WH Smith shares slumped 42% on Thursday following an accounting error which led it to overstate its North America profits.

The company has cut its profit forecasts in the region as a result and has ordered a review by auditors.

It said the mistake was because of an issue in how it calculated the amount of supplier income it received essentially causing it to be logged too early.

Analysts said the blunder was a “huge embarrassment” for WH Smith, which is looking for a fresh start after selling its UK High Street division earlier this year.

The group is now expecting a trading profit for North America of about £25m for the year to August – a cut from the £55m initially forecast.

As a result, the company lowered its outlook for annual pre-tax profits to around £110m.

It has asked accountancy firm Deloitte to conduct a review into the error, and said it would provide an update on this review alongside its full-year results.

George Godber, fund manager at Polar Capital, said supplier income can involve marketing deals, such as a two-for-one promotion, which are often funded in part by the brand owner.

“So they found a misstatement on that, and they’re going to have to restate profits,” he told BBC’s Today programme.

AJ Bell investment analyst Dan Coatsworth said the incident was “nothing short of a disaster”.

He said North America was crucial to WH Smith’s growth ambitions, and “the loose thread of an accounting error in this part of the group” would cause concern about other problems.

“Investors will be sobbing into their cornflakes on the news,” he said.

WH Smith, which is London-listed, sold its High Street arm to Hobbycraft owner Modella Capital earlier this year.

As part of the deal, the WH Smith name disappeared from British High Streets and was replaced by brand TGJones.

Meanwhile, WH Smith now trades exclusively as a travel retailer based mainly at airports, railway stations, hospitals and service stations around the world.

Mr Coatsworth said these shops “benefit from a captive audience allowing the company to generate strong margins”.

“However, the US news has tarnished what WH Smith would have hoped could be a fresh start for the business.”

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said shareholders were “reeling” from the error.

“Getting it so wrong is not a good look and affects the reputation of the company.”

Retail analyst Catherine Shuttleworth said WH Smith’s sale of its High Street retail business was largely predicated on its potential for North American growth, but the company faces stiff competition from chains like Walmart.

“Just buying and selling isn’t enough for High Street chains anymore,” she added.

“A lot of their money is now made from working with brands, paying for listings for their products to be seen in stores.”