Ted Baker agree sale of subsidiary for £79m
Ted Baker has today announced that it has today exchanged contracts with a wholly-owned subsidiary of British Airways Pension Trustees Limited regarding the sale Big Lobster Limited.
Big Lobster is a wholly-owned subsidiary of Ted Baker, which owns, as its sole asset, the Group’s registered and head office, The Ugly Brown Building in London, which Big Lobster currently leases to the rest of the Group.
The sale is valued at £78.75m and will be paid in cash on completion, which is expected to take place in June 2020.
In connection with the sale, Ted Baker has entered into a short-term lease of the property for a period following completion.
Net proceeds from the sale of £72m will be used to pay down debt.
Impact of Covid-19 on Ted Baker
The situation in regard to COVID-19 is rapidly evolving which creates uncertainty across many businesses around the world.
Visibility around how international public policy will develop is low but Ted Baker continues to monitor and respond to government advice to best serve employees, customers and wider stakeholders, across its trading markets.
Ted Baker announced today that it is not hesitating and is acting now to take a series of steps to reduce costs and protect cashflow, including suspending all non-essential capital expenditure, stopping discretionary operating expenses, and severely restricting travel.
The 100% business rates holiday for the next 12 months, which was announced by the UK Government to support retail businesses, has been welcomed and the group awaits further clarification of the details of this policy. Ted Baker paid UK business rates of £6.2m in FY 2020.
To date, there has been minimal disruption to the group’s supply chain, with the significant majority of its factories in China now operational. The group does not currently envisage supply disruptions and inventory levels are sufficient.
The vast majority of the group’s retail stores and concessions are now closed (384 locations closed out of a total 416 locations globally). These represented approximately 68% of Ted Baker’s Global Retail sales in FY2020.
Ted Baker’s eCommerce channel has proved much more resilient and the performance in the financial year to date (last eight weeks) has been up 16% on last year.
Due to coronavirus the majority of Ted Baker retail stores and concessions are now closed. However, the group believes it’s on track to reach pre-tax profit of £5-10m for the full year ending 26 January 2020. The group is unable to provide guidance for 2021.
The shares fell 14.3% following the announcement.
Rachel Osborne, Acting CEO, said: “The sale and leaseback of the Ugly Brown Building and future relocation of our head office are significant developments resulting from the broad asset review we have undertaken in recent months.
“This transaction and the agreed additional financing provides further headroom and flexibility, which will support the delivery of our transformation strategy.
“The spread of COVID-19 has led to some unprecedented events around the world and uncertainty for our business and our people. We welcome the support packages so far announced by Governments and continue to focus on keeping our customers and employees safe and all of our stakeholders informed. By doing this, and by continuing to transform the way the business operates guided by our strategic priorities, we remain confident we can realise Ted’s exciting, long-term potential.”
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown
Ted Baker has closed the vast majority of its stores and concessions which inevitably has an immediate impact on revenues and profits. The problem for Ted Baker is trading has been rocky for a while, meaning it’s more vulnerable than most. It’s doing the right thing by taking steps to cut costs and preserve cash, but we don’t yet know what the fall out of these closures is going to be and it could make for ugly reading when we do find out.
The other thing to keep in mind is Ted Baker’s higher prices. If the current pandemic results in a long-term economic slump once shops start to reopen, we worry people will be less inclined to part with the sums its price tags demand. The group is already struggling with increased discounting in the retail sector, and a spooked consumer base has the potential to make that problem even worse.