WH Smith shares plummet after North American accounting blunder

WH Smith’s pivot to focus on travel retail has met a major setback, with shares plunging over 40 per cent following an unexpected accounting error in its North American arm. The retailer, a longstanding fixture of the UK high street, recently rebranded itself as a “pure-play travel retailer”. Yet on Thursday, this new direction cast a shadow over the group’s profit forecasts and investor confidence.

A review by auditors Deloitte revealed a substantial “overstatement” of approximately £30 million in the headline profit figure for WH Smith’s US business. As a result, projected year-end profits have been slashed from £55 million to just £25 million, wiping nearly £600 million off the company’s market value in a single day. The accounting issue is said to have arisen from booking supplier income in the current year, rather than the next, raising significant questions regarding internal financial controls.

Chief executive Carl Cowling had identified North America as the company’s leading growth opportunity, targeting 500 new shops by 2028 and aiming for 20 per cent of the US travel retail market. This ambition now faces tough scrutiny in the wake of the blunder. Experts from Peel Hunt and Goodbody have called forecasting for WH Smith’s North American business a “pin-sticking exercise,” with analysts warning that forecasts are highly speculative given the lack of clarity around ongoing internal practices.

WH Smith’s recent shift away from UK high streets included the sale of its core domestic retail division to Modella Capital, and the disposal of Funkypigeoncom for £24 million. International sales were a bright spot in earlier half-year results, growing by three per cent to £951 million, while high street store profits fell by nearly a third. Despite these positive signs, the transatlantic strategy now appears riskier, compounded by questions about consumer demand in the US travel market and lacklustre performance from its InMotion electronics retail arm.

Some investors see upside potential if confidence in the North American division can be restored. A full review is now underway, and the situation bears resemblance to the Tesco accounting scandal of 2014, which took years to resolve. The magnitude and implications of WH Smith’s accounting error are not yet fully known, but the path to regaining market trust now looks long and uncertain.