Preliminary Results and Q1 trading update

26 May 2022

Ted Baker Plc ("Ted Baker", the "Group")

Preliminary Results Announcement for the 52 weeks ended 29 January 2022 and Q1 trading update for the 12 weeks ending 22 April 2022

Ted demonstrating good sales momentum, improving gross margin and operating cost leverage

Rachel Osborne, Chief Executive Officer, commented:

"We continue to make good progress against our Transformation Plan, helping us deliver strong sales momentum through the year as we focus on driving Ted Baker's growth as a global lifestyle brand.

That momentum has continued into the new year, supported by a steady return to the office and social events. While we remain mindful of what is a challenging macro environment, we are well positioned for growth. The positive response to our SS22 collection and the recent launch of our new digital platform, supported by our strong brand, capital light strategy and well-established distribution channels give us confidence in Ted Baker's future."

Notes: (1) Restated to reclassify delivery income from cost of goods sold to revenue and certain fulfilment costs from cost of goods to operating expenses. Details of the restatement are included in the annual report and accounts

(2) Before non-underlying items

(3) Declared and paid

Ted Baker Plc, the global lifestyle brand, today reported preliminary results for the 52 weeks ended 29 January 2022 and a trading update for Q1, covering the 12 weeks to 22 April 2022. 

Full Year Highlights

1. Accelerating sales growth, with sequential improvements during the year

· Group Brand sales of £918m up 23% compared to FY21

· Group sales growth of 21% compared to FY21, up 23% in constant currency

2. Brand strength supporting improving gross margin

· Brand metrics remained strong in the UK, improving in US and Germany

· Full price sales mix +810 bps for FY and gross margin +105 bps for FY

3. Improvement in underlying profitability

· £21m reduction in underlying pre-tax loss year-on-year

· Significant improvement in opex to sales ratio of 700 bps for FY, with cost discipline maintained and positive leverage from transformation programme cost savings

4. Net cash position and strong liquidity

· Net cash of £3m at year-end 29 January 2022

· Strong liquidity with bank facilities of £80m in place at balance sheet date

5. Acceleration of capital light growth

· Online concession performance robust, product well received

· Strong performance of licence channel, up 22% vs last year

· New UK franchise agreement, with potential for up to 30 new stores in untapped catchments

6. Continued progress on ESG targets

· Strong improvement in sustainable material use across our collections, at 26% compared to 17% last year

· Science Based Target Initiative submission made. Awaiting accreditation

The below table provides Q1 trading update, for 12 weeks to 22 April 2022.

Q1 Highlights

1. Continued positive momentum for Q1

· Q1 sales growth of 20% compared to last year

· Return to office, weddings and travel provide positive tailwinds for the brand

· Mindful of consumer squeeze from inflation and cost of living pressures

2. Ongoing progress in full price sales mix

· Full price sales mix +1500 bps for Q1, but still below pre-pandemic levels

· Q1 trading margin improved +360 bps vs last year

3. New digital platform delivering enhanced consumer experience

· Launch of new digital platform, with improved user experience delivering conversion rate improvement since launch

· Anticipated disruption from re-platforming adversely affecting eCommerce sales during H1

4. Encouraging response to new SS22 collections

· WW strength from AW21 continued into SS22, with good sales for WW dress, bags, and footwear

· Improved performance in MW shirting, knitwear and jersey

5. Cashflow discipline maintained

· Net debt of £17m at 22 April 2022, reflecting normal working capital cycle and in line with expectations

6. Progress continuing post Q1 in UK and EU, more challenging in North America

· Encouraging start to Q2, with improvement in sales trends for both stores and eCommerce vs Q1 for UK and EU

· North America Retail adversely impacted by availability and eCommerce platform disruption

The Group will today host its results presentation for analysts and investors at 10am at Panmure Gordon, 1 New Change, London, EC4M 9AF. This will be streamed online at: https://stream.brrmedia.co.uk/broadcast/6272bfd8860d1117d3863589

A dial-in facility will also be available. Participant details are:

· Phone Number: +44 (0)330 165 4012

· Confirmation Code: 8323173

For more information on attending please contact [email protected].

Enquiries: Ted Baker plcRachel Osborne, Chief Executive Officer

Marc Dench, Chief Financial Officer

Phil Clark, Investor Relations

Tulchan Communications

Jonathan Sibun/Jessica Reid

Media images available for download at:

Tel: +44 (0) 20 7255 4800

Tel: +44 (0) 20 7353 4200

Tel: +44 (0) 20 7353 4200

http://www.tedbakerplc.com/ted/en/mediacentre/imagelibrary

Notes to Editors

Ted Baker plc - "No Ordinary Designer Label"

Ted Baker is a global lifestyle brand distributing across five continents through its three main distribution channels: retail (including eCommerce); wholesale; and licensing.

Ted Baker has 377 stores and concessions worldwide, comprising 97 in the UK, 81 in Europe, 95 in North America, 95 in the Middle East, Africa and Asia, and 9 in Australasia.

We offer a wide range of collections including Menswear; Womenswear; Accessories; Bedding; Childrenswear; Eyewear; Footwear; Fragrance and Skinwear; Gifting and Stationery; Jewellery; Lingerie, Underwear and Sleepwear; Luggage; Neckwear; Rugs; Suiting; Technical Accessories; Towels; Wallcoverings; and Watches.

