Ted Baker confirms 'hugging' probe as revenues dip
Scandal-hit Ted Baker confirmed on Thursday that it has appointed an independent law firm to carry out an investigation into reports of "forced hugging" by founder and chief executive Ray Kelvin, as it posted a dip in revenues.
In a trading update for the 16 weeks to 1 December, the company said group revenue slipped 0.2% compared to a 7.3% rise in the same period a year ago, as retail sales including e-commerce increased 2.3%, but wholesale sales declined 6.5% due to the earlier timing of wholesale deliveries in the first half of the year.
E-commerce sales rose 18% in the period and made up 30.3% of total retail sales compared to 26.3% the year before. Total retail sales for the last eight weeks of the period increased 4% as the weather became more typical for the season, the company said.
Ted Baker, which said earlier this week that hugs were part of the culture "but not insisted upon", highlighted the continuing challenging external trading conditions across its markets.
In the UK, Europe and the East Coast of America, trade was affected by the unseasonal weather at the start of the period and trading in the UK continues to be impacted by the "well-publicised challenges" facing some of its trading partners.
The company also said that it has hired Herbert Smith Freehills LLP to carry out an investigation after hundreds of employees signed a petition accusing Ray Kelvin of imposing a culture of "forced hugging" at the business. Kelvin has also been accused of hand stroking, massaging and openly asking staff for sex.
He said on Thursday: "We are pleased with the brand's continued expansion, which is a reflection of the strength of the Ted Baker brand and the design and quality of our collections.
"The investment in our flexible business model ensures that the Ted customer has multiple channels to engage with the brand and underpins our long term development. Our global e-commerce business continues to grow well and is complemented by our digital marketing strategy and unique stores that showcase the brand."
At 0815 GMT, the shares were up 3.6% to 1,520p.
Richard Hunter, head of markets at Interactive Investor, said: "Ted Baker is enjoying some respite in early trade to its recent tribulations, although it remains to be seen whether this optimism will prevail.
"The trading statement is something of a sideshow given recent allegations and, in any event, echoes much of what was reported at the half-year report in October.
"The sharp decline in the share price, which has lost 23% over the last week, poses a number of questions, not least of which is whether investors were waiting for an excuse to exit the stock. Historically, Ted Baker was a swanky brand with an earnings valuation to match. The rerating of the stock has brought the multiple down to a level of just over 10 times earnings, as opposed to the 30 times figure the company previously attracted.
"This in turn may leave the shares at an inflection point. The market consensus of the shares as a buy has been under pressure in recent days as a number of downgrades have hit the stock. At the same time, bulls of the global lifestyle brand remain convinced that the precipitous share price drop has actually presented a golden buying opportunity.
"With wider economic uncertainties weighing, let alone the shadow of Brexit casting doubts on the UK consumer, the jury remains out."
George Salmon, equity analyst at Hargreaves Lansdown, said that even before the accusations around the conduct of Ray Kelvin emerged, Ted was facing a cocktail of challenges.
"UK department stores, a key sales outlet for Ted, are under pressure, while conditions aren’t much better across markets in the rest of the world.
"The timing of the claims is disrupting the all-important Christmas season, but the potential impact stretches beyond these next few weeks. The scandal engulfing Mr Kelvin damages the Ted brand, and raises questions over the future leadership of the business, which has hitherto delivered consistent profit and dividend growth. That makes the findings of the independent investigation crucial."