WH Smith CEO Carl Cowling has resigned, after an independent investigation into a shock accounting error revealed costs will hit the company harder than expected.
In an investors’ update, the global travel retailer said it now anticipated a blow to earnings of £40m-£50m, up from the £30m originally estimated when WH Smith revealed the error in August. The initial revelation wiped 42% off the group’s share price.
Stepping down, Cowling said he recognised the “seriousness of the situation”, adding it was “only right” he resigned. He will replaced by current UK CEO Andrew Harrison as group CEO on 26 February.
Results from a Deloitte review published this morning (19 November) revealed the issue had come about because the company’s North American accounting treatment was “not consistent” with group policy, and supplier income had been overstated.
The accounting error arose “against a backdrop of a target-driven performance culture” and a “decentralised divisional structure”, according to Deloitte’s review, which highlighted the “limited level of group oversight of the finance processes in North America”.
The investigators also found “weaknesses in the composition of the finance team” and a poor set of systems, controls and review procedures for supplier income across both commercial and finance functions.
Headline trading profit from the NA division for the year to 31 August 2025 is now expected to be £15m-£25m, compared with original guidance of £55m.
WH Smith said it expected to incur fees of up to £10m from the review. Prior year results’ adjustments will have to be made thanks to the error, in a further blow to the company’s financials.
“This is an extremely serious matter that has had the board’s full attention, and we sincerely apologise for the shortcomings identified,” said WH Smith chair Annette Court. “While the issues identified arose in our North America division, we recognise the importance of strengthening controls, governance and reporting procedures across the group.
“Our priority now is to rebuild trust and credibility and to improve the performance and profitability of our North America division. We are confident that the actions we have taken and will continue to implement over the months ahead will ensure a strong foundation for the business.”
Court thanked Cowling for his 11 years’ service and “significant contribution” to the company.
“Upon being appointed as group CEO in November 2019, Carl successfully navigated the company through the global pandemic and, more recently, has strategically repositioned the group as a pureplay travel retailer. We wish Carl every success in the future,” she said.
AJ Bell head of markets Dan Coatsworth said: “No chief executive is going to survive an episode as catastrophic as one that wiped $594m off the value of WH Smith overnight.
“Given the errors were accounting-based, one might have expected the chief financial officer to be the one putting their pot plant and family photo in a cardboard box. However, the fact chair Annette Court describes it as ‘an extremely serious matter’ implies that it had to be the CEO who fell on their sword.”
WH Smith has begun a search process for a new group CEO, something Coatsworth said “won’t be easy”.
“They’ll have to rebuild credibility with the market the moment they walk through the door, rather than simply focusing on corporate strategy.”
The presence of activist investor Palliser may also complicate any new CEO’s job. Having built a stake in WH Smith in June, Palliser outlined a plan for the group to make a better case for investment.
The plan called for better investor communication and disclosures from WH Smith; leverage targets and a clear capital allocation policy to target high returns; and an executive incentive structure to better align with shareholders and return on capital.
“The list of things it wants improved is now likely to be much longer,” said Coatsworth.
“All eyes will now be on Palliser to see if it is satisfied with the remedies outlined by WH Smith following the Deloitte review. Don’t be surprised if it takes a more aggressive stance to try and drive a rapid recovery in the share price.”
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