WH Smith PLC (LSE:SMWH) forecasts were being quickly cut in the City after the retailer warned that its North American business had been overstating profits.
The FTSE 250 group said the North American business had been recognising supplier income too quickly as profit, meaning the EBIT outcome is for the year to August is likely to be around £25 million, not the £55 million that analysts had been expecting.
Broker Peel Hunt said: "It remains unclear to us how this issue arose or what the implications will be for outer years.
"However, the impact on group profit is to be severe, and our forecasts are likely to gather around the guided £110 million for FY25.
"Given that North America was the cornerstone of the growth story, we expect the market to react badly."
In light of this uncertainty, with a review by accountants Deloitte being commissioned by WH Smith into the matter, the broker said it was placing its recommendation on the shares under review, temporarily withdrawing its 'add' rating.