Shares in quirky fashion label Ted Baker (TED) tumbled 9.3% to 139p on Monday after the embattled retailer launched a rescue funding deal involving a huge placing of shares at a heavily discounted 75p.
Considering the stock was trading above £31 a share just over two years ago, the subsequent decline has been brutal and the shareholder value destruction devastating.
Delayed full year results made for grim reading too, although the positive news is the new management team led by Rachel Osborne has outlined a bold turnaround strategy, dubbed ‘Ted’s Growth Formula’, which includes ambitious sales and profit targets and demonstrates faith in the future of the brand.
RESCUE FUNDRAISE
Ted Baker plans to raise £95m through an open offer and firm placing, and up to a further £10m through an offer for subscription, at 75p per new share, in order to shore up its finances and see it through the coronavirus.
Chief executive Rachel Osborne commented: ‘We are excited to launch “Ted’s Formula for Growth”, a comprehensive strategy for the Ted Baker brand which is supported by a significant recapitalisation of the business, that strengthens our position and enables us to both execute that transformation, and navigate through the disruption caused by COVID-19.’
Osborne insisted: ‘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.’
TRADING REMAINS TOUGH
The recapitalisation news accompanied dire annual results from the self-styled ‘global British lifestyle brand’, which lurched from a £30.7m pre-tax profit to a £79.9m loss for the year ended 25 January 2020.
Sales softened 1.4% to £630.5m, impacted by significant discounting across the apparel industry in response to weak consumer spending and the channel shift to online.
Current trading has been significantly impacted by COVID-19, with Ted Baker’s overall revenue down 36% for the 14 weeks to 2 May, although online revenues have been strong.
Even before the pandemic Ted Baker was struggling to recover from an accounting scandal, a string of profit warnings and a management reshuffle after founder Ray Kelvin, who has supported the recapitalisation, stepped down amid misconduct allegations that he has since denied.
THE EXPERTS’ VIEW
Liberum Capital commented: ‘The new management team know what went wrong historically and have a dynamic plan that should enhance the group’s capital light channel focus and move towards a more digital, customer centric model, all under-pinned by significant cost reduction.’
Russ Mould, investment director at AJ Bell, said: ‘The coronavirus pandemic couldn’t have come at a worse time for Ted Baker, happening just as it was trying to sort out internal problems.
‘Injecting a large amount of new money into the business will give it some breathing room so it can execute on the turnaround plan.
‘The growth strategy is a mixture of common sense and recognition that it needs to be sharper on cost control, engaging with customers and better with product appeal.
‘What really matters is the execution of this plan and it’s going to be quite a job when there is a need to overhaul the business culture as well as operations and product lines. The hard bit really starts from now on.’
