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WHSmith shares plummeted by nearly 40% on Thursday after an "embarrassing" accounting error that caused it to overstate its profits by £30 million. The high street giant had to cut its profits in North America and order a review by auditors due to a mistake in how it calculated the amount of supplier income it received, with the figure being calculated too early.

Investors wiped nearly £550m off the retailer's market value, sending the stock price down to £6.76 a share - putting it on track for its worst single-day decline on record. AJ Bell's investment analyst Dan Coatsworth called it "nothing short of a disaster" and a "huge embarrassment to management". He said: "The loose thread of an accounting error in this part of the group will create concern about a potential greater unravelling to come. Investors will be sobbing into their cornflakes on the news."

Trading profits for North America are now expected to come in at around £25 million for the year leading up to August - a significant drop from the initial forecast of £55 million.

The company also lowered its outlook for its annual pre-tax profits to around £110 million.

WHSmith's suppliers have an arrangement where they offer rebates if it his sales targets on certain times and payments for marketing and promotions.

That income was meant to be logged for the next financial year, rather than for the 12 months leading up to August 31.

Accountancy firm Deloitte has been asked to conduct a review into the mistake, and WHSmith said it would give an update on this alongside its full-year results.

Mr Coatsworth added that the accounting error "has tarnished what WHSmith would have hoped could be a fresh start for the business" after it sold its high street arm to Hobbycraft owner Modella Capital earlier this year.

Its high street branches have been replaced by the brand TGJones, while WHSmith now exclusively trades as a travel retailer based mainly at airports, railway stations, hospitals and service stations.