WHSmith shares tumbled by more than a third on Thursday after the UK retailer slashed full-year profit forecasts and called in an independent auditor after discovering “an overstatement” in profits at its US arm.
The UK group, which has about 1,300 stores globally located in airports, train stations and hospitals, said on Thursday that profits from its North American division for the year to August would be about £25 million (€28.9 million), down from market expectations of about £55 million.
WHSmith, which has eight outlets at Dublin Airport, said the overstatement was “largely due to the accelerated recognition of supplier income”. Shares fell 36 per cent in early trading in London, on track to be its largest ever one-day fall.
Retailers such as WHSmith receive money from suppliers as discounts or promotions, which should be recorded gradually over time to match when the related sales take place.
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As a result of the revision, the group lowered estimates for full-year headline profit before tax and one-offs to about £110 million, compared with analysts’ previous expectations of about £140 million.
[ Airport passenger increase sees WH Smith profits soarOpens in new window ]
Nick Bubb, an independent retail analyst, said “the profit warning from WHSmith will go down like a lead balloon with investors”.
Bubb said the issue had echoes of the 2014 Tesco accounting scandal, in which the UK’s largest retailer delayed payments to suppliers to help it meet its own financial targets. It subsequently paid £214 million in fines and compensation payments after an investigation by regulators.
The retailer has appointed Deloitte to undertake an independent review and said it would provide further details with its preliminary results, which are scheduled for November.
Its current auditor is PwC while its chief financial officer, Max Izzard, was appointed only last September, following the end of its last full financial year.
The accounting issue comes amid changes at the group, which was established in 1792 as a family-run newsagent. Earlier this year it sold its 233-year-old UK high street business to investment group Modella Capital to focus on its more profitable travel retail business.
Modella rebranded the 480 high-street shops to TG Jones, and in June renegotiated the price for the business downwards after a deterioration in trading.
Over the past decade, WHSmith has become an international travel retailer through acquisitions, including a $400 million deal to buy Marshall Retail Group in the US in 2019.
Richard Chamberlain, a retail analyst at RBC Capital Markets, said: “WHSmith should recoup most of the shortfall in future years, but even so this is a material reduction in profitability for what has been seen as a key long-term growth driver for the company”.
In June, activist investor Palliser Capital, which previously targeted Rio Tinto, disclosed a 5 per cent stake in the WHSmith group.
It said at the time that “while its travel business has grown strongly in recent years, and recovered fully post pandemic, its share price is still around Covid-19 levels and has consistently underperformed the broader travel, leisure and retail sectors”. - Copyright The Financial Times Limited 2025
