WH Smith shares tumble after accounting blunder

WHSmith shares slumped 38% on Thursday morning following an accounting error which led it to overstate its North America profits.

The company has cut its profit forecasts in the region as a result and has ordered a review by auditors.

The firm said the mistake was because of an issue in how it calculated the amount of supplier income it received - essentially causing it to be logged too early.

Experts have said the error is a "huge embarrassment" for WHSmith which is looking for a fresh start after selling its UK high street division earlier this year.

The error means the group is now expecting a trading profit for North America of about £25 million for the year to August - a cut from the £55 million initially forecast.

As a result, the company lowered its outlook for annual pre-tax profits to around £110 million.

The company has asked accountancy firm Deloitte to conduct a review into the blunder. WH Smith said it will provide an update on this review alongside its full-year results.

AJ Bell investment analyst Dan Coatsworth said the error was "nothing short of a disaster".

He said North America is crucial to WHSmith's growth ambitions, and "the loose thread of an accounting error in this part of the group" will cause concern about further problems.

He added that the cut in profit forecasts "will cause huge embarrassment to management".

"Investors will be sobbing into their cornflakes on the news."

WHSmith, which is London-listed, sold its High Street arm to Hobbycraft owner Modella Capital in June.

As part of the deal, the WHSmith name disappeared from British high streets and was replaced by brand TGJones.

Meanwhile, WH Smith now trades exclusively as a travel retailer based mainly at airports, railway stations, hospitals, and service stations around the world.

Mr Coatsworth said these shops "benefit from a captive audience allowing the company to generate strong margins".

"However, the US news has tarnished what WH Smith would have hoped could be a fresh start for the business."

Chris Beauchamp, chief market analyst at IG, said the drop in share price show that "investors are fretting that this could be the tip of the iceberg".

"Perhaps the reaction seems a little overdone, especially now it has shed itself of the underperforming UK High Street arm."

He added that WH Smith "needs to get ahead of this situation as quickly as possible and make the necessary changes to rebuild credibility with the market".