Ted Baker charts new direction after hefty loss
British lifestyle brand Ted Baker is seeking to raise £95 million to strengthen its balance sheet in the wake of the Covid-19 pandemic and fund a strategy for expansion dubbed ‘Ted’s Formula for Growth’.
The plan was revealed along with its results for the year to January 25 during which global sales slipped 1.4 per cent to £630.5 million, which the company attributed to discounting to remain competitive against its rivals.
Wholesale revenue rose by 9.6 per cent on the back of expansion into footwear, without which it would have slipped 3.7 per cent on a like-for-like basis. Store sales were down by 5.3 per cent and licensing revenue down 14.1 per cent.
Recently appointed CEO Rachel Osborne says the new strategy and recapitalisation plan will strengthen the company as it rides out the Covid-19 crisis which has had significantly more impact on global retailing since Ted Baker’s financial year closed. Revenue was down 36 per cent during the 14 weeks from January 26 to May 2 as stores were shut down in many parts of the world.
“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,” said Osborne.
“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. I am confident that our transformation plan will enable us to capitalise on our opportunities and deliver value for all of our shareholders.”
Ted Baker reported a loss of £79.9 million for the year, a significant turnaround from a £30.7 million profit for the year prior. The company said the deficit was due to £84.6 million of non-underlying expenses, mainly an inventory writedown, store asset impairments and a £7.6 million loss related to the sale of the Asian business.
Ted’s Formula for Growth
The strategy Osborne will now lead, Ted’s Formula for Growth, will focus on making the most of the company’s strong brand, its diversified channel footprint, (retail, wholesale and licence channels; multiple product categories and geographic spread), combined with substantial investments during the past five years in IT, CRM, logistics and infrastructure.
The company will focus first on stabilising the foundations of the current business, which has been disrupted in recent months by multiple executive changes, driving growth and achieving operational excellence.
The company wants to re-energise the brand, increase engagement and encourage more people to consider purchasing the brand. It seeks to attract more customers and “gain a higher share of wallet and lifetime value through deeper and broader relationships with new and existing customers” using technology to increase customer acquisition and retention, and increase conversion online.
The company wants to expand its product range and relevance to make clothing more relevant to all-day occasions, and drive accessories, footwear and large licence partner categories.
In an outlook note, the company said it plans to cut the number of its suppliers from more than 150 to 100, reduce its stock cycle from three years to two, and reduce staff costs at both head office and in stores.
By 2023, Ted Baker expects to achieve sales growth of around 5 per cent and a pretax earnings margin of between 7 and 10 per cent.
Emily Salter, retail analyst at GlobalData, said that although Ted Baker’s sales are likely to start improving in the next few weeks as stores across Europe start to re-open, recovery will be slow for it as many consumers will be unwilling to return to shopping locations and economic uncertainty will be high, reducing propensity to spend on premium brands.
“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 per cent and 2.4 per cent respectively for the year to February. Although 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,” she said.