Shares in quirky British fashion label Ted Baker (TED) are taking a fresh tumble on Wednesday as the fashion retailer warns of a drop in full year pre-tax profit caused by currency fluctuations, higher costs and stock write-downs.
Yet (perhaps unsurprisingly) joint broker Liberum Capital is accentuating the positives, at pains to point out the adjustments to 2019 profits may be unfortunate, ‘but they are one-off, non-cash and there is no impact to the outer year expectations’.
WHAT’S BEHIND THE WARNING?
Ahead of full year results (21 March), the self-styled ‘global lifestyle brand’ is now guiding towards pre-tax profit ‘in the region of £63m’ for the financial year ended 26 January 2019.
Even in the best case scenario, that implies a sharp decline of more than 14% from last year’s £73.5m haul and triggers a 13.6% share price drop to £17.29 early on.
The catalysts for the latest downgrades are a £2.5m profits hit from foreign exchange swings in the final week of the financial year, as well as an extra £2.5m of costs related to a transition to new systems and a £5m write-down of aged stock following the consolidation of the group’s warehouses.
And this is all before the costs of an ongoing investigation into the conduct of founder and CEO Ray Kelvin, currently on a voluntary leave of absence, costs relating to debtor balances owed by House of Fraser as well as other non-cash impairments.
BRAND SHOWING RESILIENCE
While these one-off costs are a setback, a profit warning from Ted Baker isn’t entirely unexpected, since Ted Baker warned the second half of the year would ‘remain challenging’ while posting subdued half year figures in October.
Attesting to the resilience of the brand, Ted Baker then went on to deliver a robust Christmas performance with retail sales up 12.2% in the five weeks to 5 January, during which e-commerce sales shot up by 18.7%.
THE LIBERUM VIEW
Fans of the company might take solace in the fact the latest downgrade has been driven by adjustments resulting from internal reviews and the subsequent tightening of reporting systems following Ted Baker’s upgrade to systems and infrastructure over recent times.
‘While the adjustments are clearly disappointing they have no impact on the investment case, and the outlook,’ insists Liberum, downgrading its 2019 adjusted pre-tax profit, earnings per share and dividend per share estimates by 15% to £63.2m, 110.7p and 51.7p respectively.
‘We make the necessary adjustments to our 2019 forecasts and adjust our target price’ - downgraded from £31 to £28 - ‘but due to the one-off nature of these amendments there is no reason to change our view on the long-term fundamentals.'
