A drop in third-quarter sales is likely to Ted Baker’s woes as the UK lifestyle brand today (6 December) announced the appointment of an independent law firm to conduct an external investigation into the allegations levelled at chief executive Ray Kelvin.
In an interim trading update, the UK-listed company said it has appointed Herbert Smith Freehills LLP following claims earlier this week that Kelvin reportedly forced hugs and kisses on employees.
An announcement published by Ted Baker on Monday (3 December) addressed the allegations, with the company stating both Kelvin and the group have “always prided themselves on Ted Baker being a great employer and business to work with.”
Now, it says Herbert Smith Freehills LLP will report the findings of its probe to a committee of the company’s non-executive directors that will be chaired by Sharon Baylay.
A “resilient” Q3
Meanwhile, the group hailed a “resilient” performance in the third quarter despite what it called challenging external trading conditions.
The UK-listed company posted a 0.2% decrease in group revenue, reflecting the anticipated decline in wholesale sales due to the timing of deliveries, largely offset by the retail sales performance.
In addition, “challenging external trading conditions” continue across its markets with trade in the UK, Europe and the East Coast of America affected by the unseasonal weather at the start of the period, while trading in the UK continues to be impacted.
Total retail sales including e-commerce increased by 2.3% (2.1% in constant currency) for the period, while average retail square footage rose by 5.2% to 427,586 sq ft. E-commerce sales, meanwhile, jumped by 18% and represented 30.3% of total retail sales.
Both retail and wholesale gross margins were in line with expectations.
In its statement today, Ted Baker said its board remains “mindful” of the challenging markets in which the group operates and is focused on making further progress for the full year.
“We are pleased with the brand’s continued expansion, which is a reflection of the strength of the Ted Baker brand and the design and quality of our collections,” said Kelvin. “The investment in our flexible business model ensures that the Ted customer has multiple channels to engage with the brand and underpins our long term development. Our global e-commerce business continues to grow well and is complemented by our digital marketing strategy and unique stores that showcase the brand.”
A “dangerous position”
Emily Salter, retail analyst at GlobalData, notes the company’s negative sales slip proves that no retailer is immune in the challenging UK retail environment.
She adds the recent allegations surrounding CEO Kelvin have “drastically damaged” Ted Baker’s share price, which has almost halved since the start of 2018 due to the accusations, alongside a slowdown in revenue growth in FY2018/19 that continues to disappoint investors.
“As a result of concerns raised by Ted Baker’s staff, Kelvin’s position in the company is no longer assured, putting the brand in a dangerous position given that its success is so reliant on its founder,” she says.
While, Salter notes the brand usually performs well over the Christmas period, having already made a “promising” start with a 4% rise in total retail sales for the last eight weeks of the period to 1 December, she says the outcome of the independent external investigation could further damage the brand’s reputation and encourage shoppers to go elsewhere this year.
Ted Baker is due to publish its next trading statement covering the period from 2 December 2018 to 5 January 2019 in mid-January 2019.