The Financial Conduct Authority (FCA) has begun making formal inquiries into WH Smith following an accounting error that wiped almost £600 million from the retailer's market value and prompted the departure of its chief executive.
Regulatory Scrutiny Intensifies
Britain's financial watchdog confirmed it is assessing whether WH Smith breached UK disclosure rules for listed companies, though it hasn't yet launched a full investigation. "We are aware of the reports and we are engaging with the firm," an FCA spokesperson stated.
The regulatory attention follows WH Smith's August revelation of significant accounting problems within its North American division, which triggered an independent review led by professional services firm Deloitte.
Travel Focus and American Expansion
The accounting issues emerged shortly after WH Smith completed its strategic shift away from the British high street. The company had previously sold its high street stores, which have since been rebranded as TGJones under new ownership.
WH Smith had identified North America as a key growth opportunity as part of its renewed focus on travel locations including airports and railway stations worldwide.
The Deloitte review, published on 19 November, uncovered that profits in the American division had been overstated by as much as £50 million. The findings prompted immediate leadership changes, with Chief Executive Carl Cowling stepping down from his position.
Financial Fallout and Leadership Changes
WH Smith discovered the accounting discrepancy while preparing its year-end results, attributing the error primarily to recording certain income too early. The mistake involved complex arrangements with suppliers, including rebates for hitting sales targets and payments for marketing campaigns.
Company officials clarified that this income should properly have been recorded in the following financial year rather than the 12 months to 31 August.
The retailer now expects profits from its US arm for the year to 31 August to be between £5 million and £15 million, dramatically lower than the £55 million originally forecast by analysts and even below the £25 million estimate provided when the accounting problem first emerged in August.
Consequently, the group's full-year profits are projected to land between £100 million and £110 million, representing an approximate 55% decline compared to the previous year.
Carl Cowling will remain with the company until the end of February to ensure a smooth transition. WH Smith's board seeks a new leader who can "implement the remediation plan" and guide the company through its strategic pivot toward global travel hubs.
Despite a 1.5% share price increase on Tuesday, WH Smith's stock remains down 45% for the year, reflecting ongoing investor concerns about the company's financial health and strategic direction.