Formal Sale Process

On 18 March 2022, Sycamore Partners Management LP announced that it was considering a possible offer for the Company. While we received offers from Sycamore and other unsolicited third-party bid interest in relation to the Company, the Board did not consider that the offers received reflected appropriate value for the Company's stakeholders. In view of the interest expressed by potential offerors, and having consulted its major shareholders, the Board decided to conduct an orderly process to establish whether there is a bidder prepared to offer a value that the Board considers attractive relative to the standalone prospects of Ted Baker as a listed company. Accordingly, on 4 April 2022 we announced that we would be conducting a formal sale process. On 23 May 2022, we announced we were proceeding with a preferred counterparty.

Strategic Review

We have done much of the heavy lifting needed to move the business forward. We have fixed the foundations, brought costs under control and embedded financial disciplines throughout the business. During the year, we refreshed our strategy to focus on our key areas for growth.

The strategy continues the focus on our core priorities. We have made solid progress on all the pillars in the context of external challenges including the ongoing pandemic, customer spending and behaviours, while managing availability of product and maintaining a resilient supply chain.

With the lifting of restrictions starting at the end of January 2022, we continue to be optimistic about what we can achieve with Ted Baker as the world opens up. As the situation evolves, people are returning to the workplace, and weddings and social gatherings have resumed. As this happens, our customer insight adds to our confidence that people will seek out Ted Baker's unique mix of occasionwear and formalwear, along with our new products, supporting our return to growth and profit.

Customers 

Like any lifestyle brand, our customers are at the heart of everything we do. Understanding them is the key to building our business and over the year we have worked hard to attract and retain more of our target customers.

To do this, we invested in a new research programme that has deepened our understanding of different customer segments, their lifestyles, tastes, attitudes and interests. The ongoing programme continues to deepen our knowledge, so we can be more effective in appealing to them as we design targeted new products and ranges.

The depth of this work and the insights are making a real difference across the whole process, from product creation to marketing reach and effectiveness.

Retail Sales

Retail sales were disrupted by the lockdowns and restrictions over the year, but sales increased by 17.2%, with digital sales delivering 44.3% of the total (2021: 57.5%). Overall, digital sales demand stayed above historical levels, up 12.7% on a two-year basis, but sales fell below the levels we saw during the first lockdown as we reviewed our promotional approach in line with stock and liquidity levels. Our digital sales performance has been strong in the concession environment, with partners like John Lewis and Next performing well.

The pick-up in occasionwear in the latter half of the year in both our men's and women's collections, along with formalwear and suits, was an encouraging sign that people are ready to get back to some normality. From a product point of view, we saw good performance across womenswear accessories and footwear. However, our menswear did not perform as well as expected, particularly outerwear, where some of our styling did not resonate as well with our core customers as we had hoped.

These positive customer signals allowed us to move back to our full-price stance and reduce discounting, with very encouraging progress - full price sales mix increased by +810 bps over the year.

Where consumer confidence was recovering in the first half of the year, we saw significantly improved sales across our North American concessions and North American and UK shopping malls. This was also reflected in the return of footfall in the first part of Q4; although this didn't hit pre-pandemic levels, we did see an uplift, with many more customers coming out and shopping. We saw strong results for the six weeks of trading from the start of November. The introduction of Omicron warnings and restrictions in early to mid-December saw footfall drop away - first in Europe and then in the UK and US. With the mood changing with the lifting of restrictions in the UK in late January, and with more optimism about the shift in mindset, we hope to see a similar return to recovery of footfall.

Product licensing

Product licensing is a core part of our brand strategy for Ted Baker. It allows us to extend our brand reach across a broader range of clothing, accessories and homewares. We do this by working with carefully selected partners who bring unique supply chain experience and/or retail distribution.

Income from licenses and royalties accounted for 3.5% of revenue in the year but represented 31.0% of brand sales (retail sales to end customer).

Our product licence partners work under our brand guidelines and creative direction. Our partnerships sit within three defined areas:

- Specialist clothing categories: including childrenswear, suiting, lingerie and nightwear, men's underwear, fragrance and skincare

- Lifestyle accessories: including eyewear, watches, luggage, jewellery and personal technology accessories

- Home: including bedding, towels, wallpaper and rugs

- Beauty: including fragrance and toiletries.

Income from licences increased by 21.7% to £15.2 million (2021: £12.4 million), with strong growth in eyewear in North America and the UK, as well as another good performance from childrenswear and lingerie in partnership with Next. Formalwear sales remained subdued, particularly in the first half of the year, as people continued working from home and with the reduction in the number of weddings and other formal occasions taking place.

Our strategy

As we move into our new financial year, our focus is on core value creation in three key areas: brand, product and customer.

Brand

The strength of the Ted Baker brand is at the heart of our success. Built over 30 years, Ted Baker is renowned for offering excellent design, quality and value. Put simply, customers love the brand, and this shows up consistently across all our distribution channels, whether physical or digital.

The brand remains in robust health, with strong scores in our core brand metrics - in unprompted and prompted awareness, affinity, perception and quality, adding up to a healthy net promoter score (NPS) despite the pandemic slowing the opportunities for customers to see and try product in store. We will continue to work on our distinctive brand expression to create consistency across all channels.

Source: Truth

Product

We will continue to use what we've learnt about our customers to evolve our range of products and make them more and more relevant to people and their lives. The last two years saw the arrival of lots of new design talent across the business - in men's and women's clothing, footwear and accessories, and the team has come together well under our Creative Director Anthony Cuthbertson. They have been designing against the new product pyramid we introduced last year and customers have responded well, with encouraging sales in womenswear. In menswear, some of the new footwear and accessories in our core collection have performed well. Lessons from our A/W 21 collection are being applied to future collections.

