WH Smith Shares Plunge 30% After Major Accounting Error

WH Smith’s shares experienced a sharp decline on March 15, 2024, after the company disclosed a significant accounting error that has resulted in a loss of tens of millions of pounds in projected profits. The FTSE 250 retailer revealed that a recent financial review identified an overstatement of approximately £30 million in expected headline trading profit within its North America division. This miscalculation was attributed to the “accelerated recognition of supplier income.”

As a consequence of this error, WH Smith revised its North American profit forecast down to £25 million, a substantial drop from the previous market estimate of £55 million. The company’s overall headline profit is now expected to be £110 million, significantly lower than earlier projections.

Independent Review and Impact on Operations

In response to the situation, WH Smith has engaged Deloitte to conduct an independent and comprehensive review of its financial practices. The company plans to provide further updates during its upcoming results announcement, emphasizing its commitment to transparency and accountability.

Following the announcement, WH Smith’s shares fell by 30 percent to 775 pence in early London trading. The stock’s value has declined by nearly 40 percent over the past year, reflecting ongoing challenges for the retailer. Earlier this year, WH Smith completed a transaction to sell its high street outlets to private equity firm Modella, a move that will see the WH Smith brand disappear from the high street after more than 200 years. Modella plans to rebrand the locations as “TG Jones.”

The company also adjusted its expected proceeds from this transaction, reducing them to £40 million from an earlier estimate of £52 million due to lower-than-anticipated cash flow leading up to the sale.

Shift Towards Travel Retail

Over the past decade, WH Smith has increasingly focused on its travel retail sector, which operates primarily in airports, train stations, and hospitals. This segment has been more profitable compared to the high street arm, which now contributes only 15 percent of the company’s annual profit. As the travel sector continues to recover post-pandemic, WH Smith’s strategy appears aimed at capitalizing on the growing demand in this area, positioning itself for future growth.

The recent accounting issues highlight the complexities facing WH Smith as it navigates a shifting retail landscape while attempting to stabilize its financial position and maintain investor confidence. The company’s next steps will be crucial in determining its future trajectory in both the travel and retail markets.