Ted Baker shares fall after he warned of a balance error of £ 25 million

The struggling fashion chain Ted Baker has warned that it overestimated the value of its stock and appointed a law firm to carry out a comprehensive review.

The retailer, which has a new finance director, estimates that the value of the inventory held on its balance sheet has been overstated by £20m to £25m, based on preliminary analysis. The error relates to previous years and will have no effect on its financial position this year.

Ted Baker has called in law firm Freshfields Bruckhaus Deringer to investigate further, and will also be appointing independent accountants. They will report to a subcommittee, chaired by its independent director Sharon Baylay.

Shares in Ted Baker initially tumbled 15% on the news but later cut the loss to 3%, at 384p. A year ago, they were changing hands at £15.50.

Ted Baker has had a torrid year after former and current staff accused its founder Ray Kelvin of a regime of “forced hugs” and harassment. He stood down as chief executive in March and was replaced by Lindsay Page. The firm’s profits were hit by the £2m cost of an investigation and legal matters relating to the allegations.

The company has issued three profit warnings this year and dived to a first-half loss of £23m in October, its first in more than two decades. It blamed unseasonably warm September for slow trading at the start of the second half, as well as “distressed discounting” by rivals that forced it to cut prices. The firm also admitted to mistakes with its spring women’s fashion ranges.

Ted Baker is due to release a trading update on 11 December.

The company appointed Rachel Osborne as chief financial officer in September, She previously held the same role at Debenhams and Domino’s Pizza. Osborne replaced Charles Anderson, who left after 17 years with Ted Baker to join Mulberry.