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Ted Baker slumps on profit warning

Daniel Lane

Daniel Lane - Fidelity Personal Investing

It’s all change at Ted Baker. Just after Christmas the company was breathing a sigh of relief as a 12% jump in sales put a shine on an otherwise sour ending to 2018. A probe into inappropriate behaviour from founder Ray Kelvin and a tough year for the whole retail sector had driven shares to their lowest level in over five years. However, the news was enough to lift shares by 12% as optimistic investors hoped the worst was behind them.


Ted Baker

Fast forward to today and it’s clear that patience has yet to be rewarded, to put it very lightly. Shares have more than halved since January and this morning’s revision of profit guidance from the company has prompted a 26% price drop at the time of writing.

The picture looks very different now and, retrospectively, it seems that the British retailer hadn’t out-manoeuvred some of the wider retail malaise at the end of last year, it had simply delayed them.

The company announced today it now expects profits for the year to January 2020 to come in somewhere between £50m and £60m, down on the £70m previously forecasted and the £63m achieved the previous year.

Chief executive Lindsay Page said: “ongoing consumer uncertainty” was partly to blame for the tough trading conditions. The retailer also pointed to unseasonable weather affecting sales in North America and the negative effect promotional activity has had on its margins.

ASOS chief executive Nick Beighton also highlighted the need to keep up with the discounting culture back in December and the damage it can do to average selling prices. Beighton was explaining the AIM-listed firm’s own downward revision to sales growth projections, foreshadowing today’s market reaction to Ted Baker, with ASOS shares dropping in December too.

Page, who replaced Ray Kelvin in April, said the group is now focused on cost savings and efficiencies through its business, including throughout its supply chain.

So where can it trim the fat?

During the 2 December to 5 January window online sales rose by 18.7%, making up a quarter of the brand’s total retail sales and showing where the future value of the firm could lie.

The company had been able to manage the balance between its store count and online presence arguably much better than many of its high street neighbours. The likes of Carpetright, Mothercare, and a host of mid-tier restaurants came a cropper after years of overexpansion and underperforming online propositions but Ted Baker seemed to buck that trend.

Reducing the real estate footprint even further cuts costs that can be recycled into strategic online collaborations, like that of Burberry and Farfetch, and create a platform for future growth, rather than papering over the cracks in outdated retail thinking.

With changing consumer habits and rising commercial property rent, we are now firmly in the transition towards online-first brand propositions. Some might say we are already there, with the likes of ASOS and Boohoo stealing huge amounts of market share. Traditional retailers can still compete but they must adapt quickly - this could mean fundamental changes to their business models, rather than adapting supply chains, but they do need to change.

Investors in Ted Baker will be looking for more from Page than just shifting the furniture, if they are to regain their optimism this time around.

More on Ted Baker

Five year performance

As at 10 June
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
Ted Baker 47.9 -15.7 5.9 3.6 -42.9

Past performance is not a reliable indicator of future returns

Source: Fe, as at 10.6.19, in GBP terms with income reinvested

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