I had thought previously that the problems at Ted Baker (LSE: TED) were going to be temporary. Now I think the shares are only for the very bravest investors as the troubles at the retailer keep piling up like unwanted clothes, and the share price keeps on falling.
The company, which was a stock market darling not that long ago, has a brand that seems to be fast fading. It has even less appeal as an investment and here’s why.
Problems with Ted
First the founder was forced to leave after it was found he had forced hugs on his employees. The share price didn’t respond well to that, but in the time since, the share price has just kept falling. Now further executives have left. The boss, Lindsay Page, who was only appointed in April, resigned recently. The chair, David Bernstein, has also quit.
There has been a string of profit warnings from the brand – the most recent of which was this month, which sent the share price down. Issuing its latest profit warning, Ted Baker said it had seen worse-than-expected trading in November, including on Black Friday. Full-year profit – previously forecast by analysts at £28.4m – was now likely to be just £5m to £10m, depending on how well it trades over Christmas.
The dividend has now been suspended adding further misery to shareholders who’ve seen the worth of their holdings in the company plummet. Struggling companies often try to keep investors onside by maintaining the dividend, but it looks like Ted baker can no longer do that such is the shape it is in.
Then, to make matters worse, bosses at the retailer recently revealed that the group’s inventory had been overstated by between £20m and £25m, which led to another tumble in the share price.
As well as many self-inflicted problems, the difficult retail environment is also not helping the fashion brand. Discounting is rife as retailers look to stay afloat and compete ferociously for shoppers. Ted also has a lot of concessions in department stores, a part of the retail market that has been particularly hard hit in recent years as shown by the collapse of House of Fraser.
What can investors do
For any investor looking at the troubles at Ted Baker as an opportunity to invest in a company which is trading far below any level seen in at least the last decade, I’d suggest taking a wait and see approach. Nothing seems to be going right so far at the brand and that’s a situation that currently shows no sign of changing.
Even on a ridiculously low price-to-earnings of 3, there’s still far too much risk associated with the company. Being so low may indicate very few investors see Ted recovering in the foreseeable future. On top of that, investors should remember a falling share can continue to fall. Just ask investors in Carillion.
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Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.