Changes in people's buying habits are a constant challenge to brands in our sector. We are not immune to this and during the pandemic, we have had to find a balance between following trends and retaining the essence of what makes Ted Baker clothing and accessories so loved by our customers. The lessons we have learned from the team's first collections, along with our deeper understanding of our customers' lifestyles and motivations, are now being applied to fine tune the new collections in development.

Capital-light growth

Over the last year, we have used short-term leases to take advantage of changing footfall patterns and test the viability of stores in new locations such as Bromley, Leicester and Exeter. Bringing physical and digital together is the art of a strong omnichannel and customer-centric brand approach. We're using this strategy to grow Ted Baker in new and traditional markets.

At the end of the financial year, we signed an agreement with Robert Goddard, a well-established franchise partner in the UK. The agreement will see them create new standalone Ted Baker stores in a wholesale franchise relationship that will increase the reach of our brand while requiring minimal investment from us.

Digital

We launched our new digital platform in March 2022, moving to a modern 'fit for the future' architecture that is the foundation for further development of our integrated digital retail proposition. The new global digital platform will enhance the customer experience with cleaner design, AI-driven search word suggestions and 'lazy loading' to encourage scrolling, amongst other changes, which should ultimately lead to increased conversion, digital marketing efficiency and higher digital sales.

Priority global markets

As the world moves out of pandemic mindset and we bring our learnings from our customer insight project to bear, there are plenty of opportunities for growth. We plan to focus on our biggest and most important markets in the coming year. So we will continue to re-establish and build Ted Baker's position in the UK, while also focusing on the US, Germany, China, and the Middle East.

Our ESG approach - 'Fashioning a Better Future'

The scope of our ESG work is broad - from improving supply chain transparency to ensuring fair, ethical and sustainable practices are in place to creating ranges with more sustainable cotton, leather and wool. We relaunched our eCommerce packaging and retail bags - and these are now FSC-certified and 100% recyclable. We are aiming to have 100% sustainable customer packaging by 2025, with all paper-based packaging being made from recycled materials.

It is vital that we share all this progress on sustainability with our customers, so in November we introduced sustainability swing tickets on our products in stores. These show where products are made and what they are made from. We also added a QR code to our packaging and swing tickets to give customers clear details of the materials that go into each product.

Last year, we said we would set ambitious carbon targets to achieve net zero by 2030, and this year we submitted our carbon reduction targets for accreditation by the SBTi (Science Based Targets initiative). We also brought together a Ted Baker carbon steering group who are looking at how we will hit our 2030 targets. And we continue to work collaboratively with other brands in the BRC Climate Action and Textiles 2030 working groups.

From ugly to gorgeous

Despite the challenges of the last year and the potential challenges ahead, we go into this financial year with our sense of optimism about the future of Ted Baker stronger than ever.

We are looking forward to moving to our new London HQ later in the year. Leaving behind the Ugly Brown Building in St Pancras (which has been our home for the last 22 years), we will bring everyone together in the Gorgeous Brown Building in Fitzrovia, London. Across the Atlantic, our new North American head office in New York has brought together the whole US team in one place for the first time.

Both spaces represent the spirit of moving forward together in fresh environments inspired by our refreshed brand. They will allow us to continue to build a culture that the Ted Baker brand, and our people, richly deserve.

The hard work and dedication of our team at every level has helped us make great strides forward this year. I would like to thank everyone for their efforts and positive attitude, and I look forward to working with them in the coming year.

A tribute to John Barton

1944-1921

Ted Baker Chair, July 2020 - December 2021

John joined the Ted Baker Board as its Chair in July 2020. He brought with him a wealth of experience, having held senior non-executive positions in leading consumer-facing companies, including stints as Chair of easyJet, Next and Cable & Wireless.

He was a real find for Ted Baker and his broad experience, insight and dry sense of humour made a huge difference to the business in his time with us. It is no exaggeration to say that everyone who met him loved him; we all feel very fortunate to have had the opportunity to work with him and learn from him.

John relished the challenges Ted Baker faced and nothing could put him off his stride. His calm approach was rooted in deep integrity and humility, which set the tone for the Board and his interactions with everyone he met at every level of the business. Hugely encouraging and supportive of the Executive Team, he was generous with both his time and knowledge, building close relationships with CEO Rachel Osborne and the Executive Team as they navigated the trials of implementing a turnaround plan during a global pandemic.

We will miss John's wisdom, support and guidance, as well as the twinkle in his eye. Our deepest sympathies go to his wife, Anne, and their family.

In summary

We are confident that our resilient and distinctive brand has real resonance with our core customers. While we are our optimistic about the brand and business, we are mindful of the potential for inflation and the rising cost of living to create more instability, as well as the varying speeds of recovery from the pandemic in different regions.

We were shocked by the invasion of Ukraine and the devastating scenes that we've seen on our TV screens over recent weeks. To support the people of Ukraine we sent a shipment of clothing to the Polish/Ukrainian border and made an initial donation of £25,000 to the Red Cross. Many of our staff have also kindly given their time and support, and we enabled them to take additional volunteering days to make this possible. As a business, we immediately stopped wholesale shipments to Russia, which, combined with our sales in Ukraine and Belarus, have historically been less than £1 million of annual sales. We will continue to explore meaningful ways that Ted Baker can support the people of Ukraine effectively.

As the new year progresses, we will remain vigilant on cost controls and we will continue to work closely with our suppliers and partners to keep Ted Baker efficient and competitive.

Financial Summary

This year has seen a robust performance by the Group, with a significant increase in revenues and gross margin, and narrowing losses with encouraging momentum through the year. All this has been achieved despite the ongoing challenges and disruption caused by Covid that continued to impact store openings and footfall. The pandemic also continued to hold back demand for our formal and occasionwear ranges.

