Newspapers, books and stationery retailer WH Smith said its strategy of improving margins and cutting costs rather than pushing sales was proving its worth in a tough market.

Shares in the firm, which trades from over 600 town centre stores and over 560 outlets at airports, train stations, hospitals, motorway service stations and work places, rose over 4 percent on Wednesday after it said profit growth in the 21 weeks to January 21 was in line with expectations even though sales at stores open over a year fell 5 percent.

That represented a slight improvement from a like-for-like (LFL) sales fall of 6 percent in the 10 weeks to November 5.

Like-for-like sales fell 6 percent at its high street stores and were down 3 percent in the travel division.

However, 220-year-old WH Smith said gross margins improved in line with plan in both divisions and costs were tightly managed.

WH Smith shares, up 11 percent over the last year, were up 23 pence, or 4.3 percent, at 556 pence at 9:18 a.m., valuing the business at about 758 million pounds.

WH Smith always get criticised for their declining LFL sales, but never get the credit for engineering a richer sales mix: We reckon that the gross margin has gone up by at least 1,200 basis points since Kate Swann took over as CEO (in 2003), said retail analyst Nick Bubb.

Retailers are generally struggling as shoppers rein in spending in the face of rising unemployment, weak wages growth and government spending cuts.

WH Smith, with its relatively low average transaction value of 5.50 pounds in its town centre business and 3.50 pounds at its travel outlets, has fared better than most.

Swann has cut costs and improved margins by focusing on more profitable products, better sourcing and fewer markdowns.

She has rebalanced WH Smith's high street and travel businesses and the firm's mix of products towards core categories and away from entertainment products such as CDs, DVDs, computer games and consoles, a shrewd move on the evidence of the difficulties at HMV and Game .

As a result of this, the months of November and December now represent less than half of annual group profit compared to over 90 percent of group profit six years ago, Swann said.

Looking ahead, we expect the trading environment to be challenging; however, we have planned accordingly and continue to be confident in making further progress in the year.

(Reporting by James Davey; editing by Kate Holton)