WH Smith shares crash as accountants launch review

A big problem with the travel newsagent’s numbers has been uncovered while preparing its annual results. Graeme Evans explains the issue and what City analysts think.

21st August 2025 13:45

Graeme Evans from interactive investor

WH Smith shares are likely to “remain friendless” for some time, a City bank warned today after it said forecasting in the retailer’s key growth market was now a “pin sticking exercise”.

Peel Hunt cut its price target from 1,400p to 755p and removed its Add recommendation in the wake of the disclosure of a £30 million profit overstatement in North America.

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The accounting error relates to the early recognition of supplier discounts, meaning that earnings that should have been allocated to outer years were taken as soon as the deal was done.

WH Smith (LSE:SMWH) said results for the year to 31 August are now set to show an adjusted pre-tax profit for the group of £110 million, down from City expectations of about £157 million.

Shares slumped as far as 657p, below the 700p closing level at the height of the Covid-19 sell-off on 19 March 2020.

The stock was 2,400p in the month before the pandemic disruption, a level the retailer has not come close to revisiting despite its growth ambitions in North American travel.

Source: TradingView. Past performance is not a guide to future performance.

Having bought InMotion in 2018 and Marshall Retail Group the following year, the division now trades from 340 stores and has a pipeline of 70 outlets planned over the next three years.

The business is now WH Smith’s second largest in profit terms as chief executive Carl Cowling looks to secure a 20% share of the North American travel market by 2028.

He told investors in the 2024 annual report: “As the largest travel retail market in the world, we are incredibly excited about the future for WH Smith North America.”

However, market conditions are likely to have toughened since President Donald Trump’s Liberation Day tariffs announcement in April. The impact on store purchases of any changes in booking trends takes longer to be felt, given the time lag until the actual date of flying.

The company’s most recent update showed total revenue in North America up by 7% in the 13 weeks to 31 May, or 3% higher when recent dollar weakness has been factored in.

Today’s update reveals that divisional profits for the year are now likely to be in the region of £25 million, rather than the £55 million forecast in the City.

A forensic investigation by Deloitte is under way to determine the full extent of the issue, which WH Smith has said is specific to the US and not any other divisions.

Peel Hunt doubts whether the review will be completed in time for November’s annual results.

The bank said: “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 2025. Our numbers are not robust in either direction.”

It has cut its earnings per share forecast for 2026 by 13.6% to 75.5p, which using a “generous” price multiple of 10 times leads to a new target of 755p.

The bank said: “The shares have obviously been hit hard this morning but the likelihood of a bounce-back while the uncertainty remains is low.”

Peel Hunt added that the disclosure should not have a major bearing on 2025 cash, although it says bigger questions remain about the margin structure of the US businesses.

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