The Financial Conduct Authority (FCA) has begun making inquiries into WH Smith following a significant accounting error that erased nearly £600 million from the retailer's stock market value and triggered the departure of its chief executive.
Regulatory Scrutiny Intensifies
The City watchdog confirmed it is assessing whether WH Smith breached UK disclosure rules for listed companies, though it hasn't yet launched a formal investigation. A spokesperson stated: "We are aware of the reports and we are engaging with the firm." The FCA typically uses inquiries rather than full investigations, believing its non-enforcement direction powers can achieve results without imposing fines.
Accounting Blunder Uncovered
The crisis emerged in August when the newspaper, books and stationery chain discovered financial discrepancies at its North American division while preparing year-end results. The company subsequently cut financial forecasts and commissioned an independent review led by Deloitte.
The Deloitte review, published on 19 November, revealed that profits at the American arm had been overstated by up to £50 million. The error occurred because the company had logged some supplier income too early, specifically recording rebates and marketing payments in the wrong financial year.
Leadership Changes and Strategic Shift
Following the review's publication, chief executive Carl Cowling stepped down from his position. He will remain with the company until the end of February to ensure an orderly transition. The company's UK chief executive, Andrew Harrison, has taken over as interim leader while WH Smith searches for a permanent replacement.
This accounting controversy comes just months after WH Smith sold its high street business, which has since been rebranded as TGJones by its new owners. The retailer is now focusing exclusively on its branches in airports and railway stations, having identified North America as a key growth opportunity within this travel-focused strategy.
The financial impact has been substantial. WH Smith now expects profits for its US arm for the year to 31 August to be between £5 million and £15 million, dramatically below the £55 million originally forecast by analysts. Group full-year profits are projected between £100 million and £110 million, representing approximately 55% lower than the previous year.
Despite a 1.5% share price increase on Tuesday, WH Smith's stock remains down 45% for the year, reflecting ongoing investor concern about the company's direction and financial management.