Global Group Summary

*Excludes licence partner (franchisee) stores. Sales per square foot is based on average square footage

1Constant currency compares the performance in local currency at the same exchange rate for both periods, thereby removing the impact of exchange rate fluctuations between periods.

2 Prior year revenue, gross margin and distribution costs are adjusted to reflect the reclassification of delivery income from cost of goods sold to revenue and certain elements of delivery cost from cost of goods sold to distribution expenses. The prior year is reported on a consistent basis to FY22.

Channel Performance

Ted Baker's total brand sales increased to £918 million in the year (2021: £745m) with an improved performance seen across all of our channels and markets.  Brand sales represents management's estimate of the end retail sales value to the consumer, including its own retail channels and those of its wholesale trustees, joint venture partners, territorial licences (franchisees) and product licencing sales.

Retail

Our retail channel comprises physical stores, concessions and eCommerce. We operate stores and concessions across the UK, Europe, North America and South Africa, with localised eCommerce sites in the UK, Europe, North America and Australia. Our stores play an important role supporting digital sales: driving brand awareness, showcasing our products, and giving customers a seamless experience for click and collect and order-in-store. Our stores also provide a fulfil-from-store service, which makes our store stock available to customers shopping online.

Covid disruption continued to affect the performance of our retail channel through the year. Most of our stores in the UK, Europe and Canada were closed for extended periods at the start of the financial year to comply with local lockdowns. As stores reopened during the first half of the year, footfall remained well short of pre-pandemic levels but recovered as the year progressed. The success of vaccine rollouts and the reduced prevalence of the virus in many of our territories saw customers beginning to return to the workplace and shops. We saw accelerating momentum in stores through November and the first weeks of December, with some of our locations trading close to - or even above - pre-pandemic levels. The emergence of the Omicron variant in mid-December reversed this positive momentum. This coincided with the key trading period in the run up to Christmas, with restrictions and work from home guidance reintroduced across much of Europe and the UK.

We continued to make good progress on our store portfolio optimisation programme in line with our capital-light growth strategy. We closed a further 15 locations and opened seven stores during the period (excluding partner locations), while continuing to renegotiate improved lease terms. We transitioned our business with House of Fraser from a concession to a wholesale model - these sales are now reported within our wholesale channel from the second half of the year.

ECommerce revenue decreased 9.7% (-8.1% in constant currency)1 in the year against a strong comparable period that saw growth of 24.8%. Sales in the prior period benefitted from store channels being closed, due to Covid restrictions, for a larger proportion of the period, and a higher level of promotion and markdown sales given the elevated stock levels due to the store closures. eCommerce sales in the current year delivered a significantly improved gross margin with a better full-price sales mix. On a two-year basis eCommerce revenue was up by 12.7%.

Wholesale

Our wholesale business serves trade customers ('trustees') across the world. These are located primarily in the UK, Europe, and North America; we also supply products to our territorial license partners (franchisees) and joint venture partners in China and Australia.

Many of our wholesale customers experienced the same Covid disruption as our own retail channels, and as such, demand remained below pre-pandemic levels.

In the UK and Europe, sales rebounded strongly against the previous year, ending the year up 48.2%. This performance was achieved despite ongoing disruption from Covid and distribution challenges to trustees in Europe due to Brexit in the first half of the year.

Demand in North America held up well, with a particularly good performance in the first half. This reflected the effect of the first wave of Covid in the previous year and despite adverse weather conditions and localised lockdowns impacting several of our wholesale partners.

Wholesale revenue overall increased by 30.4% (33.0% in constant currency1) to £111.2m (2021: £85.3m). Gross margin declined to 36.4% (2021: 39.6%), reflecting the customer and channel sales mix as sales demand recovered at different speeds across markets and partners. 

Licence income

Licence income represents royalty income from territory licence partners (franchisees) and royalty income from product licences. Our partners for territory and product licences are carefully selected as specialists in their field. They share our passion for unwavering attention to detail and firm commitment to quality and who we consider will be good custodians of the Ted Baker brand.

Territory licences cover specific countries or regions primarily in the Middle East, Asia, Europe and Central America, where our partners operate Ted Baker branded stores under license and, in some territories, undertake wholesale business.

Product licensing allows us to expand the Ted Baker brand across a broader range of products relevant to our customers' lifestyles. We do this by working with carefully selected partners that share our passion for the Ted Baker brand and bring unique supply chain capability and/or retail or wholesale distribution. Our product license partnerships cover:

- Specialist clothing categories: e.g., childrenswear, suiting, lingerie & nightwear, men's underwear

- Beauty: e.g., fragrance, toiletries and skincare

- Lifestyle accessories: e.g., eyewear, watches, luggage, jewellery, and personal technology accessories

- Home: e.g., bedding, towels, wallpaper and rugs.

Licence income increased by 21.7% to £15.2m (2021: £12.4m). We saw a good performance in the Eyewear segment in North America and the UK, as well as from our partnership with Next for childrenswear and lingerie & nightwear. Sales in the formalwear segment remained subdued with Covid restrictions affecting return to the workplace and with fewer events such as weddings taking place.

Collection performance

Ted Baker womenswear sales increased by 23.3% to £270.9m (2021: £219.7m) and represented 66.1% (2021: 64.7%) of total sales. Ted Baker menswear sales increased by 15.8% to £138.7m (2021: £119.8m) and represented 33.9% of total sales (2021: 35.3%).

Geographic Performance

United Kingdom and Europe

*Includes all revenue from eCommerce channels to customers outside North America, including non-European territories.

