Quirky fashion label Ted Baker (TED) managed to deliver modest revenue and pre-tax profit growth in the 28 weeks to 11 August, despite shockingly bad weather and the well-publicised challenges facing certain department store partners.

Yet despite what Shares deems to be a creditable showing, the shares tumble 10.5% to £20.66 as analysts downgrade earnings estimates for the shirts, suits and fragrances designer.

TED’S TALE OF WEATHER WOE

Half year results from the quintessentially British fashion house reveal a softening of sales growth. Revenue is up by a pedestrian 3.5% to £306m, with adjusted pre-tax profit edging higher by the same percentage to £25m.

Ted’s growth slowdown is representative of the challenges seen across the North London-headquartered outfit’s global markets. The main half year headwind was weather, with the ‘beast from the East’ hurting trading in the UK, Europe and North America in early part of the year and then the UK and Europe struck by a very hot summer.

Retail sales including e-commerce edged 1.1% higher to £220.1m versus a 13.9% comparative, below what the market has come to expect from Ted Baker. Gross margin declined to 58.3% (2017: 58.9%) as Ted Baker stepped up promotions to shift stock. Yet the interim performance also includes impressive e-commerce growth of 24.1% to £53m, the web becoming an increasingly important growth engine for Ted Baker.

HOUSE OF FRASER HURTS

Ted Baker has concessions in an array of UK and overseas department stores, among them John Lewis, Harrods and Bloomingdales. However stock sold to another partner, House of Fraser, before its lurch into administration in August, has been written off. This results in a £600,000 exceptional charge that drags Ted Baker’s headline profit before tax down 3.2% to £24.5m.

Ted’s outlook statement reads: ‘Global markets have continued to see challenging external trading conditions which have impacted performance. In the UK, Europe and the East Coast of America, trade has also been affected by the unseasonably hot weather in September.

'In addition, trading in the UK has been impacted by the well-publicised challenges facing some of our trading partners.’

THE EXPERTS’ TAKE

Brokerage Liberum Capital maintains its ‘buy’ rating on Ted Baker, ‘one of the highest quality consumer brands we know’, yet downgrades its year to January 2019 sales and underlying pre-tax profit forecasts by 5.1% to £617m and 4.8% to £76.9m respectively.

‘The flexibility of the Ted baker model has ensured that profit growth has been delivered in line with revenue growth.

'Revenues are lower than we had hoped, but a variable cost model, management’s forward planning and the ability to flex sales through channels, have combined to deliver a commendable result,’ says Liberum.

Russ Mould, investment director at AJ Bell, says ‘Ted Baker positions itself as affordable luxury and has a good track record of being a fairly resilient business.

'Sadly market conditions are acting as a major headwind which is reflected in its latest half year results. A mere 1.1% rise in retail sales is fine if you are comparing its performance against the large number of retailers who are struggling on the market, yet it isn’t enough for a business in general when you consider the need to offset wage, energy and raw material inflation in general.

‘Fortunately, Ted Baker has additional interests such as licence income and a wholesale operation, so overall group revenue growth of 3.5% is a tad better, although pales in comparison to the pace of growth for many online-only fashion retailers.’

Mould continues: ‘Retail gross margins are falling because it has to spend more money on promotional activity to help shift goods in a more difficult market environment. Ted’s management will no doubt do everything they can to avoid discounting goods too much as one of the worst things to do is get sucked into a spiral of continual cuts so customers begin to expect much cheaper prices forever.

‘The one area that provides some comfort is the online channel where sales increased by 24.1%. Expanding e-commerce activities is very important to Ted’s future, just as it is for nearly all retailers.'


Issue Date: 04 Oct 2018