British retailer WH Smith witnessed its shares collapse by over 30% on Thursday after a financial review uncovered a significant accounting error, forcing a drastic reduction to its annual profit forecast. The company identified an overstatement of approximately £30 million in its expected headline trading profit, primarily attributed to supplier income in its North American division being recognized prematurely.
As a result of this discovery, the profit outlook for its North American operations—its second-largest division—was slashed to roughly £25 million, a severe drop from the previous forecast of £55 million. This revision has led the group to anticipate a pre-tax profit of around £110 million for the year ending August 31st, a figure starkly lower than the £156.9 million analysts had projected.
The announcement has sparked serious concerns among investors and analysts. JPMorgan analysts noted that the surprise is “a big negative” and raises significant questions about the company’s accounting practices that are unlikely to be resolved immediately, suggesting the issue will continue to weigh heavily on the stock. In response, WH Smith has commissioned auditing firm Deloitte to conduct an independent and comprehensive review of the matter.
The news sent shares tumbling to their lowest level since March 2020, making them the worst performers on the FTSE mid-cap index. The crisis comes at a challenging time for the company, which sold its UK high street business in June to focus solely on travel retail. While its North American expansion has been rapid—accounting for 20% of group revenue—it is now also grappling with mounting debt and cash reserve pressures exacerbated by global economic uncertainty affecting the travel sector.
