|
Highlights |
52 weeks ended 26 January 2019 |
52 weeks ended 27 January 2018 |
Change |
|
Group Revenue |
£617.4m |
£591.7m |
4.4% |
|
Profit Before Tax and Exceptional Items |
£63.0m |
£73.5m |
(14.3%) |
|
Profit Before Tax |
£50.9m |
£68.8m |
(26.1%) |
|
Basic EPS |
91.5p |
119.0p |
(23.1%) |
|
Adjusted EPS |
114.2p |
127.7p |
(10.6%) |
|
Total Dividend |
58.6p |
60.1p |
(2.5%) |
· Group revenue up 4.4% (5.0% in constant currency) to £617.4m
· Retail sales including e-commerce up 4.2% (up 4.8% in constant currency) to £461.0m
· UK and Europe retail sales up 4.6% (up 4.5% in constant currency) to £315.0m
· North America retail sales up 4.7% (up 7.0% in constant currency) to £125.7m
· Rest of the World retail sales down 4.7% (down 2.9% in constant currency) to £20.3m
· E-commerce sales up 20.4% (up 20.8% in constant currency) to £121.7m
· Selective expansion continued with:
· Two stores in the UK, five stores in the US, one store in Spain and one store in China.
· One outlet in the UK, our first outlet in Italy, two outlets in Germany and one outlet in France
· Further concessions with leading department stores across the UK and Europe
· Licensee store openings in new and existing markets
· Wholesale sales up 4.8% (up 5.7% in constant currency) to £156.5m
· Licence income up 3.1% to £22.1m
· Completed acquisition of No Ordinary Shoes Limited and No Ordinary Shoes USA LLC
Chairman's Statement
Introduction
Group revenue increased by 4.4% (5.0% in constant currency)1 to £617.4m (2018: £591.7m) and profit before tax and exceptional items2 decreased by 14.3% to £63.0m (2018: £73.5m) for the 52 weeks ended 26 January 2019 (the “period”). Profit before tax decreased by 26.1% to £50.9m (2018: £68.8m). Performance has been impacted by the very difficult trading conditions throughout the year including competitive discounting across the retail sector, consumer uncertainty, the well-publicised challenges facing some of our UK trading partners and the unseasonable weather across our global markets at different points throughout the period.
Despite this challenging backdrop, Ted Baker continues to develop as a global lifestyle brand reflecting the strength of the brand, the design and quality of our collections and the passion and commitment of our talented teams across the world.
The retail channel performed well, with retail sales including e-commerce up 4.2% (4.8% in constant currency)1 to £461.0m (2018: £442.5m) on an increase in average square footage of 5.2%. Our flexible business model, including a relatively low number of own stores that showcase the brand and our e-commerce business enable us to adapt to structural changes in the retail sector. We continued our controlled geographic expansion with openings across the UK and Europe, North America and the Rest of the World and we continue to invest and build brand awareness in our newer markets for the long-term development of the brand.
Our e-commerce business is an integral and increasingly important component within our retail proposition and has performed well, delivering strong sales growth of 20.4% (20.8% in constant currency)1 to £121.7m (2018: £101.1m) and represented 26.4% of total retail sales (2018: 22.8%). We continue to invest in our e-commerce channels to support further growth.
The wholesale channel performed in line with our expectations, with sales up 4.8% (5.7% in constant currency)1 to £156.5m (2018: £149.2m). This reflects a good performance from our UK wholesale business, which includes the supply of goods to our licensed stores and our export business as well as our North American wholesale business.
Licence income delivered growth of 3.1% to £22.1m (2018: £21.4m). Underlying growth in licence income was 5.5%, adjusting for the acquisition of the footwear licence, which completed on 1 January 2019. During the period, our licence partners opened further stores and concessions in Malaysia, Mexico, Saudi Arabia, Singapore, Taiwan, Thailand and United Arab Emirates. We also opened our first licensed partner stores in the Canary Islands, India, Kazakhstan, Kosovo, and Ukraine.
