revenue.

WH Smith last month bought 80 retail units and cafes in 62 hospitals and announced a franchise deal with RoadChef to open travel units in all 29 of its motorway service stations. (Editing by Quentin Bryar and David Holmes) (chris.wills@reuters.com; 0044 (0)20 7542 5331; Reuters Messaging: chris.wills.reuters.com@reuters.net)) ($1=.5075 Pound)