By Nell Mackenzie
LONDON (Reuters) -Hedge funds and speculators picked WH Smith as their top target for short selling in July, before the British travel retailer announced an accounting error on Thursday that sent its shares tumbling more than 45%.
WH Smith lowered its annual profit outlook on Thursday after a review revealed earnings had been overstated in its North America division.
Speculators in July picked WH Smith as their top target among UK and European small-cap stocks for bets on a share price drop, a research report from Hazeltree also on Thursday showed.
Hedge funds that had to disclose such bets in August to the UK regulator’s public filings because of their size included Citadel Advisors and Man Group.
Analysts have cut target prices for WH Smith’s stock and have pointed to how mounting debt has weighed on the company’s cash reserves, compounding pressures from global economic uncertainty affecting the travel sector.
A financial review identified an overstatement of around 30 million pounds ($40 million) in expected headline trading profit, WH Smith said, mainly due to supplier income in North America being booked too early.
WH Smith, which in June sold its UK high street business to become purely a travel retailer, has been rapidly expanding in North America, which contributed about 20% of group revenue in fiscal 2024.
The retailer said it now expects group pre-tax profit for the year ending August 31 to be around 110 million pounds, compared to analysts’ estimates of 156.9 million pounds, according to LSEG data.
Entertainment ticket sales companies, luxury drinks companies and semi-conductor manufacturers saw large portions of their stocks borrowed for the purpose of shorting, Hazeltree’s Shortside Crowdedness Report showed.
It gathers data from 700 asset managers, covering 15,000 stocks globally.
Citadel and Man Group declined to comment. WH Smith did not immediately respond.
(Reporting by Nell Mackenzie. Editing by Dhara Ranasinghe and Mark Potter)
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