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Ted Baker warns on profits amid 'extremely difficult' conditions Ted Baker warns on profits amid ‘extremely difficult’ conditions
(about 7 hours later)
Ted Baker shares plunged by nearly 30% after the retailer warned on profits, saying that tough competition and falling consumer spending could knock up to £20m from earnings this year. More than £170m was wiped off the value of Ted Baker on Tuesday after the retailer blamed its second profit warning in four months on torrid high street trading conditions.
The warning comes as the brand distances itself from its founder and former chief executive Ray Kelvin, who stepped down in March following allegations he acted inappropriately towards staff, subjecting them to “forced hugs” and ear kissing. The profit alert came as the brand distances itself from its founder and former chief executive Ray Kelvin, who stepped down in March following allegations he had acted inappropriately towards staff, subjecting them to “forced hugs” and ear kissing.
Ted Baker said on Tuesday it expects underlying pretax profits to come in between £50m and £60m for the year to January 2020. Analysts had expected profits of about £70m. Lindsay Page, the company’s longstanding finance chief who was promoted to the top job in April, admitted being “off our game” with some its spring clothing but said the weather and price cuts by rivals had proved bigger problems: “Some brands launched their spring/summer collections in February at a discount. We are not immune to that. We have to balance the integrity of the brand with the wider market volatility.”
It is the retailer’s second profit warning this year – in February it said profits for the year ended January 1019 would be about £10m lower than expected, mostly due to writing off the value of unsold clothes. Ted Baker now expects underlying pretax profits to come in between £50m and £60m for the year to January 2020. Analysts had initially expected profits of about £70m. The retailer had previously warned on profits in February.
The update came as rival fashion chain Quiz blamed challenging trading conditions for wiping out annual profits. The struggling Scottish chain, which issued three profit warnings in last six months of the year to 31 March, made a pretax profit of just £0.2m on sales of £131m, down from £8.5m a year ago. The update came as rival fashion chain Quiz also blamed the high street downturn for wiping out annual profits. The struggling Scottish chain, which issued three profit warnings in the last six months of the year to 31 March, made a pretax profit of just £200,000 on sales of £131m, down from £8.5m a year ago.
Quiz raised more than £100m from investors when listed at 161p a share in July 2017 but its troubles have triggered a share price collapse. Tuesday’s update sent them down again, by more than a quarter, to 20.5p. The Quiz chief executive, Tarak Ramzan, said its stores were struggling as fewer shoppers were visiting the high street while a high volume of returns had weighed on the success of its website. “We were chasing the Instagram customer too much,” Ramzan said.
Shares in Ted Baker were also sharply lower, tumbling by 29% to 950p after its profits warning. Quiz floated on the stock exchange at 161p a share in July 2017 but its troubles have triggered a share price collapse. Tuesday’s update sent them down again, by a fifth, to 21.9p. As part of a turnaround plan Quiz is closing 20 of its 174 department concessions and says it will also look to close or cut the rents on its 73 UK stores.
The group said trading had been affected by unseasonable weather in North America, which accounts for a third of its annual sales. It added: “Ongoing consumer uncertainty in a number of key markets and elevated levels of promotional activity across our global markets have resulted in extremely difficult trading conditions during the financial year to date.” The Ted Baker profit warning sent its shares down 29% to 954p. The company has halved in value this year but Page insisted that even if Kelvin, who founded Ted Baker in Glasgow in 1987, were still in charge it would be the “same conversation”.
The board does not expect trading conditions to improve this year, and said current profit guidance will partly rest on new product launches and planned cost cuts across its supply chain. Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. 2018 saw the disappearance of Toys R Us, Maplin and Poundworld as a result.
Ted Baker made no mention of Kelvin in its trading update but hailed the strength of its brand ahead of its annual shareholder meeting in London on Tuesday. In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores. 
Its chief executive, Linsday Page, said: “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.” At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
Page said the company was committed to global expansion and is well positioned to adapt to changes across the retail sector. Retailers with a high street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after October 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.
“As a team, we are proactively addressing the challenges we face as an industry. Several of our new product initiatives will commence imminently and we are confident in our collections for the coming season. We are relentlessly focused on achieving cost efficiencies as well as further cost savings throughout the business.” In the October 2018 budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m 'future high streets' fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the Far East, have also added to costs and hit profits.
Figures from the Office for National Statistics showed that 79,000 retail jobs were lost in the first quarter of 2019, compared with the previous quarter, as chains close stores against a backdrop of rising costs and a shift to online shopping.
“It has been a turbulent year, with many well-known brands disappearing from our high streets, as has been evidenced by the substantial loss in retail jobs this quarter,” said Kyle Monk, the head of retail insight at the British Retail Consortium. “Political and economic uncertainty has compounded many of the challenges created by the pace of technological change.”
John Stevenson, an analyst at stockbroker Peel Hunt, said the scale of the profit warning at Ted Baker would “raise eyebrows”.
He said: “While these issues have been brewing for some time – and the ranges were designed well over 12 months ago – there will be questions around founder Ray Kelvin’s departure and the wider question of how to get Ted back on point.”
Ted Baker has embarked on a major efficiency drive and has also launched a number of product initiatives, including introducing more fast fashion. It also plans to bolster its design teams with new hires.
The profit warning coincided with Ted Baker’s spartanly attended annual shareholder meeting, where the board received little scrutiny over the Kelvin affair. The Ted Baker chairman, David Bernstein, told shareholders the founder, who remains the company’s biggest shareholder with a 35% stake, was no longer involved in running the company.
Ted Baker did not publish the findings of an investigation into Kelvin’s conduct but Bernstein said it had strengthened its HR procedures which were “not strong enough”, including recruiting the former B&Q HR boss Helena Feltham to the board.
“There is definitely no crisis,” said Bernstein. “The company is strong and the brand is strong. Any business in difficult times has to focus on the basics and we will continue with the cost-savings. I’m very confident in the essence of the brand and that we will pull out of this – and hopefully quickly.”
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