Shares in Ted Baker tumbled by more than 26% this morning (11 June) as the UK fashion and lifestyle brand warned “extremely difficult trading conditions” look likely to impact performance through the rest of the financial year.
In its second profit warning this year, and its first trading update under new CEO Lindsay Page, the UK-listed company blamed ongoing consumer uncertainty in a number of key markets and high levels of promotional activity.
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As a result, Ted Baker now anticipates underlying profit before tax for the year ending 25 January 2020 to be in the range of GBP50m-GBP60m (US$63.6m-$76.3m). Analysts had expected profits of about GBP70m.
Q1 performance
Group revenue increased by 3.8% in the 19 weeks to 8 June compared to the same period last year, with difficult and unpredictable trading conditions, unseasonable weather across North America, and a highly promotional retail environment weighing on performance.
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It also experienced some challenges with its spring/summer collections, but noted these have now been “appropriately addressed.”
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By GlobalDataTotal retail sales including e-commerce fell by 0.3% for the period, while e-commerce sales increased by 2.4%, representing 26% of total retail sales. Both retail and wholesale gross margins were lower than last year.
Management is now focusing on product initiatives and cost control, with monthly product drops and speed to market projects due to commence in the coming weeks. In addition, the retailer is driving further efficiencies through its sourcing and supply chain.
“Ted Baker remains an outstanding brand and, underpinned by the strength of our flexible business model, including a relatively low number of own stores that showcase the brand, we remain confident in our long-term growth prospects,” Page says.
“Ted Baker has passed its peak”
Sofie Willmott, lead retail analyst at GlobalData, notes the results signal the lifestyle player “has passed its peak.”
Contributing factors are overexposure – Ted Baker products are widely available from department store players like John Lewis and House of Fraser, and online pureplays including ASOS and Very.co.uk – coupled with the struggles of department store retailers and misconduct allegations against the brand’s founder, Ray Kelvin, who stepped down in March.
To reverse its sales decline, Ted Baker must rein in the number of distribution partners it has, to reaffirm its premium positioning, Willmott says. “Ted Baker has reached a point where it will either sink or swim. For the brand to be able to survive without its former leader and retain its loyal shopper base, it must seize the opportunity to shake up the business and re-establish its brand identity.”
