Shares in Ted Baker (TED) ticked up 2% to 169.6p despite the quirky British fashion brand posting widened annual losses and warning first quarter trading was ‘materially impacted’ by ongoing Covid restrictions.
However, investors peered past the damaging pandemic impact to focus on encouraging early progress against the unloved fashion retailer’s turnaround plan, ‘Ted’s Growth Formula’, one designed to deliver a structurally more profitable and cash generative business.
TURNOVER TUMBLES, LOSSES MOUNT
Ted Baker’s delayed results for the 53 weeks ended 30 January 2021 made for grim reading, with turnover slumping 44.2% to £352 million and pre-tax losses widening from £77.6 million to £107.7 million as Covid restrictions around the world clobbered sales.
Besides the enforced shuttering of its shops and international travel bans, Ted Baker was also hurt by the closure of department stores in which it operated concessions.
In terms of current trading, the shirts, suits and dresses seller reported a near-20% sales plunge for the first 12 weeks to 24 April 2021, with lockdowns in place in the UK, Europe and Canada for parts of this period.
FASHIONING GOOD PROGRESS
Julie Palmer, partner at Begbies Traynor, explained Ted Baker was ‘already bursting at the seams with issues and then the pandemic came along and cast a depressing cloud on the designer’s floral occasion wear; with nowhere to go, formalwear was swapped for sweats leaving a tough job for CEO Rachel Osborne to work through.’
Yet the retailer’s underlying annual loss before tax of £59.2 million was actually better than the £79.9 million deficit forecast by Liberum Capital, driven by higher than expected store revenues and a better gross margin.
Year-end net cash of £66.7 million came in higher than the broker’s £7.1 million estimate from this time last year.
E-commerce sales rose by 22% to £144.9 million thanks to continued investment in its digital business.
Osborne insisted the retailer is making ‘good progress against our strategic transformation plan’ and insisted Ted Baker is ‘increasingly well placed to take advantage of the significant growth opportunities ahead of us. The Ted Baker brand has strengthened further, with the number of active customers growing to 1.2 million by the end of the year.’
She conceded the impact of Covid-19 has amplified some of the legacy issues impacting the business, yet also stressed ‘Ted Baker has responded proactively and is in a much stronger place than it was a year ago. During the period, we delivered robust cashflow generation, fixed our balance sheet, refreshed our senior leadership team and today we are upgrading our financial targets for the second time since outlining our new strategy last summer.’
Liberum Capital reiterated its ‘buy’ rating on Ted Baker, one of the brokerage’s favourite value and recovery plays, pointing out: ‘Management has delivered impressively on the Year 1 targets set out in the relaunch strategy. With the foundations now fixed there will be a shift of focus towards growth opportunities, which make for an exciting outlook.’
Palmer at Begbies Traynor added: ‘Not all is doom and gloom. Before this morning’s results, the business had a strong cash position and had extended its credit facility, showing that there is both a foundation to build on and that the banks have confidence in the CEO and her future plans.’