Ted Baker, the global British lifestyle brand, announced its full year results for the year ended 25th January 2020, as well as providing an update on actions taken to strengthen the business, a transformational strategy “Ted’s Growth Formula,” to return the company to profitable growth.
Ted Baker has separately announced its intention to raise approximately US$119 million in gross proceeds by way of a fully underwritten Placing and Open Offer and Firm Placing of the newly-issued ordinary shares of the company. Up to a further approximately US$12 million in gross proceeds may also be raised by way of an Offer for Subscription which is not underwritten. This capital raising will strengthen the balance sheet, allowing the company to navigate through the COVID-19 disruption and invest in its future through the transformation plan.
Total revenue was down 1.4% to US$791 million, (down 2.4% in constant currency) impacted by significant discounting as seen across the apparel industry, particularly in the UK, in response to weak consumer spending and channel shift to online.
Retail revenues fell 4.6% (fell 5.4% in constant currency) to US$551.9m driven by store revenues down 5.3% (down 6.3% in constant currency) to £402.9 million and eCommerce revenues were down 2.5% (down 3.1% in constant currency) to US$148.9m. Wholesale revenues increased by 9.6% (up 8.1% in constant currency) to US$215.1m, benefitting from incremental footwear revenue. On a comparable basis (excluding footwear), wholesale revenues decreased 3.7% (decrease of 5.0% in constant currency) due to challenging trading conditions for trustees and territorial franchise partners. Licence revenues decreased 14.1% to US$23.8m. Underlying licence income increased 1.8%, adjusting for the acquisition of the footwear licence, with a steady growth in both our product and territory licences during the period.
Underlying gross margin of 55.6% (2019: 59.8%), impacted by increased promotional activity, lower wholesale margin on footwear and an active approach to inventory sell through, partially offset by higher margin on retail footwear sales.
The 2019 underlying gross margin has not been adjusted since the financial statements of 21st March 2019 and excludes the impact of inventory adjustments. The group has restated the balance of inventory at 26th January 2019 from US$283.2 million to US$257.9 million, a US$25.3 million restatement. The restatement was due to inappropriate cost values being attributed to inventory, inventory reflected on the balance sheet which did not physically exist and intercompany profit in stock that was not adjusted for in previous calculations.
In addition, the group has reviewed its approach to estimating the carrying value of stock and adopted a more prudent methodology which resulted in a US$40.6 million reduction in stock value being accounted for as a change in estimate booked as a non-underlying expense in the income statement for the period ended 25th January 2020.
The board recognises that last year’s performance was disappointing for all of Ted Baker’s stakeholders, reflecting a challenging external environment as well as significant internal disruption, driven by a number of senior leadership departures.
In response, Ted Baker announced a comprehensive strategy, Ted’s Growth Formula, to transform the company in the coming years and see Ted Baker become a more profitable, cash generative business delivering higher returns on capital employed.
Ted’s Growth Formula underpinned by the proceeds from the capital raising, will leverage the inherent strengths of the company. These strengths are: Ted Baker’s strong and resilient brand; its diversified footprint (such as through retail, wholesale and licence channels, product category and geographic presence); combined with substantial historical investments that have been made in the last five years (over US$81.5m invested across IT, CRM, logistics and infrastructure); and a strong culture carried by a passionate and engaged team.
The strategy will build on those strengths and is based on three key building blocks: stabilising the foundations, driving growth, and enhancing operational excellence.
Rachel Osborne, Chief Executive Officer, 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.”