The struggling fashion retailer Ted Baker has admitted that an accounting error was twice as big as initially thought, leaving it with a £58m hole in its balance sheet.
Ted Baker appointed accountants from Deloitte last month to investigate after the company found that it had overestimated the value of its stock.
The retailer’s preliminary investigations suggested it had overestimated the value of the stock it held at 26 January 2019 by between £20m and £25m but that figure has now more than doubled. Shares in Ted Baker fell 9% to 290p on the news.
The results of the accounting investigation come after Ted Baker appointed advisers to carry out a business review amid concerns that its weak financial position could force it to look for new cash. A £58m overstatement would be larger than the London Stock Exchange-listed company’s annual profits before tax for the year to 31 January 2019 of £50.9m.
The overstated assets were a non-cash item related to previous years and Ted Baker has said the issue will have no effect on 2019-2020 profits.
The blunder is the latest in a long line of problems to hit Ted Baker. Most notably, its founder and former chief executive, Ray Kelvin, resigned in March after allegations of a regime of “forced hugs” at the company. Kelvin has denied allegations of misconduct.
The company’s shares had already lost more than three-quarters of their value since the start of 2019 and about 90% of their value since hitting their all-time high in November 2015.
The retailer is also struggling with sales. It issued four profit warnings in 2019 and slumped to a first-half loss of £23m in October, its first in more than two decades.
Before Christmas, Ted Baker said it had reduced its expectations for profit before tax for the year ending 25 January 2020 to only £5m.
Expectations for the period ending 25 January 2020 have been reduced to a minimum profit before tax of £5m, with a potential outcome of up to £10m, dependent on Christmas trading and final year-end review.
Last month Ted Baker said that trading over November and the Black Friday period was below expectations and that it anticipated “difficult trading conditions will continue”.