WH Smith investors are awaiting updates on the fallout of an accounting blunder that vastly overstated the retailer’s profitability in the US.
The discovery of the issue wiped 40 per cent off the value of WH Smith shares on Thursday and analysts have said the revelation has ‘undermined’ the investment case for the retailer.
WH Smith, which was forced to slash annual profit guidance by £30million, said the blunder was confined to its US business.
The US is an important growth market for WH Smith, which has abandoned its high street presence in favour of becoming a pure-play travel hub retailer.
WH Smith, which operates in the US via airport retailer Marshalls and tech operator InMotion, opened 10 stores in the country during the first half, followed by another 10 in the third quarter alone.
The group told shareholders it had overstated US pre-tax earnings by around £30million after discovering the early recognition of supplier income.
WH Smith, which has abandoned its high street presence in favour of becoming a pure-play travel hub retailer.
It means earnings that should have been allocated to later years were being taken as soon as a deal was done.
‘It now transpires that this practice has been in place for some time in the US, and an investigation has been set up to root out historic overstatements but more importantly is the underlying level of profitability that we should expect in the US,’ Peel Hunt analysts said in a note.
WH Smith’s board has instructed Deloitte to conduct an independent and comprehensive review, and it plans to provide further updates within its preliminary results announcement on 12 November.
While the group has cut full-year profit guidance from £55million to £25million, it has withdrawn guidance for future years.
‘It leaves forecasting the US a pin-sticking exercise, but on the basis that a good slug of the overstatement will have been shorter-term forecasts, we make lower reductions to the outer years than we do for FY25E,’ Peel Hunt said.
‘Our numbers are not robust, in either direction.’
The broker cut its pre-tax profit forecasts for WH Smith in 2026 and 2027 by roughly 15 per cent each, and downgraded the group from ‘add’ to ‘hold’.
Analysts at UBS also placed WH Smith’s rating, price target and estimates under review.
UBS wrote in a note: ‘North America is an important growth driver to WH Smith strategy and we look for further updates on how the discovery affect supplier relationships here going forward.
‘We note that flight booking dynamics in the US have seen some pressure since the introduction of US tariffs and sales related to in-store purchases have a natural time lag (between booking and actually flying) – hence, we will continue to monitor this development closely.’
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