(Corrects index in paragraph 7 to FTSE mid-cap from FTSE 100)
(Reuters) -British travel retailer WH Smith lowered its annual profit outlook on Thursday after a review revealed earnings had been overstated in its North America division, sending its shares tumbling over 30%.
A financial review identified an overstatement of around 30 million pounds ($40.34 million) in expected headline trading profit, WH Smith said, mainly due to supplier income in North America being booked too early.
The error prompted a cut in the profit outlook at its second largest division to about 25 million pounds, down from previous forecast of about 55 million pounds.
“This is clearly a big negative surprise,” JPMorgan analysts said in a note.
“This raises a number of issues around its accounting, which are unlikely to be explained straight away and are likely to be a drag on the shares in the meantime.”
The company has instructed auditing firm Deloitte to undertake an independent and comprehensive review.
The shares fell to their lowest since March 2020 and were the biggest percentage losers on the FTSE mid-cap index.
WH Smith, which in June sold its UK high street business to become purely a travel retailer, has been rapidly expanding in North America, which contributed about 20% of group revenue in fiscal 2024.
However, mounting debt has weighed on the company’s cash reserves, compounding pressures from global economic uncertainty affecting the travel sector.
The retailer said it now expects group pre-tax profit for the year ending August 31 to be around 110 million pounds, compared to analysts’ estimates of 156.9 million pounds according to LSEG data.
In April, WH Smith had forecast annual profit to be in line with market expectations, which were around 182.6 million pounds at the time, according to LSEG data.
(Reporting by Raechel Thankam Job in Bengaluru; Editing by Sherry Jacob-Phillips and Elaine Hardcastle)
