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Ted Baker discovers black hole in accounts

A £20-25mln overstatement in the value of inventory held was, said one analyst, “a huge blunder” that “suggests that the business hasn’t got a grip on its numbers”

Ted Baker plc -

Ted Baker plc (LON:TED) has appointed an independent law firm after the retailer’s new finance chief flagged a multi-million-pound error in its accounts.

The value of inventory held on the company’s balance sheet has been overstated by £20-25mln, the FTSE 250 group said out of the blue on Monday, roughly 10% of the total amount.

READ: Ted Baker squeezed hard by competitor discounting

As well as hiring 'magic circle' lawyers Freshfields Bruckhaus Deringer, outside accountants are being retained to launch a comprehensive review of the fashion retailer’s numbers after new chief financial officer Rachel Osborne discovered the black hole.

Directors said they believe that any adjustment to the value of inventory will only relate to prior years and will have no cash impact.

Chief executive Lindsay Page was promoted from CFO in March after predecessor Ray Kelvin was forced out in the wake of the “forced hugging” scandal.

Page had been finance director for the previous 22 years and took on the additional role of chief operating officer in 2014.

Osborne, previously of Debenhams and Domino's Pizza, was appointed in the summer and joined last month.

“Credibility wearing thin”

After the boardroom travails in the past year and recent warnings about pressures on margins from tough competition and weak consumer spending, independent analyst Nick Bubb said it “leaves the credibility of the new management team and its control systems wearing dangerously thin”.

Broker Liberum said the news “is less than ideal” and “is indicative to some degree of the very early stage work” being undertaken by Osborne, who they noted was “highly regarded”.

Peel Hunt surmised it was “likely to be a systems-related issue” and would “either be a function of stock items that do not exist or the valuation of stock items being overstated, the latter a likely function of the way in which the group’s accounting system operates, rather than human error”.

The analysts said, “for another retailer, we would be relatively sanguine...but for Ted this compounds the pressure on already weakened investor confidence levels”.

It is “a huge blunder”, felt Russ Mould at AJ Bell, and “suggests that the business hasn’t got a grip on its numbers which is a bit worrying considering that new chief executive Lindsay Page used to be the finance director”.

He added: “Appointing a law firm and the intention to bring in independent accountants will raise questions about whether more serious problems are bubbling under the surface at the business.

“Ted Baker’s refusal to comment further will no doubt lead to increased speculation over what might have gone wrong with the company.

“It is clearly going to be an uncomfortable time for the business, unfortunately just at the point when it needs to be focused on Christmas sales and trying to make up for disappointing trading earlier this year.”

TED shares fell sharply in early trading, digging out a new 10-year low, and were down 10% at 359.4p by late morning.

Quick facts: Ted Baker plc

Price: 272.4 GBX

LSE:TED
Market: LSE
Market Cap: £121.4 m
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