Ted Baker today unveiled a digital-first transformation strategy in response to “the structural transition from physical stores to digital retail” – and as it reported a £79.9m pre-tax loss in its latest full-year results. The upmarket luxury brand says that its performance in the year to January was hit by “unprecedented trading conditions” – even before Covid-19 saw sales fall by 36% in the first quarter of the current year. Online sales, however, have grown strongly over the period. But full-year profits were also hit to the tune of £45.8m as it put a new – and lower – figure on the value of its current and historic inventory.
Now the upmarket retail brand, a Top250 retailer in RXUK Top500 research, aims to raise almost £100m through share placings to strength the balance sheet, navigate Covid-19 and invest in its future transformation plan.
Rachel Osborne, Ted Baker chief executive, said: “The Ted Baker brand is much loved, it has a unique personality and character built up over many decades, and that provides us with a remarkably strong foundation from which to continue our international growth. Over the past six months our new executive team have pulled together and undertaken a thorough review of the business, identified key opportunities and acted decisively in a number of areas.”
The retail brand has introduced a new transformation plan – Ted’s growth formula – as it looks to address these issues, while moving on from upheaval in the senior leadership team following the departure of founder Ray Kelvin last year. That starts with stabilising the company’s foundations, with a new leadership team led by chief executive Rachel Osborne, the sale and leaseback of its head office and its planned equity raising. The company aims to grow by attracting more customers, making its products more relevant to everyday occasions and being where the customer is – in a profitable way.
Ted Baker aims to bring a digital-first approach to retail, upgrading its ecommerce platform and introducing a new payment service gateway to enable broader payment options for customers. Improved internal systems, including its new CRM system, are expected to improve efficiency and increased personalisation thanks to a new single view of customers across channels that is expected to drive customer lifetime value and grow its customer base.
At the same time the business will focus on becoming more profitable by streamlining how, where and who it buys from, while reducing its operating expenditure and spending more efficiently. It is talking to landlords about reducing its store rental costs around the world, it plans to improve profitability in its Derby and Atlanta distribution centres, it aims to reduce its use of air freight and it plans to save £7m a year on head office costs including job and payroll cuts – executives have taken a voluntary 15% pay cut. Non-essential capital expenditure from discretionary expenses to travel – has been stopped or restricted.
Ted Baker’s full-year figures
Revenue of £630.5m in the year to January 25 2020 was down by 1.4% compared to the previous year. At the top line, pre-tax profits came in at £4.8m from £63m a year earlier. Bottom-line pre-tax losses came in at £79.9m from a pre-tax profit of £30.7m last time as the value of its inventory in both January 2019 and 2020 was restated. “The restatement,” said Ted Baker in today’s full-year results statement, “was due to inappropriate cost values being attributed to inventory, inventory reflected the balance sheet which did not physically exist and intracompany profit in stock that was not adjusted for in previous calculations.” Other one-off costs included a £16.2m write-down of the value of store assets and £7.6m in losses on the sale of its Asian business and £6.5m for legal and professional costs as well as the £5m cost of a move to the new IFRS 16 accounting regime.
Retail revenues were down by 4.6% to £439.9m as store revenues fell by 5.3% to £321.2m, while online revenues were down by 2.5% to £118.7m during the year. In the UK and Europe, revenues of £422.6m were down by 3.3%, with retail revenues of £296.9m down by 5.7%. Store revenues of £202.3m were 6.8% down, and online revenues of £94.6m were down by 3.5%.
Across the group, turnover from wholesale grew by 9.6% to £171.5m thanks to growing sales from Ted Baker’s move into footwear. Beyond footwear, wholesale revenues were down by 3.7% due to “challenging” trading conditions for franchise partners. Licensing revenues fell by 14.1% to £19m. Profitability also fell, with gross margins at 55.6%, from 59.8% in the previous year.
In the UK and Europe, wholesale revenue of £106.7m was 7% up on last time, and licence income of £19m was down by 14.1%. Here, Ted Baker trades from 46 own stores and from 242 concessions and 22 outlets.
These figures all come from before Covid-19, and Ted Baker said that pressures were “exacerbated by the significant impact on consumer sentiment and spending from Brexit and political uncertainty during the period.”
The Covid-19 effect
Ted Baker total sales have fallen by 36% in the 14 weeks to May, with retail sales, including online, down by 34%. Online sales specifically grew strongly, rising by 50% during the period and up by 78% in the six weeks from March 22. Wholesale sales were down by 40%, with licence income down by 34% as lockdown measures came into place around the world.
However, stores have now started to reopen, especially in Europe.
Commenting on the figures, Emily Salter, retail analyst at GlobalData, said: ‘‘After a turbulent 2019, Covid-19 has dashed any hopes of a recovery in 2020 for Ted Baker as fashion is forecast to be one of the most negatively impacted sectors, with GlobalData predicting a 33.1% fall in UK clothing and footwear expenditure this year. Ted Baker has been particularly impacted due to its reliance on occasionwear, already having to resort to regular discounting to drive sales as consumers have little reason to purchase these items.”
She added: “Prior to the onset of Covid-19, Ted Baker’s sales were suffering as the appeal of the brand was waning as it struggled to resonate with shoppers, with store and online revenue falling by 5.3% and 2.4% respectively in FY2019/20. Though the retailer blamed discounting for this decline, the fact that it was unable to drive growth online points to problems with the relevance of the brand. It now has a permanent CEO and CFO to help address these issues but turning the business around will not be an easy feat as consumer shopping habits are likely to change in the long term due to Covid-19, with shoppers purchasing less frequently and increased spend shifting online.”
Image courtesy of Ted Baker