Carl Cowling, the chief executive of WH Smith, has resigned with immediate effect after an accounting failure in the company’s North American division led to a significant overstatement of profits. The error, which emerged in August, caused the travel shop chain’s market value to plummet by nearly £600 million in a single day.
Key Takeaways
- WH Smith CEO Carl Cowling has resigned due to accounting failures in the North American division.
- The error led to an overstatement of profits by up to £50 million.
- Nearly £600 million was wiped off the company’s market value following the blunder.
- Andrew Harrison, UK chief executive, will serve as interim group CEO.
Accounting Failures Uncovered
An independent investigation conducted by Deloitte revealed "shortcomings" within WH Smith’s North American operations. These failures primarily involved the exaggeration of supplier income, resulting in the group’s US business profits being overstated by as much as £50 million. The review highlighted weaknesses in the US finance team’s composition, as well as insufficient systems, controls, and review procedures for managing supplier income. Furthermore, the group was found to have limited oversight of these financial processes in the US.
Impact on Profits and Share Value
The accounting error had a dramatic impact on WH Smith’s financial outlook. The company has significantly slashed its profit forecast for its US arm for the 2024-25 financial year, now expecting profits to be between £5 million and £15 million, a sharp decrease from the initial £55 million forecast. Group profits for the year ending 31 August are now projected to be between £100 million and £110 million, approximately 55% lower than the previous year. The revelation of the blunder in August caused a 42% drop in the company’s share price, wiping almost £600 million off its market value. While shares saw a modest increase of over 7% following the announcement of Cowling’s departure, they remain substantially below pre-blunder levels.
Leadership Change and Future Strategy
Carl Cowling, who had led the company for six years, acknowledged the seriousness of the situation, stating that it was appropriate for him to step down as group CEO. Annette Court, the chair of WH Smith, apologised for the failures and emphasised the company’s commitment to strengthening controls, governance, and reporting procedures. Andrew Harrison, the current UK chief executive, will take over as interim group CEO while the company searches for a permanent replacement. The company is focused on its travel business, with branches in airports and railway stations, and aims for new leadership to implement a remediation plan and guide the business through its next strategic phase.
Cowling will remain with WH Smith until the end of February to ensure a smooth handover. Analysts suggest that the scale of the value destruction made the CEO’s position untenable, particularly following the recent strategic shift to focus on travel retail after the sale of its high street business.
