Is Ted Baker Too Toxic To Back?

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Is Ted Baker Too Toxic To Back?

Ted Baker’s full-year results were never expected to be great, after a turbulent 12 months for the High Street brand. In February, the clothing retailer issued a profit warning to investors, and the full-year results were in line with expectations, with pre-tax profits for the 12 months ending 26 January down by 26 per cent to £50.9m.

Ray Kelvin Issues

The profit drop comes after a high profile scandal engulfed the firm last year, when founder Ray Kelvin was accused of harassing staff with “forced hugs” and other inappropriate behaviour. After these allegations were made public, Kelvin took a leave of absence before finally stepping down as chief executive in early March 2019.

But Ted Baker’s balance sheet issues are not purely a result of poor publicity. Instead, the firm blamed economic issues such as higher than usual stock write-downs, foreign exchange pressures and additional product costs. Acting chief executive Lindsay Page admitted that the firm has encountered “difficult trading conditions“, but told investors that the firm’s sales performance over the year had been “resilient“.

Online Performance Boost

Indeed, one notable line in the results was the growing difference between online sales and retail sales. While overall retail sales grew by just 4.2% year on year, e-commerce sales alone grew by a massive 20.4%, and now make up more than a quarter of all group sales.

While online sales growth is encouraging, it may not be enough to save Ted Baker in the long run. Brexit-related economic volatility is an ongoing concern, and any post-Brexit trade barriers would have a huge impact on the firm’s profit margins.

Furthermore, the uncertain future of House of Fraser – where Ted Baker has a long-running concession – could further undermine retail sales.

Negative Drivers

And then there is the Kelvin effect. An investigation is still ongoing, and regardless of the outcome, it is likely to bring more negative attention to the firm. In the aftermath of the ‘forced hugging’ scandal, shares in Ted Baker dipped dramatically, suggesting that shareholders have little patience for harassment claims in the ‘Me Too’ era.

After the final year results were announced, Ted Baker shares slipped by another 5%, bringing the stock price to a three-month low. If the brand can capitalise on its online sales and put the past behind it, it may represent one of the best value stocks on the market today. But between the ongoing economic uncertainty and internal politics at the firm, it may be the case that Ted Baker has become too toxic to back.