It’s been a turbulent few years for Ted Baker PLC (LSE:TED), but it’s well on the way to recovery, in its own words.
The fashion and clothing company has seen its share price tank since the highs of November 2015, nosediving over 95% as the company was squeezed by both internal and external issues.
Under the stewardship of Rachel Osborne, the chief financial officer turned chief executive at the start of the pandemic, the company has been set on executing its six-point transformation plan, although lockdowns meant progress wasn’t as quick as initially hoped.
The transformational plan targeted stabilising the business following periods of instability, with three chief executives in a year and multiple profit warnings on the back of the allegations of sexual harassment against ex-boss Ray Kelvin, before pushing forward with growth.
It “believes it’s healthy enough to shift away from concentrating on its foundations, and instead prioritising growth opportunities,” according to Gemma Boothroyd, an analyst at Freetrade.
And that has sparked interest from US-based private equity firm Sycamore Partners.
The New York business specialises in retail investments, and the timing of the unsolicited proposals points to a reviving Ted Baker brand that may be available on the cheap.
The 137.5p per share offer, about £254mln, was rejected by the board, which believes it can provide even greater value for shareholders in the long term.
But what exactly has it done to get to this point, and what challenges lie ahead?
Executing the six-point plan
Shares in the company have recovered in the year so far, up by 14% to 119.5p, with the catalyst a positive fourth-quarter update and the first whispers of a potential buy-out.
Key to recent success, according to Laura Hoy, an equity analyst at Hargreaves Lansdown, is its “full-price sales, which became a greater percentage of overall sales.”
“This is a big part of the group’s rebound because it juices margins and protects the brand,” Hoy added.
This was obvious to see in the company’s fourth-quarter trading update last month, where full-price sales were up 800 basis points compared to the previous year.
The importance of full-price sales are echoed by other analysts too, with Russ Mould, an investment director at AJ Bell noting it is a “huge step forward, from the perspective of revenues and especially margins.”
Hoy also adds that the company has improved its stock management, reducing the need for it to turn to the 'for sale' stickers.
That in turn boosts margin, again, which is in black and white in the last trading update, improving by 350 basis points like-for-like.
Challenges ahead…
“The board is focused on delivering value for Ted Baker’s shareholders well in excess of the price offered by Sycamore,” its statement said today.
It will be refreshing for shareholders to hear that the company hopes and wants to increase the share price given its performance over the last half a decade, and its refusal of the offers suggests its confidence in doing so.
But the ever-worsening cost of living crisis points to this being easier said than done.
Indeed, the company’s prices are “on the higher end of the spectrum, but not quite reaching into luxury,” meaning its customers won’t be immune to inflation.
Where it currently falls short, and where growth would be the “biggest piece of the puzzle,” is online sales.
Active e-commerce customers grew by 44% in 2021, although that was to be expected given Covid restrictions.
Indeed, it is unlikely anyone within Ted Baker will be expecting that level of growth this year as the high streets remain open.
However, as long as the percentage fall isn’t too large, management and investors alike will likely view that as vindication its online businesses is succeeding.
Current UK inflation of 6.2% also threatens progress on the e-commerce side of the business where customers may start to rein in spending.
That then poses a serious challenge for Ted Baker, with Hoy adding it must learn to strike a "balance between catering to more frugal customers and breaking out the sales stickers once again.”
Its rejection of the proposals and the promise to deliver further growth may suggest it has worked out a strategy that hits that balance, but only time will tell.