WHSmith who has over 50 stores in Australia has been rocked by a profit reporting scandal that wiped 42% off its market value overnight, after admitting it overstated profits by A$52 million due to rebate accounting errors.

The UK retail group — which has aggressively expanded into Australia with more than 50 stores across airports, hospitals, train stations and even the UNSW campus — slashed its full-year profit forecasts and called in Deloitte to conduct an independent review.

The company revealed that profits from its US operations had been overstated, largely due to the accelerated recognition of supplier income. The practice, reminiscent of the accounting problems that led to the collapse of Australian retailer Dick Smith, meant income was booked too early.

As a result, WHSmith cut guidance for full-year headline profit before tax to around A$229 million, well below analyst expectations of A$429 million. The group now expects underlying annual profit to be £25 million, less than half the £55 million forecast by markets.

The revelations triggered the steepest one-day fall in the company’s shares, which closed at levels last seen during the pandemic when WHSmith’s global travel retail business was largely shut down.

The accounting shock comes just months after WHSmith spun off its legacy UK high street stores to Modella Capital, leaving its focus squarely on airports, stations and hospitals worldwide. Globally, the group operates about 1,300 locations.

Analysts were quick to draw comparisons with past scandals. Peel Hunt questioned whether the misstatement was a “one-off timing issue” or part of a longer pattern, while independent analyst Nick Bubb said the warning would “go down like a lead balloon with investors.” Others likened it to Tesco’s 2014 accounting scandal, which resulted in £214 million in fines and compensation.

WHSmith said further details will be released with its preliminary results in November. Its current auditor is PwC, while its chief financial officer, Max Izzard, only joined in September 2024.

Founded in 1792 as a family newsagent, WHSmith has faced upheaval before — but analysts warn this could be one of its most damaging credibility crises yet.

Retailers like WHSmith as well as Harvey Norman or JB Hi Fi receive income from suppliers in the form of incentives and discounts, which are often based on volumes supplied.

The supplier’s deductions are recognised on a contract-by-contract basis against the retailer’s cost of goods sold — but they’re booked as soon as they arrive rather than when the goods are sold.

The Financial Times claims that ‘Best practice is for retailers to match supplier income to the relevant trading period. If a company chooses to recognise too much supplier income too soon, a gap will open up between the profit-and-loss account’s accrual profit and cash generation. That seems to be what’s happened at WHSmith North America.

Analysts and investors who’ve talked to WHSmith this morning tell us they understand that supplier income for North America was being booked too early. The review will push some percentage of supplier income into future periods. How much, and where exactly it lands, will be up to Deloitte.