Ted Baker shares have dived by 11% after the fashion retailer warned investors that its full-year profits will be about £10m lower than expected mostly due to writing off the value of unsold clothes.

The company, which was plunged into crisis last year when its founder and chief executive, Ray Kelvin, was accused of imposing a regime of “forced hugs” on staff , said it expected profits for the year to the end of January 2019 would come in at about £63m compared with previous expectations of £73.5m.

Last month the company said business was trading “as usual” and reported a 12.2% increase in sales. The shares were down 11% at £17.79 on Wednesday morning.

The drop in profits does not include the cost of the independent investigation into Kelvin’s behaviour, which is also alleged to include kissing employees’ ears. More than 100 members of current and former staff are understood to have complaints about Kelvin’s workplace manner.

The company appointed the law firm Herbert Smith Freehills in December to investigate the reports of harassment, which it described as “serious”. A spokesman for Ted Baker said the company did not know when the law firm would report back on the findings of its investigation.

When the allegations came to light, the company promised the inquiry would be “thorough and urgent”. The investigation is being overseen by Sharon Baylay, a senior non-executive director at Ted Baker.

Kelvin, who owns 35% of the listed company, initially tried to continue in the role of chief executive but agreed to take a voluntary leave of absence after the company’s board was made aware of “further serious allegations”.

The company said in the trading update that it had written down the value of clothes in its warehouse by £5m after taking “a more prudent view on aged stock”. It also lost £2.5m on foreign exchange rates, and discovered another £2.5m of product costs after a systems upgrade.