**Excludes licence partner (franchisee) stores. Sales per square foot based on average square footage.

***Concession numbers count multiple product locations ('mats') within one concession partner store as a single location.

1Constant currency compares the performance in local currency at the same exchange rate for both periods, thereby removing the impact of exchange rate fluctuations between periods.

2 Prior year revenue, gross margin and distribution costs are adjusted to reflect the reclassification of delivery income from cost of goods sold to revenue and certain elements of delivery cost from cost of goods sold to distribution expenses. The prior year is reported on a consistent basis to FY22.

The UK and major European territories were affected by lockdowns during the first half of the year. In the UK, stores remained closed from before the start of the year until the middle of April 2021. Stores across our European markets were closed over the same period with a more gradual re-opening phased over the first half of our financial year.

When stores reopened, footfall remained below pre-pandemic levels, particularly in city centres and areas traditionally popular with tourists. As the year progressed, workers and shoppers started to return to city centres and trading performance improved, with some locations outperforming their pre-pandemic levels in November and the first few weeks of December. However, with the emergence of the Omicron variant in the middle of December, restrictions and/or work from home guidance were reinstated in several of our markets. This affected consumer confidence and stores sales over the important Christmas trading period.

At the end of the first half, we transitioned our 29 concession locations within House of Fraser stores in the UK to a wholesale model, with sales from these locations reported through the wholesale channel through the second half. We closed three unprofitable outlets in Europe and eight concessions in the UK. In the UK, we opened one outlet store in Cannock and three new stores on flexible short-term leases with low fit-out costs. These smaller than typical stores have provided an opportunity to learn about performance in different locations and for different store configurations. 

eCommerce sales declined against a strong comparative prior year performance with sales on the Tedbaker.com website in part held back by constraints of the legacy platform. Sales on 3rd party concession partner platforms saw good growth as we increased the number of product options available and further enhanced our ways of working with our partners. The gross margin on eCommerce sales improved in the year with an improved promotional stance and a higher mix of full price sales through Tedbaker.com.

Retail sales in the UK and Europe increased by 11.3% (12.1% in constant currency) to £204.7m (2021: £ 183.9m), with eCommerce sales representing 51.3% (2021: 63.4%) of the total. Despite the distribution disruption caused by Brexit and the continuing effects of the pandemic, demand from wholesale trustees and territory licence partners recovered well, increasing our wholesale sales by 48.2% (48.0% in constant currency1).

North America

*Excludes licence partner (franchisee) stores. Sales per square foot is based on average square footage

**Concession numbers count multiple product locations ('mats') within one concession partner store as a single location.

1Constant currency compares the performance in local currency at the same exchange rate for both periods, thereby removing the impact of exchange rate fluctuations between periods.

2 Prior year revenue, gross margin and distribution costs are adjusted to reflect the reclassification of delivery income from cost of goods sold to revenue and certain elements of delivery cost from cost of goods sold to distribution expenses. The prior year is reported on a consistent basis to FY22.

Our North American business saw a good recovery from the previous year's challenges. Covid-related disruption and the resulting travel restrictions affected footfall at the start of the year, particularly in key tourist markets such as New York, Los Angeles, San Francisco and Las Vegas. Our stores in Canada also remained closed under lockdown for a significant proportion of the first half. However, consumer confidence began to return in the spring as vaccination programmes rolled out and restrictions eased, with the return to offices and social activities driving demand for more formal and occasionwear.

Store sales increased by 62.4% (71.7% in constant currency)1 to £64.4m (2021: £39.7m), reflecting the above consumer trends. We closed four stores in the year that were not considered financially viable, and opened one new location in San Antonio, Texas.

eCommerce sales reduced by 8.9% (down 2.8% in constant currency)1 as demand returned to physical channels. On a two-year basis eCommerce sales grew by 30.4%. eCommerce sales represented 30.9% of total retail sales (2021: 44.3%).

The retail gross margin rate improved year-on-year, driven by an improved full-price sales mix as we started the year with a cleaner stock position.

Wholesale sales increased by 2.3% (9.0% in constant currency)1 to £33.6m (2021: £32.8m). This performance was supported by a strong first half of the year as demand from our trustees returned following the previous year's challenges.

We continued to deliver cost efficiencies in our North America business, and consolidated all our North America teams into a new office and trade show room in New York.

Rest of the World

Outside our UK, European and North America businesses, we prioritise a 'capital-light' growth strategy with a focus on working with partners for territory licences, joint ventures or wholesale.

Retail

We operate owned stores in South Africa, where we opened new locations in Johannesburg and Durban, and now operate six in the country (2021: four stores). Total retail sales increased by 74.4% to £4.1 million (2021: £2.3m), up 69.4% in constant currency1.

Territory licences (franchisees) and joint ventures

We have joint ventures in China and Australia, and territory licence (franchise) agreements in territories including the Middle East, India and South Korea.

During the year our territory licence partners opened one store in Kuwait, four in south-eastern Europe, two in India and one in Indonesia, and closed five in Asia and one in Europe.

Our joint venture in China (including Hong Kong and Macau) returned to growth despite consumer demand being affected ongoing Covid disruption. Our partner opened five new stores during the period, and closed three unprofitable locations. It now operates 22 stores and concessions across the region (2021: 20 locations). 

Our Australian joint venture partner opened two new short lease stores during the year, and now operates eleven stores in Australia and New Zealand (2021: nine stores).

Product sales to our joint venture and territory licence partners are reported through our wholesale channel.

