WH Smith chief executive Leo Quinn has struggled to reassure shareholders that a recovery is on the cards, as the retailer's shares fell for the second day.
The high street stalwart revealed a significant fall in profits on Thursday, with Quinn – who previously spearheaded turnarounds at Balfour Beatty and Qinetiq – attributing the company's difficulties to "forced growth" under its former leadership.
Shares tumble after profit decline
Shares tumbled more than 8% in early trading, to 364p, following initial losses on Thursday. The stock has shed approximately 14% since the group announced its profit decline, pushing its year-to-date losses to 41%.
WH Smith posted a £76m pre-tax profit for the year ending August, more than a quarter below the previous year and considerably short of the £115m it had originally forecast.
On a statutory basis, the group plunged to a £107m loss from a £2m profit the prior year, weighed down by £164m in impairments, write-downs and restructuring costs, as reported by City AM.
Quinn outlines transformation costs
In his address to shareholders on Thursday, Quinn acknowledged that "there is a cost to the transformation programme" he has outlined since taking the helm in April. "But it is necessary to strengthen the foundations of the business to improve profitability."
Quinn's "detailed analysis" of WH Smith over recent months has uncovered that "forced growth delivered a complex and siloed Group structure without scalable benefits. This resulted in increased costs, too many loss-making stores, acquisitions not integrated effectively and high organisational complexity."
His recovery plan for WH Smith, partly backed by £106m raised from investors in June, will see the retailer rein in its underperforming European and US operations while withholding bonuses from both staff and senior leadership.
Revenue forecasts and prior accounting scandal
The group anticipates revenues in its rest of the world division to fall by between 10% and 20% as a result of store closures. Takings in North America are also expected to soften, as that division continues to grapple with reduced footfall at airport outlets owing to travel disruption stemming from the Iran war.
WH Smith is still working to recover from a significant accounting error that came to light last year, which revealed the company had been overstating profits in its North American division for a number of years.
The scandal sent its share price tumbling, triggered an investigation by the Financial Conduct Authority (FCA), and ultimately resulted in the departure of Carl Cowling, who had served as the group's chief executive since November 2019.
Analyst views on recovery plan
Conroy Gaynor, a senior consumer analyst at Bloomberg Intelligence, noted that WH Smith is "in the midst of a difficult turnaround, with likely headwinds to earnings at least in the near term". However, analysts at Panmure Liberum suggested that Quinn's "plan is coming together", while acknowledging he has "another year of heavy lifting" ahead.
"We remain positive behind the execution of the recovery plan but would like to see more cash drop through," they added.