Resignation of Ray Kelvin and Independent External Investigation
Ray Kelvin took a voluntary leave of absence from his role as Chief Executive Officer of Ted Baker in December 2018, after allegations of misconduct were made against him. Since that date an internal Independent Committee has been in the process of investigating those allegations. The Committee commissioned the law firm Herbert Smith Freehills LLP (“HSF”) to investigate the allegations and the Group's policies, procedures and handling of HR-related complaints. Ray Kelvin has denied all allegations of misconduct, however, on 4 March 2019 he agreed to resign with immediate effect from his position as Chief Executive Officer and as a Director of Ted Baker Plc.
The primary focus of the remainder of the investigation will be on Ted Baker's policies, procedures and handling of HR-related complaints. It is expected that HSF will conclude its investigation early in Q2 2019. The Board are committed to ensuring that all employees feel respected and valued. We are determined to learn lessons from what has happened and from what our employees have told us and to ensure that, while the many positive and unique aspects of Ted Baker's culture are maintained, appropriate changes are made.
Board Changes
As recently announced on 4 March 2019, acting Chief Executive Officer Lindsay Page has agreed to continue in this role and I have been asked by the Board to act as Executive Chairman to provide additional support to Lindsay and ensure continued stability in the Group's leadership. I will remain in this position until no later than 30 November 2020, by which time a new Non-Executive Chair will be appointed. Sharon Baylay has agreed to act as the designated Non-Executive Director for engagement with the Ted Baker team members and has also taken on the role of Chair of the Nomination Committee.
Our Teams
Against a backdrop of very difficult market conditions, the periods credible performance is testament to our talented teams across the world, whose commitment and passion remain key to our success. I would like to take this opportunity to thank all my colleagues across the world for their continued hard work as we continue to grow the business and develop Ted Baker as a global lifestyle brand.
IT Systems and distribution facilities
In January 2019 we completed the final phase of the implementation of Microsoft Dynamics AX system across our Asia business. The ERP system has now been successfully implemented globally and will enable improved efficiency and streamline operations.
We have now also completed the transition to our new distribution facility in North America. The new facility will serve our retail, wholesale and e-commerce businesses across North America, supporting our long-term growth strategy in this territory.
This marks the end of a significant period of change for the Group, where it has enhanced its IT systems and consolidated its distribution facilities. These provide a platform that will support the future development of the business including omni-channel initiatives such as ship from store.
Acquisition of No Ordinary Shoes Limited and No Ordinary Shoes USA LLC
The acquisition of No Ordinary Shoes Limited and No Ordinary Shoes USA LLC from Pentland Group Plc and Pentland USA Inc, the Group's former footwear licensee, was completed on 1 January 2019 for cash consideration of £20.3m, subject to the finalisation of completion accounts. This is an exciting opportunity to drive further growth in our footwear business by leveraging our global footprint and well invested infrastructure. The acquisition is expected to enhance the earnings of Ted Baker from this new financial year.
Licence Partners
We are pleased to have signed two new global licence agreements, with partners who have a global reach and capability. In June 2018 we signed a new men's underwear and loungewear global licence with Delta Galil. In October 2018 we signed a new global watch licence with Timex Group, which will allow us to benefit from its expertise and long history as an authentic watchmaker. Both of these new partners reflect our commitment to working with the best product specialists that are able to support our status as a truly global lifestyle brand.
Brexit
We have developed a number of strategies and contingency plans which will assist in minimising disruption caused by Brexit. A number of indirect risks remain which are beyond our control and the resulting risk that they pose is highly reliant on the preparedness of national authorities and other businesses. The key risks are discussed in further detail in the principal risks and uncertainties section on page 18.
Financial Results
Group revenue for the period increased by 4.4% (5.0% in constant currency)1 to £617.4m (2018: £591.7m). The Group gross margin was lower at 58.3% (2018: 61.0%). We had anticipated a slightly lower retail margin, as the prior year had benefited from an improved full price sell through. The resultant margin was further reduced by an increase in promotional activity in response to the challenging trading conditions. This was partly offset by an increased wholesale margin, due to a greater proportion of sales being made to our wholesale partners, known as “Trustees of the brand”, which carry a higher margin than sales to our retail licence partners and some foreign exchange benefits.
