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UK retailer Ted Baker discloses inventory overstatement, shares slide

(Reuters) - British fashion retailer Ted Baker said it may have overstated inventory by as much as 25 million pounds ($32.08 million) and appointed an independent law firm to take stock of unsold goods, kicking its shares to their lowest in a decade.

Shoppers walk past a Ted Baker store on Regents Street in London, Britain December 17, 2018. REUTERS/Simon Dawson/File Photo

Monday’s announcement comes at the busiest time of year for retailers and exactly a year after a misconduct scandal that forced founder Ray Kelvin to step down as chief executive officer. Finance chief Lindsay Page took over as CEO.

Shares in the company, which were booted out of Britain’s mid-cap index earlier this year, tumbled 15%, extending a 74% plunge so far in 2019 and heading for their steepest yearly fall on record.

“It (inventory issue) suggests that the business hasn’t got a grip on its numbers which is a bit worrying considering that new chief executive used to be the finance director,” AJ Bell investment director Russ Mould said.

The company revealed the overstatement just weeks after it appointed Rachel Osborne as its new finance head, and said it expects no cash impact from adjustments to the inventory value that related to prior years.

“It’s not clear how long the company has been sitting on it. The bad news is that with these kinds of negative surprises, there is both the hit to the bottom line and the loss of confidence in management,” London Capital Group analyst Jasper Lawler said.

TEd Baker has had a series of setbacks in the past year, including several profit warnings and the CEO change that have added to its challenges in an industry facing fierce online competition and struggling with falling footfalls on Britain’s high streets as shoppers tighten purse strings.

Its share price to earnings ratio is just 7.8, a far cry from the sector average of 18, implying that the shares are undervalued.

In October, Page said the company had likely faced the most difficult trading conditions that he could recall in 30 years after issuing its second profit alert in four months.

Ted Baker, which will update the markets on its trading ahead of Christmas this month, appointed Freshfields Bruckhaus Deringer to undertake an independent review of the inventory issue.

($1 = 0.7794 pounds)

Reporting by Muvija M and Pushkala Aripaka in Bengaluru; Editing by Rashmi Aich and Emelia Sithole-Matarise