Troubled retailer Ted Baker lurched into a fresh crisis today, admitting it had overstated the value of stock on its books.
The fashion brand, still attempting to recover from its “Hug-gate” scandal, told investors early analysis showed the value of inventory held on its balance sheet has been overstated by between £20 million to £25 million.
It stressed that “any adjustment to inventory value will have no cash impact and will relate to prior years”. But the market was less sanguine, and the shares plunged 10% before recovering, down 8p at 390p.
The company originally reported stock worth £225 million in the year to February 2019.
Ted Baker has hired lawyers from Freshfields Bruckhaus Deringer to undertake a review which will report to non-executive director Sharon Baylay. Independent accounts will also be involved in the review. Ted Baker’s auditor, KPMG, is under fire over a string of scandals including Carillion’s collapse and corruption in South Africa.
The discovery comes just weeks after new finance chief Rachel Osborne, formerly of Debenhams and Domino’s Pizza, joined the fashion brand. She replaced Charles Anderson, who left to join Mulberry in October after 17 years with Ted Baker. The company said: “Ted Baker is committed to ensuring the independent review is completed in an efficient and transparent manner and will update the market as appropriate.”
Independent retail analyst Nick Bubb said: “The top lawyers Freshfields have been brought in to lead an independent inquiry into the issue, which leaves the credibility of the new management team and its control systems wearing dangerously thin.”
Analysts at Liberum called the news “less than ideal” while Peel Hunt said: “Ultimately it is an accounting slip rather than a cash issue, but for Ted this compounds the pressure on already weakened investor confidence levels.”
It is the second time in a year it has had to hire lawyers to investigate the company. Herbert Smith Freehills probed allegations of misconduct towards founder and former chief executive Ray Kelvin, left, including “forced hugs”.
Kelvin, who founded the company in 1988, resigned in March but remains its largest shareholder, with 35%. He has been linked with a potential bid to take it private.
The shares began the year at 1571p but Kelvin’s departure, coupled with a run of poor trading amid tough conditions for fashion retailers, have pummelled the stock. The retailer faces a crucial Christmas trading period.