Profit before tax and exceptional items2 decreased by 14.3% to £63.0m (2018: £73.5m) and profit before tax decreased by 26.1% to £50.9m (2018: £68.8m). Adjusted basic earnings per share, which excludes exceptional items, decreased by 10.6% to 114.2p (2018: 127.7p) and basic earnings per share decreased by 23.1% to 91.5p (2018: 119.0p).
Exceptional items in the period amounted to £12.1m (2018: £4.7m) and comprised the impairment of retail assets in the UK, Europe, US and Asia, debtor balances owed by House of Fraser which are no longer expected to be recovered following its entry into Administration on 10 August 2018, costs in respect of the independent investigation referred to previously and costs in respect of the acquisition of No Ordinary Shoes Limited and No Ordinary Shoes USA LLC.
The Group's net borrowing position at the end of the period was £123.8m (2018: £111.8m) being the secured term loan of £47.0m (2018: £52.5m) used to purchase The Ugly Brown Building and other net debt of £76.8m (2018: £59.3m). Net debt increased due to the cash consideration paid on acquisition in respect of No Ordinary Shoes Limited and No Ordinary Shoes USA LLC of £20.3m, offset by benefits from our ongoing focus on working capital efficiencies.
Dividends
Reflecting the strength of the Group's underlying performance, the Board is recommending a final dividend of 40.7p per share (2018: 43.5p), making a total for the period of 58.6p per share (2018: 60.1p per share), a decrease of 2.5% on the prior period. Subject to approval by shareholders at the Annual General Meeting to be held on 12 June 2019, the final dividend will be paid on 22 June 2019 to shareholders on the register on 18 May 2019.
Current Trading and Outlook
Retail
In the UK and Europe, we plan to open our first full price stores in Antwerp, Belgium and Hamburg, Germany, and, an outlet in Metzingen, Germany, along with two further concessions in Germany. We will continue to invest in our e-commerce sites to enhance the customer experience and journey, with our localised Spanish website due to launch in late May.
In North America, we will continue to develop our presence with plans to open a store in Detroit and two further concession openings, along with two further licence partner concessions in Mexico.
In the Rest of the World, we continue to refine and define our strategy for success and we remain focused on building brand awareness. In line with our development strategy in this territory, we plan to open an outlet in Hong Kong.
Wholesale
We anticipate further growth across our wholesale businesses, which should result in low to mid-single digit sales growth (in constant currency) in the coming period.
Licence Income
Our product and territorial licences continue to perform well. We have opened our first licensed partner store in Malta, with plans to open further licensed stores during the year in Croatia, Egypt, Indonesia and Mexico.
Group
We have a very clear strategy for the continued expansion of Ted Baker as a global lifestyle brand across both established and newer markets. Our flexible business model ensures that our customers have multiple channels to engage with the brand. Our growing e-commerce business, underpinned by a relatively low number of own stores that showcase the brand, mean that we are well positioned to deal with the structural changes in an evolving retail environment and continue Ted Baker's long-term development.
Led by our acting Chief Executive Officer, Lindsay Page, we are confident that the strong and experienced team we have in place will continue to implement our strategy and develop Ted Baker as a global lifestyle brand.
To deliver our expansion plans, capital expenditure in the new financial period is planned to be £31.0m (2019: £30.3m). This relates to further store openings and refurbishments and a number of omni-channel initiatives as we start to benefit from our new IT systems. We continue to explore options for the development and expansion of the Ugly Brown Building to support our future growth plans.
Trading continues to be impacted by ongoing consumer uncertainty and an elevated level of promotional activity across many of our global markets as well as recent unseasonal weather in North America. Despite this, we remain confident in our collections for Spring / Summer and the Board remains focussed on identifying opportunities in the evolving retail market to progress the long-term development of the brand. We intend to make our trading statement covering trading from the start of the financial period in mid-June 2019.
David Bernstein CBE
Executive Chairman
21 March 2019