Yahoo Finance Questor: Ted Baker’s shares fell violently out of fashion. Can they stage a recovery?
Ted Baker is the £1bn business that shrank to a £100m business. What are its chances of becoming great again?
Readers probably remember its fall from grace three years ago as its founder and then chief executive, Ray Kelvin, was embroiled in allegations over a culture of “forced hugging” at the fashion brand. More deadly than this scandal for the share price – it collapsed from £26.17 in March 2018 to 65.9p in July last year – was the litany of operational failures that emerged at the same time.
In hindsight, the company’s management had failed to keep up either with its evolving needs as it expanded or with developments in the wider retail sector, where the internet was changing everything.
“We owned the shares at that time – normally we like entrepreneurial, founder-led businesses,” says James Thorne, a UK fund manager at Columbia Threadneedle. “But such companies need to bring in outside expertise as they grow – and Ted Baker grew very quickly indeed.
“Instead, Ray Kelvin had a tendency to micromanage everything, so he stuck with managers who had been with the company from the early days. As it grew, its shortcomings in IT, digital strategy, merchandising and so on only worsened, but until the scandal there was no catalyst for change. It was a boiled frog story.”
Now, however, a great deal has changed. Not only Kelvin but all the top managers from his era have departed and a new board under John Barton, the chairman, and Rachel Osborne, his chief executive, is in place.
“The new team are bringing lots of energy and effort, and there is no ego – if specific skills are lacking they will get people in,” Thorne says. “This is the right attitude. I think Ted Baker’s new management is as good as you could hope for.”
What are they actually doing? There’s quite a list. They have closed some shops and secured more flexible terms for others, sold their headquarters building – fortuitously located in an up-and-coming part of London – to help fix the balance sheet, raised equity to the same end, brought in a new creative director and reorganised the product lines.
“They’re changing everything except the brand itself,” Thorne says. “They have sorted out the pipework of the business, the marketing, cost structure, margin discipline, working capital.
“They have also made a massive swing to digital channels. Ted Baker now has its collection and use of data in the right place and is starting to build an ‘omnichannel’ business. It’s still in the foothills but once you have the right infrastructure the benefits can start to flow quite quickly.”
Most analysts are also favourable towards the company. Eleonora Dani of Shore Capital tells Questor: “Ted Baker has not had an easy time of it during the pandemic – its city centre and transport hub stores were in the wrong place and its products are tilted towards formal wear and special occasions.
“You’re not going to buy shoes or a travelling bag during a lockdown and they are Ted Baker’s strongest categories. Superdry’s casual wear and Joules’s country fashions were more suited to these times.”
But she says the Ted Baker brand is stronger than Superdry’s. “I spend a lot of time looking at fashion on social media and it comes across as having a very distinctive brand. If the new creative director can take it forward while retaining its essence – he is already re-energising the product line, especially in womenswear – it will be even stronger.
“And eventually things will go back to normal: weddings will return and people will spend pent-up savings by treating themselves to a new outfit to return to the office, say. It won’t happen overnight but it gives time for the management to revive the company.”
Ms Dani, who owns some shares herself, adds: “The share price will react positively to any trading improvement [an update is due on Tuesday] but this recovery story could take several years.”
Thorne agrees. “We feel comfortable that the strategy is right and is working but it is early days,” he says. “This is a company with huge opportunities – it has the global brand recognition of a Hugo Boss, say, but nowhere near Hugo Boss’s revenues.”
If Ted Baker can execute its strategy successfully there is in Questors' view the potential for the shares to double or treble over the next two or three years.
Questor says: buy
Ticker: TED
Share price at close: 153.9p
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