Ted Baker was hit by scandal last week when it emerged that staff had launched a petition alleging that boss Ray Kelvin’s behaviour was inappropriate.
Shares tanked at the stock market darling, dropping from 1,826p to 1,420p in a single day on Monday, December 4. Since then, they recovered slightly, ending the week on 1,493p on Friday, December 7.
Ted Baker announced during that week that it would be conducting an independent investigation into the allegations, led by law firm Herbert Smith Freehills (HSF).
Then, as the markets were about to close on Friday, the retailer revealed that its founder and chief executive would be taking a leave of absence after “further serious allegations” were received.
The questions for investors are where the business goes next and what will happen about its leadership.
Kelvin is viewed as a genius by many: he has led Ted Baker to almost uninterrupted success for three decades, with the only blight on its record being relatively subdued half-year results in this, its anniversary year, as trading softened.
He is no doubt an extraordinarily talented retailer and the trading blip came at a time when some retailers have admitted defeat and called in the administrators.
Last week also brought a 16-week trading update showing what Ted Baker described as a “resilient performance” – overall, sales inched down 0.2%; mainly, it was said, reflecting wholesale delivery timing. In the present climate, many retailers would be happy with that.
Brokers were divided then – which was before Kelvin’s leave of absence – about what the various news meant.
“We believe the impact on the group’s brand strength and longer-term growth prospects is likely to be minimal”
Liberum, last week
HSBC, for instance, moved from buy to hold. It feared that “uncertainty over leadership distracts from the core investment case” and was worried that there was “limited visibility as to when this will be resolved”.
Liberum, on the other hand, was more bullish. It maintained: “We believe the impact on the group’s brand strength and longer-term growth prospects is likely to be minimal.”
Cantor Fitzgerald was a buyer. The broker said: “Despite near-term trading headwinds we continue to believe in the fundamental strengths of the brand with its strong track record and future international growth opportunities.”
Cantor also seemed to think that the leadership turmoil would not necessarily hit future prospects. It observed: “The business… has a strong executive and operational management team – it is not a one-man show.”
Following Kelvin’s leave of absence, chief operating officer Lindsay Page stepped up to become acting chief executive. He has been with the retailer since 1997 so is very familiar with the business, and that will reassure some investors.
What the retailer needs now is stability and as speedy an outcome as possible to the investigation into the reports about Kelvin.
“Some investors questioned whether the Ted Baker board had been too ‘weak’ to counterbalance founder Kelvin”
Some investors have questioned whether the Ted Baker board had been too “weak” to counterbalance founder Kelvin, who holds 35% of the retailer’s shares.
But the lawyers will report to a committee of non-executive directors chaired by Sharon Baylay, who only joined the board this year and should be able to bring a fresh perspective.
Kelvin himself said on Friday that “the accusations of the past week have raised some very serious and upsetting issues. It is only right that the board and HSF should investigate fully… Ted Baker means everything to me and I can’t bear to see it harmed in any way.”
Only when there is transparency about what has, or has not, happened at Ted Baker will investors be able to gauge the implications – for the brand, for trading, for governance and, of course, for Kelvin himself.