Financial Review

While performance continued to be affected by the global pandemic, the benefits of the Group's transformation programme are now well embedded, with improved operational efficiency, robust cost control and rigorous appraisal for capital expenditure.

Group revenue increased by 20.5% (23.2% in constant currency1) to £428.2m (2021: £355.3m2). Several of the Group's stores, as well as those of our territory licence (franchisee) partners and wholesale trustees, were closed for most of the first quarter to comply with local lockdown restrictions. As the year progressed and restrictions were eased in many territories, we saw footfall and customer demand improve as well as a good response to our refreshed Autumn/Winter '21 collection in the second half of the year. The emergence of the Omicron variant in December, and the reinstatement of restrictions and work from home guidance in several markets, resulted in a significant slowdown of this trend impacting the final six weeks of our financial year.

Year on year change in sales* (FY21-22)

*Sales variances calculated on sales excluding delivery income in all quarters

**FY21 was a 53-week year - Q4 adjusted to show comparison on 12-week to 12-week basis, i.e., excluding Week 53

Two year change in sales* (FY22 vs. FY20)

*Sales variances calculated on sales excluding delivery income in all quarters

Gross margin before non-underlying items improved by 105 basis points to 55.2% (2021: 54.1%, adjusted for change in basis2) reflecting the less challenging trading conditions and improvement in our promotional stance.

We started the financial year with a less aged inventory which, combined with the refreshed product ranges, has allowed us to adopt a less promotional stance and begin to re-establish Ted Baker's premium brand positioning. The gross margin rate improvement was due to a significant improvement in the full-price sales mix, up 810 bps year-on-year, partly offset by additional duties and unrecoverable sales tax resulting from Brexit.

Distribution costs (before non-underlying costs), which comprise the cost of retail operations and distribution centres, increased by 3.7% to £184.1m (2021: £177.5m, adjusted for change in basis2). Retail store operating costs increased as stores reopened, and lower levels of furlough and government subsidies were received relative to the prior year.

Administration expenses (before non-underlying costs) increased by 20.8% to £85.8m (2021: £71.0m). Staff costs increased year-on-year as no furlough or subsidies were received for head office team members. We also continued to invest in marketing to support the future growth of the business.

Loss before tax, and Loss before tax and non-underlying items

The loss before tax was £44.1m (2021: loss of £107.7m), an improvement of £63.7 million in the year. The loss before tax and non-underlying items was £38.4m (2021: loss of £63.7m), an improvement of £20.8 million in the year.

Non-underlying items

Non-underlying items before tax in the period amounted to £5.6m (2021: £48.6m) and comprised the following items expenses / (income):

Finance income and expenses

Net finance expenses were £8.2m (2021: £7.7m). The IFRS 16 interest expense for the period was £5.5m (2021: £6.8m). Net finance expenses before non-underlying items were £6.4m (2021: £8.3m).

The Group tax credit for the period was £8.5 million (2021: credit of £21.3m). 

An income tax credit is recognised on losses before non-underlying items at the forecast effective tax rate for the year. This effective tax rate is higher than the UK tax rate due to the revaluation of previously recognised UK deferred tax assets at the higher UK rate of 25%. The higher UK tax rate was substantively enacted at the balance sheet date and is effective from 1 April 2023.

The Group's future effective tax rate is expected to be broadly in line with the UK tax rate which aligns more closely with overseas tax rates from the point it increases to 25%.

Cash flow

Net cash flow for the period was an outflow of £54.8m (2021: inflow of £15.2m). This reflects an increased investment in working capital as the Group returned to revenue growth (2021: net working capital inflow of £57.7m) as well as an increase in investment intended to support future growth, including the Group's new digital platform.

In the prior year, the net cash inflow of £15.2m includes the sale of the Group's head office in London (the Ugly Brown Building) for net proceeds of £72.2m, net inflow from the issuance of new equity of £97.8 million, a reduction in net working capital of £57.7 million and the repayment of £180 million of borrowing facilities.

Net cash outflow from operating activities was £23.8 million (2021: inflow of £52.6m). The improvement in loss before tax for the year was more than offset by an outflow from investment in net working capital and expenditure in the Group's new digital platform, the majority of which was on a cloud (or SaaS) based solution and, in accordance with the latest accounting guidance (IFRIC) has been expensed in the period rather than treated as an investment and capitalised.

Net working capital, which comprises inventories, trade and other receivables and trade and other payables, increased by £37.2m to £82.8m (2021: £45.7m), reflecting the return to growth of the business. Inventory increased by 17.3% to £103.1m (2021: £87.8m) whilst sales increased 20.5% (23.2% in constant currency)1. We continued to exercise controls on inventory through the year.

Borrowing facilities

The Group's net cash at 29 January 2022 was £3.1 million, reflecting cash balance of £14.5 million and borrowings of £11.4 million (30 January 2021: net cash £66.7m). The Group has a revolving credit facility ('RCF') of £80 million with a maturity in November 2023.

On 25 May 2021 the Group announced the extension to its RCF with its existing lending syndicate. The new agreement extended the RCF maturity from September 2022 to November 2023 and amended the covenants. Under the new agreement, the existing Facility A of £107.8 million maturing in September 2022 and Facility B of £25 million maturing in January 2022, were replaced by a new RCF of £90 million that reduced to £80 million on 30 January 2022 until maturity in November 2023. The amended revolving credit facility includes among other changes, amendments to the quarterly covenant tests on adjusted EBITDA, leverage ratio and fixed charge cover. The Group has subsequently agreed with its lenders to adjust the covenant tests over the remaining life of the facility to provide more headroom for the Group given the prolonged disruption of Covid-19 and the impact of the Omicron variant on the Group's trading in the final weeks of the last financial year.

