Ted Baker plc (LON:TED) plunged into the red in the first half of the year as the clothes retailer was battered by competitors “discounting at unprecedented levels”.
Chairman David Bernstein remained confident in the brand’s ability to succeed in the long-term but said results in the six months ending in August were behind expectations and that the second half has “started slowly”, not helped by the unseasonably warm weather last month.
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“If these trends continue, we will achieve a second half result below that of last year,” he said, with the “evolving sector dynamics” making it difficult to predict how trading will go in the crucial festive trading periods.
For the first half, the group swung to a £23.0mln loss before tax from a £24.5mln profit a year ago.
A large part of the swing was due to exceptional costs of £17.4mln from the investigation into the sexual harassment allegations around former chief executive Ray Kelvin, accounting adjustments following acquisitions and the expected loss of £11.8mln for restructuring legacy businesses in Asia.
At the top line things were not so bad, with revenue dipping 0.7% to £303.8mln, with North America sales providing some respite offsetting UK and Europe, rest of the world and e-commerce disappointing results.
The period was driven by improved footwear sales, following the acquisition of No Ordinary Shoes Limited and No Ordinary Shoes USA LLC, completed in January.
In June, the company warned that it expected annual profits to drop by as much as 20% after a difficult start to the year, with retail revenue down 1.1% after 19 weeks of trading and wholesale sales 1.2% lower.
The interim dividend was slashed 56.4% to 7.8p.
TED shares plummeted 35.89% to 593.34p mid-morning, which led some analysts to re-examine the potential for a takeover, bearing in mind the summer rumours that Kelvin, who still owns a 35% stake, was mulling a bid.
Pricing problems
While analysts do not downplay the tough market conditions, they suggest that management should focus on keeping the brand relevant and sort out their pricing policy,
"Ted quotes a number of positive customer metrics on [net promoter score], new non-seasonal range launches and social media. There’s clearly no customer backlash here," said stockbroker Peel Hunt in a note where it also cut its full-year PBT estimates by around 39%.
"Our concern is that the price architecture has become considerably more expensive in recent years and that collections have become too consistent with not enough newness in direction."
RBC Capital Markets also saw problems with TED's pricing strategy, saying it "appears to be disconnected with its brand/quality proposition", pointing to material price hikes in some categories as well as "broader and deeper markdowns vs peers in core categories such as men's polo t-shirts and shirts".
The Canadian bank's analysts have a dim view on the outlook, saying "the growth prospects for the business have largely dissipated, with major markets experiencing structural and transient headwinds that are unlikely to recede in the next 12 months".
While the shares have sunk so much that valuation provides some support, the analysts "do not anticipate a sustained re-rating given investor apathy towards premium apparel and UK exposure at this point in the cycle", and should any bids materialise "any approach would have to be ratified by the founder and majority shareholder who would be appraising offers at trough valuation".
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