Shares in beleaguered fashion brand Ted Baker (TED) cheapened a further 4.4% to 380p on Monday as investors digested the revelation the value of stock held on its balance sheet has been overstated by as much as £25m.
The accounting oversight is the latest troublesome issue to clobber the quirky fashion and accessories retailer, a one-time retail sector darling whose growth story has unraveled following a string of profit warnings.
TED’S TROUBLES CONTINUE
In a short statement, Ted Baker explained that based on early analysis it will have to write down the value of its stock by a whopping £20m to £25m. However, the board was at pains to point out that ‘any adjustment to inventory value will have no cash impact and will relate to prior years’.
Alarmingly, law firm Freshfields Bruckhaus Deringer LLP has been appointed and independent accountants will also be drafted in to undertake a comprehensive review of the inventory overstatement. This is the latest issue to beset Ted Baker, which promoted Lindsay Page to the chief executive’s hot seat this year following the departure of Ray Kelvin following misconduct allegations.
READ MORE ABOUT TED BAKER HERE
‘Amid all the chaos around inappropriate behaviour from its founder Ray Kelvin and the subsequent profit warnings around margin pressures, tough competition and weak consumer spending, it now appears that Ted Baker has found another banana to slip up on,’ commented AJ Bell investment director Russ Mould.
‘Discovering that the value of inventory on its balance sheet has been overstated is a huge blunder on its behalf. It 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.
‘New finance boss Rachel Osborne joined last month and appears to be wasting no time trying to see if the company is match-fit. 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.’
Back in October, shares in the global lifestyle brand tumbled on worse than expected first half results, showing a lurch into loss amid dire trading and exceptional costs. Ted Baker also warned full year profits would disappoint if headwinds persisted, citing ‘unprecedented’ levels of competitor discounting.
The shares have been in free-fall following a flurry of earnings downgrades, with a plunging share price even stoking speculation that Ted Baker could become a takeover target.
Liberum Capital said: ‘Today’s latest news from Ted Baker, regarding the overstatement of last year’s inventory value, is less than ideal. In our view, it is indicative to some degree of the very early stage work that the new and highly regarded chief financial officer, Rachel Osborne, is undertaking.
‘We keep our recommendation under review as there are further moving parts that may need consideration, which naturally lead to some additional questions.’
AJ Bell’s Mould also pointed out that ‘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.’