Just a couple of months since weak interim figures sent Ted Baker (LSE: TED) shares crashing 30%, and hot on the heels of an inventory accounting blunder that could cost £25m, comes a new double-whammy for shareholders.
CEO Lindsay Page, who only took on the job in April, and executive chairman David Bernstein have both quit with immediate effect. Rachel Osborne is to step in as acting CEO, and a search for a new chairman is under way, with Sharon Baylay keeping the seat warm.
And there’s a new profit warning. Describing the past year as the “most challenging in our history,” its update said “trading over November and the Black Friday period was below expectations” and told us that difficult trading conditions are expected to continue.
Forecasts slashed
The firm now has “a more cautious outlook for the remainder of the financial year, which includes the key trading months of December 2019 and January 2020,” and predicts pre-tax profit of £5m-£10m, well below the £50.9m recorded last year.
The shares opened with a 30% crash, though they’ve rallied and as I write the price is 13% down. We’re looking at a massive 85% fall over the past two years, so what does it all mean, and should we buy the shares now?
One attraction has disappeared, and that’s Ted Baker’s big dividend. Forecasts had indicated a yield of 6.6%, rising to 7.2% next year, but that’s now history as the dividend has been “temporarily suspended.”
Dividend woes
The company says it “recognises that dividend is an important part of our returns to shareholders and will look to resume payment as soon as it is appropriate to do so,” but I think that’s getting the focus entirely the wrong way round. The priority, in my view, should always be the long-term health of the company, ensuring profitability and a secure balance sheet — and dividends should be seen as a bonus, not some sort of right or obligation.
I really like the way some companies are moving towards paying only small ordinary dividends and topping them up with special extra payments when the cash is there. It might end up with the same amount being paid, but it makes for a change of expectations and less of a shock when a special dividend comes in lower one year.
Another of my pet peeves is when a company only cuts its dividend as a last resort, in this case after a couple of years of declining earnings in an economy that’s clearly going to be under pressure for some time yet. Examining the affordability of a company’s dividends should come early in the process, I reckon.
Bargepole ready
When Lindsay Page took over, I half expected to hear further bad news as so often happens — the ‘new broom sweeps clean’ thing makes it easier to get the dirty washing out in public without the new incumbent getting the blame. The fact that Page is leaving so soon suggests things are worse than anyone expected.
Ted Baker is still profitable, still has a strong brand, and I think is likely to come through its current troubles eventually. But until I’m convinced the bad news is all behind it and I see actual evidence of recovery, I’m keeping well away.