Ted Baker Crisis Deepens As The Accounting Black Hole Gets Bigger
It has been revealed that an accounting error at fashion giant Ted Baker was twice as large as was originally admitted, leaving a £58m hole in its balance sheet. Last month the struggling retailer appointed accountants from Deloitte to investigate after the company discovered they vastly overestimated the value of their stock.
Shares in Ted Baker fell by 9% on the news that the retailer’s preliminary investigations had been widely inaccurate. Internal investigators initially suggested that the value of stock it held on 26th January 2019 had been overestimated by between £20m and £25m, a figure that has now more than doubled.
It’s another blunder at one of Britain’s luxury fashion giants. A 58m overstatement is larger than the company’s current annual profits.
The company is insisting that the overstated assets were non-cash items and will have no bearing on 2019-20 profits. The company’s shares had already lost 90% of their value since hitting their all-time high in 2015, and had fallen back by 75% over the course of 2019.
During 2019 it issued four profit warnings and in October it reported a first half trading loss of £23m, its first loss for more than two decades.
Despite a difficult Christmas period and a poorer than expected Black Friday, the retailer still expects to turn an annual pretax profit of between £5m and £10m.
Earlier this month advisors from FTI Consulting were appointed by a consortium of the company’s major lenders including HSBC, Royal Bank Of Scotland and Barclays.
FTI have previously worked with lenders to troubled high street retailers Debenhams and New Look along with the collapsed Thomas Cook. The review is expected to result in lenders tightening the terms at which they lend to Ted Baker, with fears that they may be close to reaching the ceiling on borrowing agreements.
The company has already put its head office on the market, with analysts now warning that it may be forced to sell off further assets. The low share price has attracted investors however, including Toscafund who have now doubled their stake in the company to almost 12%.