Shares in Ted Baker (TED) tumbled 31.4% to 635p after the embattled British fashion label delivered worse than expected first half results and warned full year profits would disappoint, if present second half headwinds persist.

Sold down following a string of earnings alerts, the latest coughed-up in June, the quirky fashion and accessories brand blamed issues including weak consumer spending and ‘unprecedented levels’ of competitor discounting across the industry for poor results and a profit warning that is disappointing for Shares.

We recently picked Ted Baker as one of our Great Ideas selections, albeit whilst flagging up the risks of the trade.

WHY THE MARKET IS TEDDY BEARISH

Ted Baker shares have been in free-fall following a flurry of earnings downgrades, with sentiment towards the shirts, suits and fragrances designer also impacted by the resignation (4 Mar) of founder and chief executive officer (CEO) Ray Kelvin following a probe into ‘hugging’ claims (strenuously denied by Kelvin) made by some employees.

TED LURCHES INTO LOSS

Today’s results for the half ended 10 August made for grim reading, revealing a lurch into loss amid dire trading and exceptional costs incurred as a result of ‘actions taken to strengthen the brand’ and costs arising from the fallout of misconduct allegations against Kelvin.

Group revenue was down 0.7% to £303.8m, with retail sales in reverse in the UK and Europe, North America and the Rest of the World regions and licence income and e-commerce sales both going backwards. To add insult to injury, the dividend was more than halved to 7.8p.

SLOW SECOND HALF

The outlook statement is especially alarming. Global lifestyle brand Ted Baker cautioned that ‘the sector in which we operate continues to face significant challenges, including weak consumer spending against a backdrop of Brexit and broader political and economic uncertainty. As a result, the trading environment remains highly competitive and promotional with competitor discounting at unprecedented levels.’

Ted Baker also warned: ‘Trading in the second half has started slowly, not helped by the unseasonably warm weather in September, and this will have an impact on the full year outcome. If these trends continue, we will achieve a second half result below that of last year.’

READ MORE ABOUT TED BAKER HERE

Liberum Capital has temporarily placed its recommendation and price target under review. ‘An unexpectedly poor set of interim results leads us to cut our full year 2020 pre-tax profit estimates by circa 39%’, said the broker.

‘Forecasts and outlook have been impacted a very tough market backdrop where discounting is prevalent, and consumer uncertainty has led to unpredictable trading patterns. The management team are taking action on costs, inventory levels have reduced and are flat year on year and there have been a number of initiatives in the first half that should strategically deliver medium term benefits.’

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Issue Date: 03 Oct 2019