(Reuters) - Ted Baker shares lost more than a quarter of their value on Tuesday after the British fashion retailer warned that underlying profit for the year would fall short of analysts’ estimates after an “extremely difficult” start to 2019.
The warning underlined the task facing Lindsay Page, who was promoted to permanent boss in April as the high street retailer sought to move on from misconduct allegations against its founder and leading shareholder Ray Kelvin.
“The markets that we trade in have been extremely challenging and that has also led to levels of discounting I think we’ve rarely seen before, particularly in the UK,” former finance chief Page told Reuters.
Shares in the retailer traded 26% lower at 990 pence after it also complained of the impact of unseasonable cold weather in North America, from where it derives almost a third of its revenue. The shares fell 43% last year and had lost another 14% in 2019 before Tuesday’s opening.
“The scale of today’s profit warning at Ted Baker will raise eyebrows... there will be questions around founder Ray Kelvin’s departure and the wider question of how to get Ted back on point,” Peel Hunt analysts wrote.
Ted Baker reported its first drop in annual profit since 2008 in March as traditional brick and mortar apparel chains suffered in the face of online competitors and British consumers reined in spending.
Kelvin, who had been CEO since the company’s launch in 1988, resigned earlier that month over claims he presided over a culture of “forced hugging”. He has denied all allegations of misconduct.
In a 19-week trading update, the company, which opened its first store in Glasgow in 1988 and now has 560 stores and concessions globally, said it was focused on reining in costs and coming up with new products to turn the company around.
Shares in smaller fast fashion chain Quiz also plunged more than 25% on Tuesday after its underlying annual profit tumbled 94%.
Known for selling suits, shirts and dresses with quirky details and bright, block prints, Ted Baker said it had faced some challenges with its spring and summer collections.
CEO Page said they had been addressed appropriately, without detailing the nature of the issues.
“I think it’s a combination of weathering the storm... but also looking at some opportunities that arise from these very difficult times.” he said.
Analysts said a competitive market for clothing retailers was harder to navigate.
“We believe the short-term and identifiable issues around product are being addressed swiftly but the unpredictable trading backdrop across all markets appears to have less end in sight,” Liberum analysts wrote.
Ted Baker said gross margins in both its wholesale and retail businesses were lagging compared with last year, blaming “elevated levels of promotional activity”.
It expects underlying profit before tax for the year to January 2020 of 50 million pounds to 60 million pounds, compared with a company compiled consensus of 70.9 million pounds and last year’s 63 million pounds.
Comparable sales for the 19 weeks from Jan. 27 to June 8, 2019 slipped 2.9% on a constant currency basis.
For a graphic on Ted Baker lags the mid-cap FTSE 250, click tmsnrt.rs/2R4MMlH
Reporting by Shashwat Awasthi in Bengaluru; editing by Patrick Graham
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