WH Smith Shares Plunge 12% as FCA Probes Accounting Blunder Wiping £600M Off Market Value

The legendary British high-street retailer WH Smith dropped its shares by 12% in heavy trading today following a formal probe of a significant accounting anomaly by the Financial Conduct Authority.

Focusing on misreported assets and possible violations of disclosure regulations, the probe has eliminated close to PS600 million of the market capitalisation of the company, heightening the questioning of the governance in the FTSE 250 staple.

The disclosure, which was reported in a morning regulatory filing, is due to an internal audit that found some anomalies in the valuation of its inventory over the next two financial years.

The management cited this mistake to be due to systemic weaknesses within old accounting software, although investors were dismayed, and by midday, the shares had fallen as far as 1,100 pence. This is the largest one-day decline of WH Smith since the lockdowns of 2020 that occurred during the pandemic, highlighting the vulnerability of the retail business to digital shocks.

The misfortunes of WH Smith add to a difficult situation of bricks-and-mortar chains in the UK, where footfall has not been recovering even after inflation. With its travel hubs and airports, and stations, the company announced that its like-for-like sales had not grown in its last interim report due to the sluggish consumer expenditure on luxury goods. Price target reductions were made by analysts, one brokerage said that regulatory risks were high and could result in fines of over PS50 million in case of infractions.

It was met with a rapid and ruthless reaction in the city. It is not merely a glitch but a red flag on financial controls, and this is what one senior fund manager said. The trading volumes increased four times, and short sellers accumulated with the hedge funds betting on further losses. The forward price-earnings ratio of the stock fell to 10 times, indicating reduced trust in the earnings trend.

FTSE 250 Retail Rout Continues With WH Smith Scandal Waving Through Sector

It was not just a blow to WH Smith, with the collapse of its peers such as Card Factory and Pets at Home dropping 4-6% as the FTSE 250 retail sub-index tumbled by 2.5% before midday.

The wider FTSE 100 in London fell 0.3per cent, gaining less each week in the wake of the Budget than had been the case in the wider economic anxiety. The actions of Chancellor Reeves, such as VAT adjustments on luxury goods, have not yet sparked the revival of the high streets, leaving the retailers vulnerable.

Economists attribute the malaise of the sector to the structural changes: e-commerce penetration to 35% of the non-food sales, according to the ONS statistics. Experiential travel retail, which is what WH Smith has been shifting to (coffee bars and technology devices), has worked both ways, as global growth in the US and Australia has been used to counter sluggishness in the home market. However, the accounting snag is set to derail such initiatives and even require the company to write down and restate assets.

In the case of WH Smith, which was founded in 1792 to sell newspapers, this crisis is a test of resilience that was developed during wars and recessions. Defensively, the board said that it would fully collaborate with the FCA and employed external auditors to conduct a thorough audit. The interim CEO reassured the company that it was dedicated to transparency and rapid correction as speculations seemed to point to leadership changes.

Increased Regulatory Focus: Can FCA Crackdown Revamp UK Corporate Reporting?

This probe highlights wider FCA examination of accounting, after equivalent investigations at companies such as Superdry. Professionals expect stricter implementation of the new Economic Crime Act, which will require more internal controls. There is a risk of shareholder class-action suits against failure to comply, since they already have paper losses.

Eyes of the management control: a PS100 million efficiency program, store rationalisation and digitisation of the supply chain, would put margins back to 8 per cent. Amazon click-and-collect partnerships would help boost revenues, but the implementation amid probe distractions will be a big one.

Investor mood becomes even more unpleasant on dividend clouds; the 25 pence annual dividend, at 2 per cent, is under suspension should cash savings take the day. Contrarians, though, spy value: with the current valuation, the stock is trading below book value, and buyout talk is being spied by the private equity.

WH Smith continues to be the story of a thin thread that the FCA is walking through in a digitalised world. Christmas trading is critical with predictions putting festive sales at PS400 million, and any additional revelations will set in stone a poor year-end. It is a warning to the City: despite the age of transparency, even brands as old as the hills are not going to avoid the accounting traps.