Feb 27, 2019
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Ted Baker profit warning piles on pressure despite some good news

Feb 27, 2019

The news has been coming thick and fast from Ted Baker this week, but the biggest headline on Wednesday was that the company has issued a profit warning, further underlining just how tough times are for retailers at present.

Ted Baker's new limited edition product couldn't grab the headlines on the same day as a big profit warning

The mid-market fashion retailer said that pre-tax profits for its financial year that ended in January would be in the region of £63 million. A year ago, it had made £73.5 million. 

The latest figure is before previously announced costs associated with the ongoing independent external investigation into its CEO's behaviour, exceptional costs relating to the House of Fraser failure and the acquisition of No Ordinary Shoes.

The company had already warned that the second half would be challenging but had also said in January that sales were rising in double-digits and margins were in line with expectations. So what went wrong?

It seems that the profits prediction was affected not by current trading but by other issues. Profits have been adversely affected in particular by “three non-cash impacts.”

They include foreign exchange movements in the final week of the financial year, primarily the pound against the US dollar and against the euro that “have resulted in a mark-to-market profit impact of approximately £2.5 million.”

There's also the fact that the company has upgraded systems and made process enhancements during the year which has “allowed us to identify additional product costs of approximately £2.5 million that arose during the second half of Year 18/19.” That was something of a shock, but the company said that it’s “confident the systems upgrade now provides robust controls to prevent a recurrence.”

And finally, the recent systems and warehousing transitions in Asia and the US, “as well as a more prudent view on aged stock,” have resulted in an unanticipated write-down in the value of inventory of approximately £5 million.  

The company also said that it “remains fully committed to driving improvements in the net working capital-to-sales ratio” and will provide an update at the full-year results presentation on March 21.

Ted Baker has delivered some better news this week, unveiling popular footballer Peter Crouch Ted as its new brand ambassador for its ’T for Tall’ collection. And it's also planning to generate more buzz around its products with limited edition ‘flash' monthly drops on its website and social channels from Wednesday.

But upbeat announcements like that can't compete with a major profits warning and the company’s shares predictably fell on Wednesday morning, with the size of the fall, around 13%, piling on more agony for the shares that are much lower than a year ago.

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