The existing lending syndicate continues to show ongoing support to the Group.

Treasury risk management

The Group has exposure to foreign exchange fluctuations in relation to purchases made in foreign currencies, principally the US Dollar and the Euro. We realise a high proportion of natural hedging of these currency exposures due to our business operations in North America and Europe. The Group's risk management policy allows for foreign currency to be hedged for up to 24 months in advance.

The Group is also exposed to movements in exchange rates on intercompany balances denominated in a foreign currency. These are not hedged, and movement in foreign exchange rates can result in gains or losses being recognised in the income statement.

The Group is exposed to movements in UK, European and US interest rates as the revolving credit facility accrues interest. This is based on the relevant SONIA (for sterling borrowing), EURIBOR (for Euro borrowing) or SOFR (for US Dollar borrowing) rate plus a margin. The Group does not hold any interest rate hedge contracts.

Brexit

The 'transitional period' for Brexit ended on 31 December 2020, introducing several complexities into the Group's operations within, and distribution logistics to, Europe. To date, the main operational effects have been on the flow of goods into the UK through the ports, and distribution from the UK to stores, territory licence partners, wholesale trustees and eCommerce customers in Europe.

We have established a customs warehouse in the UK which became operational in April 2021 and has partially mitigated the impact, although we expect there to be an ongoing adverse gross margin impact on our European sales for the foreseeable future.

Earnings per share and dividends

The basic loss per share was 19.3 pence (2021: loss per share 56.2p). Underlying loss per share, which excludes non-underlying items, changed to a loss of 16.4 pence (2021: loss per share 26.0p).

With consideration to the current trading conditions and our commitments under the RCF agreement, the Board has determined that no final dividend is to be paid in respect of the 52 weeks ended 29 January 2022 (2021: nil). The Board remains committed to reinstating shareholder distributions when it is financially viable and responsible to do so.

Notes:

1. Constant currency compares the performance in local currency at the same exchange rate for both periods, thereby removing the impact of exchange rate fluctuations between periods.

2. Prior year revenue, gross margin and distribution costs are adjusted to reflect the reclassification of delivery income from cost of goods sold to revenue and certain elements of delivery cost from costs of goods sold to distribution expenses. The prior year is reported on a consistent basis to FY22.

3. Brand sales represents management's estimate of the end retail sales value (excluding sales tax) to the consumer including its own retail channels and those of its wholesale trustees, joint venture partners, territorial licences (franchisees) and product licencing sales.

Principal Risks and Uncertainties

The Board and the Audit & Risk Committee work together with the Management Risk Committee to deal with different aspects of the process. This includes:

· Assessing and challenging the Group risk register

· Reprioritising risks as new ones emerge or existing ones are mitigated to an appropriate extent

· Influencing mitigating actions

· Escalating findings to the appropriate audience within the business.

We have a robust, ongoing process for identifying, evaluating and managing the significant and emerging risks the Group faces.

The tables that follow outline our principal risks and their potential impact on the business, along with how we manage them and how they've changed over the past year.

Market and economic risks

Brand, reputation and market position

Operational

Financial, legal and regulatory

1 More details of the restatement are found in Note 2

2 More details on non-underlying items and a reconciliation of Alternative Performance Measures are included in Note 4

The accompanying notes are an integral part of the financial statements.

The accompanying notes are an integral part of the financial statements.

Group Balance Sheet

At 29 January 2022

1 More details of the restatement are found in Note 2

Group Cash Flow Statement

For the 52 weeks ended 29 January 2022

Notes to the Financial Statements

1. Basis of Preparation of Preliminary Announcement 

The preliminary consolidated financial information for the 52 weeks ended 29 January 2022 was approved by the Directors on 26 May 2022.

This preliminary consolidated financial information has been prepared in accordance with the principles of UK-adopted International Financial Reporting Standards ('IFRS') and has been prepared on a going concern basis. The preliminary consolidated financial information does not constitute statutory consolidated financial statements for the 52 weeks ended 29 January 2022, or the 53 weeks ended 30 January 2021, as defined in section 434 of the Companies Act 2006 ('statutory accounts') but is derived from those financial statements. Whilst the financial information included in this announcement has been computed in accordance with the recognition and measurement requirements of UK-adopted IFRS, this announcement does not itself contain sufficient disclosures to comply with IFRS.

The Group's Annual Report and Group Financial Statements for the 52 weeks ended 29 January 2022 were approved by the Directors on 26 May 2022. The report of the auditor on the consolidated financial statements, contained therein, was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The statutory accounts for the 52 weeks ended 29 January 2022 will be filed with the Registrar in due course.

Statutory accounts for the 53 weeks ended 30 January 2021 have been delivered to the Registrar of Companies. The auditor's report on those accounts was qualified solely in respect of comparative figures. The auditor's report did not contain a statement under Section 498 (2) of the Companies Act 2006 but contained a statement under Section 498(3) that they had not obtained all the information and explanations that they considered necessary for the purpose of their audit, solely in respect of the matter described hereafter. The Group recorded, in its financial statements for the 52 weeks ended 25 January 2020, a number of adjustments to inventory values, including amendments to inventory which had been overstated at 26 January 2019. The auditors were unable to determine what the impact of these adjustments would have been on inventory values at 26 January 2019 and consequently on retained profit at that date and on the income and expenditure and calculated cash flows for the 52 week period ended 25 January 2020. Accordingly, the auditors were unable to determine whether the comparative figures shown in the financial statements relating to that period were prepared on a fully comparable basis.

