Monday, 1 June 2020

Ted Baker swings to loss, raises new cash, unveils growth plan

Ted Baker had lots of news on Monday as it released its full-year results, with the retailer also talking about fundraising and “a detailed strategy and transformation plan for the company”.

And it said that current trading has been “significantly impacted” by Covid-19, “but online revenues have been strong, reflecting the resilience of our brand, customer loyalty and recently implemented trading and marketing initiatives”. Nonetheless, company revenue fell 36% for the 14 weeks from January 26 up to May 2. And total retail sales, including online, were down 34%. 

That said, the e-tail channel grew as much as 50% in the period and it rose 78% in the six weeks from March 22. However, wholesale for the period fell 40% and license income was down 34%, reflecting global lockdown measures. 


The company said it has a “growth formula” to get it back on track, but more of that later. First, let's look at what happened to it in the year to January 25 as this shows just how deeply the firm was in trouble even before the lockdown measures devastated its retail sales 

Total revenue fell from 1.4% to £630.5m and reported gross profit was down 15.2% to £307.1m. Underlying gross profit fell 8.2% to £350.8m and reported pre-tax profit was actually a loss of £79.9m (down from a profit of £30.7m a year earlier). The final tally was a net loss of £70.4m, much less than the net profit of £24.5m this time last year.

Clearly, these figures weren't good and the company said that the revenue fall (which was actually a bigger drop of 2.4% on a currency-neutral basis) was due to significant discounting, particularly in the UK. In fact, it's total retail revenues fell 4.6% to £439.9 million. Store revenues were down 5.3% to £321.2 million and e-tail revenues were down 2.5% to £118.7 million.

UK and Europe revenues fell 3.1% with stores down 6.4%, but North America's revenue rose 2.9%, helped by a 3.4% e-tail boost, even though store revenues dipped by 1.1%. 

But on the plus side, wholesale revenues rose 9.6% to £171.5m, benefitting from incremental footwear revenue. However, on a comparable basis (excluding footwear), wholesale revenues decreased 3.7% “due to challenging trading conditions for trustees and territorial franchise partners”.

The underlying gross margin of 55.6% was down from 59.8%, due to markdowns, the lower wholesale margin on footwear, and “an active approach to inventory sell-through, partially offset by a higher margin on retail footwear sales”.


Like other companies enduring the tough times in recent months, Ted Baker is planning to raise new cash and is targeting £95 million via a share placing at an offer price of 75p a share. For a company whose shares once traded at more than £3.50 each, that’s a low price. But it’s also low given that the shares were as high as £1.77 only last week. They’d fallen from that price by the end of the week and fell further on Monday, although they’re still trading at around £1.33 each. It seems the company isn’t only discounting its fashion product but its shares too.

It’s all designed to help it raise the cash to see it through the Covid-19 crisis and to put it on track for its growth formula. So what exactly is that formula?

It appears to boil down to greater efficiency, moving faster, making products that meshes perfectly with customer’s daily lives, diversifying into more categories, and being increasingly digital.

The new strategy is designed “to improve efficiencies across the wider group and address the key drivers of underperformance” and is the “culmination of six-months' rigorous analysis, assessment work and the bringing together of insights from across the executive team, industry trends and external experts,” we’re told. 

The initial focus has been on strengthening its leadership, which has been seen with numerous appointments in recent months. It has also undertaken a fully operational and efficiency review and has rethought its vision and commercial strategy. This has involved the “creation of an organizational structure that pivots the focus away from channel centricity, towards a customer-centric, digital and global approach with the potential to deliver faster and more profitable growth at the greater return on capital employed”.

The business sees certain growth drivers as key, which means investing in a product, creative content, and new e-commerce and digital platforms to operate a 'digital first' retail strategy. Part of this will see it making “clothing more relevant to all day/week occasions,” as well as driving accessories, footwear, and large license partner categories.

It aims to get the basics right in a way it hasn't in the past and is also focused on “creating a digital and data-led operating model, creating a high-performance business culture, and creating a commercial and agile business, enabled by a more effective organization”. Watch this space.

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