Fashion retailer Ted Baker (LSE: TED) has been suffering for a while. Having recently undertaken a number of changes at the top of the firm, which has caused a degree of uncertainty, the coronavirus and lockdown have been adding problems the company could do without.
In order to survive these tough times, the company revealed this week it’s raising £95m in a cash call. This is higher than its entire listed equity, after its share price has plummeted in recent years. This money is aimed at helping it survive the coronavirus problems. Specifically, it plans on reducing debt and pursuing a “digital first” strategy. Personally however, I think there is still a lot of risk for the Ted Baker share price.
Moving to more of an online brand has potential. Indeed digital-only fashion platforms like Boohoo and ASOS have been fairing pretty well during the pandemic. Ted Baker itself, saw a 78% increase in online sales since lockdown was introduced in March.
Unfortunately for the company, this may not be enough. Overall like-for-like sales between January and May were down 34%. It reported this week that pre-tax profits were down £110.5m on the year, taking it to a £79.9m loss. The Ted Baker share price has been faring equally badly.
Ted Baker share price troubles
As I write this, the Ted Baker share price is about 125p. This represents a 91% decrease on the same time last year – when the stock was about £14 a share. Though these kinds of decreases could make you think it’s now cheap, the shares are cheap for a reason.
As well as fundamental changes in consumer sentiment towards the company, Ted Baker has also been hit by a number of controversies. Last year CEO Ray Kelvin resigned over a so-called “forced hugging” scandal.
In December, the company had to admit to a £25m accounting error. This error later turned out to be £58m worth of overstated stock. Investors don’t like firms where the accounts of the company may be in doubt. This kind of misreporting is the exact type of thing to cast such doubts.
Personally, I would be worried about the new measures being too late. The Ted Baker share price has been massively hit by the changing economic climate and controversies. Investor confidence is low, and its finances seem in poor shape.
Raising money to implement a new strategy or weather a storm can be a sound tactic. But if your numbers are bad, how can you expect to make it up again?
One saving grace for Ted Baker is that it falls into an ever-growing ‘category’. It may soon be, if it’s not already, a “distressed” fashion retailer with strong brand recognition. For me, the best outcome may just be a takeover bid from a more successful name. I really don’t think the digital first strategy will be enough on its own.
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Karl 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.