2. Changes in Accounting Estimates, Errors or Misstatements

Changes in accounting estimates and policies

Carrying amount of inventories

The carrying value of inventory is recorded at the lower of cost and net realisable value. The Group manages inventory on an expected two-year life cycle within its own retail channels. At the end of two years, remaining stock is managed out of the business through a variety of channels and partners in order to recover as much of the original cost as possible. The final part of this process involves offering stock to certain operators at much reduced prices - the final 'liquidation' of the stock holding. In the previous year the provision was calculated based on reviewing the physical stock on hand by season at the period end and forward forecasting the expected terminal stock value after two years, reflecting the expected sales levels in all channels. At that point in time, the provision was calculated, based on the net realisable value of the estimated inventory on hand at that point. As there becomes more certainty about the future, with the impact of disruption from future lockdowns diminishing, management believes that future forecast sales are less relevant than provisioning by season based on recent trading patterns. As such the current model is no longer deemed to be appropriate and during the period ended 29 January 2022, management has changed the basis of determining the inventory obsolescence. The new provisioning policy is based on reviewing the percentage of an original stock season that has entered the liquidation stage and the cost recovered at that time. The percentage of each season's total stock purchases that is still on hand at the end of the period is determined and the amount of this stock that is expected to enter the liquidation stage is calculated. The liquidation cost recovery percentage is then applied to this to obtain the provisioning percentage by season and this is used to update the actual provision by season. The two key sensitivities to the calculation of the provision are the percentage of the original stock season entering into the liquidation stage and the percentage of cost that is recovered. A 10% increase/reduction in the amount of stock entering into the liquidation stage would result in an additional charge or reduction in the charge of £0.9m or £0.3m respectively. A 10% reduction/increase in the liquidation cost recovery rate would lead to an additional charge of £0.7m or a reduction in the charge of £0.5m respectively. 

At 29 January 2022, the inventory provision was £8.1m (2021: £17.4), representing 7.4% (2021: 17.0%) of the gross carrying value of inventory. The impact of the change in the basis of the calculation of the estimate for inventory provisioning was a £10.0m reduction.

Change in presentation of carriage costs

In the year ended 29 January 2022, management concluded that only costs of delivering stock to the warehouse and carriage costs out of the warehouse associated with online sales and retail should be considered in cost of sales. All other carriage costs out of the warehouse should be treated as distribution costs. The prior year numbers have been restated with an increase in distribution costs of £1.6mil and a decrease in Cost of sales of the same amount. There is no impact on operating loss, but gross profit has increased due to the £1.6m reclassification to distribution costs.

Capitalisation of configuration and customisation costs in SaaS arrangements

The customisation and configuration activities undertaken in implementing SaaS software may include the development of code that enhances and modifies or creates additional capability to the existing software installed on Company's servers. Where this is the case the costs of customisation and configuration are capitalised. Where the customisation and configuration activities are performed on the internal infrastructure of the cloud service provider, the activities are not enhancing or modifying an asset the company controls and therefore the costs are expensed in the income statement.

In the year ending 29 January 2022, £6.5m of costs of relating to the implementation of the Group's new website has been expensed through the income statement within non-underlying expenses and £1.0m of costs relating to the implementation of other SaaS software have been expensed within underlying expenses. £1.3m of new website costs which had previously been capitalised in the prior year has been expensed in the current year within non underlying expenses.

Total amount capitalised in the year in relation to implementation of SaaS software was £2.5m, which includes £2.0m relating to the new website).

Errors or misstatements

Prior Year Adjustment - Balance Sheet and Cash flow statement Reclassification relating to Lease Liabilities

In the comparative period, there was a material impact to timing and amount of rental payments during the Covid crisis, as payments to landlords were delayed. The lease liability balance disclosed in our Condensed Group Balance Sheet was understated with the corresponding delayed payments due to landlords being disclosed within Trade and other payables. The Balance Sheet as at 30 January 2021 has been restated to reclassify these balances, reducing Trade and other payables and increasing Current Lease Liabilities (2021: £11.3m). This is a reclassification within the Balance sheet with no change to Net Assets. This had a corresponding impact on the Condensed Group Cash Flow Statement with lease payments being overstated (capital of £9.2m and Interest of £2.1m), whilst decrease in Trade and other payables was understated. This decreased net cash generated from operating activities by £11.3m and increased net cash from financing activities by £11.3m. There is no impact on the net decrease in cash and cash equivalents. There is no restatement impact on the Income Statement or Retained Earnings.

Prior year adjustment - delivery income

In year ended 2021, delivery income generated through online sales was included within cost of sales rather than shown within revenue. Therefore, the prior year numbers have been restated with an increase in revenue of £3.3mil and an increase in Cost of sales of the same amount. There is no impact on gross profit or operating loss.

3. Segment Information

The Group has three reportable segments: retail, wholesale and licensing. For each of the three segments, the Executive Committee (considered to be the Chief Operating Decision Maker) reviews internal management reports on a four-weekly basis.

The accounting policies of the reportable segments are the same as those used in the preparation of the Group financial statements. Information regarding the results of each reportable segment is included below. Performance for the retail segment is measured based on operating contribution, whereas performance of the wholesale segment is measured based on gross profit and performance of the licensing segment is measured based on royalty income, as included in the internal management reports that are reviewed by the Board.

Segment results before non-underlying items are used to measure performance as management believes that such information is the most relevant in evaluating the performance of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis.

a) Segment revenue and segment result

1 Unallocated assets include prepayments, derivatives and central allocations of inventory, cash and cash equivalents and other receivables.

2 Unallocated liabilities include derivatives and central allocations of trade and other payables and borrowings.