WH Smith turmoil sparks inquiry

CRISIS-hit WH Smith faces a probe by the Financial Services Authority into accusations that it misled shareholders by delaying a devastating profits warning for nearly three weeks after Financial Mail revealed its problems.

The beleaguered High Street giant admitted on Friday that profits would be 'materially' below expectations and sacked Beverley Hodson, manager of its UK retail business.

But it took the company 18 days after our report to make an official announcement to shareholders. Under stock market rules, companies must make public any information that will have an impact on the share price as quickly as possible.

WH Smith had declined to respond to our report, which said that it would kick off 2004 with a significant profits warning after distribution problems left many shelves empty.

Senior insiders were predicting a dire Christmas at the chain and shares fell nearly seven% to 277 1/2p the day after our report.

As well as forecasting Hodson's departure, our report said new chief executive Kate Swann planned a shake-up at head office and that seasonal sales of products such as CDs and DVDs would be well down on last year.

Several analysts revised their profits forecasts after our report, but WH Smith remained silent, leaving many investors who have bought shares in the past two weeks nursing big losses.

Though the shares hit 288p early last week, Friday's statement sent them plunging. They closed 11% down at 239p - having dropped 20% at one stage during the day.

Heavy promotions and price cuts over Christmas failed to boost sales, WH Smith said. Analysts cut full-year profits forecasts from about £100 million to between £60 million and £70 million and branded the statement as 'disastrous'.

The company also confirmed there would be further job losses among the 1,200 staff in the London and Swindon head offices after a three-month review. Swann admitted WH Smith had not dealt with the tough trading conditions as well as it should, but the firm denied it should have made an announcement sooner.

'The last two weeks before Christmas are responsible for 40% of our profit,' it said. 'It was imperative that we traded through that period before making a trading statement.'