Ted Baker is set to report a decline in annual profits on Thursday following a tough year for the fashion brand which has seen the departure of its founder, higher costs and challenging high street conditions.
Following a profit warning at the end of February, pre-tax profits for the financial year ended January 26 2019 are expected to be £63 million, compared with previous consensus estimates of £73.8 million.
Last year the company’s annual profit before tax was £68.8 million.
Foreign exchange movements have affected profit by around £2.5 million, primarily due to the change in the pound’s value versus the dollar and euro.
Upgrades to the group’s systems have also cost approximately £2.5 million, while transitions in Asia and the US resulted in a £5 million writedown in the value of inventory stock.
Meanwhile the scandal surrounding the group’s workplace culture and the conduct of its founder and boss Ray Kelvin have resulted in a change in leadership after 30 years.
Mr Kelvin stepped down last week after accusations that a “forced hugging” culture existed at the company, while some staff members complained that he had massaged their ears or asked them to sit on his lap.
Mark Photiades, a research analyst at Cantor Fitzgerald, said last week that Ted Baker had experienced an “annus horribilis”.
The business has been a consistent performer for many years and has a strong executive and operational management team – it is not a one man show and the business must now move forward under new leadership following the founder’s departure.
Shares in the company plummeted to a three-year low when the allegations were first made public in December. But the stock recovered after a Christmas trading update showed strong sales growth, indicating the scandal had not impacted the brand’s reputation as much as feared.
Additional challenges during the period came from the administration of House of Fraser in August.
Ted Baker wrote off £600,000 owed by the chain, and said its concessions at the department stores had underperformed.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “The decline in profits is being driven by one-off events, and Kelvin’s departure comes as he’s investigated for misconduct. Disruptive for sure, but investors will hope Ted’s long-term projects aren’t impacted.
“Despite increasing competition, we think sales will still be moving in the right direction. The question will be if that’s coming at the expense of profitability. Discounting means margins could be under pressure, and it’s important these aren’t pushed too far.”