WH Smith CEO Resigns Following Accounting Investigation

WH Smith PLC (LON: SMWH) released the findings of an independent Deloitte Review on Wednesday, which uncovered accounting irregularities within its North American division.

The review, focused on financial years 2023 to 2025, revealed inconsistencies in the application of accounting standards related to supplier income recognition. As a consequence, Carl Cowling, Group CEO, has resigned with immediate effect.

The Deloitte Review highlighted that supplier income in North America was overstated due to a misalignment with the Group's stated accounting policy.

The overstatement, while primarily a timing issue, reflects weaknesses in financial controls and oversight within the North American division. The situation was exacerbated by a target-driven performance culture and a decentralized divisional structure, coupled with insufficient systems and controls.

The company now expects Headline trading profit for FY25 to be in the range of £100m-£110m. North America's Headline trading profit is now expected to be in the range of £5m-£15m, a significant drop from the previously anticipated £55m.

This revision incorporates a net reduction in supplier income of approximately £22m, additional one-off inventory related costs of around £20m, and a failure to deliver expected cost savings of approximately £5m.

The North America division's challenges extend beyond supplier income, with an extensive year-end review revealing inconsistencies in the accounting treatment of inventory-related items, particularly regarding inventory shrinkage and aged inventory provisioning. Adjustments related to prior years are expected, with approximately £13m for FY24 and £5m for FY23.

Travel divisions in the UK and ROW remain relatively strong, with Headline trading profit for the UK division in the region of £130m and £14m for ROW. Central costs are anticipated to be approximately £25m, while financing costs are projected at £26m, reflecting the Group's lower net debt position. Net debt is expected to be around £390m, with leverage around 2.1x as of August 31, 2025.

WH Smith is implementing a remediation plan to address the identified weaknesses. This includes the adoption of a global supplier income policy in North America, the implementation of new governance and controls frameworks, and the strengthening of Group Finance and Audit and Risk teams. The company plans to engage a third-party assurance provider to review and validate key financial controls and processes.

Annette Court, Chair of WH Smith PLC, acknowledged the seriousness of the matter, stating, “This is an extremely serious matter that has had the Board's full attention, and we sincerely apologise for the shortcomings identified.”

Andrew Harrison, CEO of the Group's UK division, will assume the role of Group CEO on an interim basis. The Board has initiated a search for a permanent CEO to lead the company through its remediation efforts and future strategy.

Carl Cowling stated, “Whilst the issues identified in the Deloitte review arose in our North American division, I recognise the seriousness of this situation and as Group CEO feel it is only right that I step down from my position.”

The immediate impact on WH Smith's stock is likely to be negative, reflecting market concerns about the accounting irregularities and the leadership transition. Investors should anticipate increased volatility in the short term as the company navigates its remediation plan and the search for a new CEO.

The long-term outlook depends on the successful implementation of the remediation plan and the restoration of investor confidence.