Quintessentially British brand it may be, but Ted Baker (TED) is anything but a struggling UK high street stalwart.
A premium lifestyle brand with excitingly global growth ambitions, Ted Baker’s half year results reveal a forecast-beating 12.7% rise in taxable profits to £24.2m and sustain a recent rally, the shares bid up another 4p to £28.24.
However, news of continuing ‘challenging external market conditions’ including slower US sales growth, means analysts are holding off from upgrading forecasts and perhaps explains today’s rather subdued share price rise.
BEST OF BRITISH
As Shares explains here, Ted Baker is a quintessentially British brand with a quirky fashion offering, famed for its unwavering attention to detail and quality.
Guided by mysterious founder CEO Ray Kelvin, Ted’s range spans women’s and men’s clothing and accessories. Global brand sales have more than tripled to £1.1bn plus since 2009, demonstrating Ted Baker is a leading global premium lifestyle brand rather than a mere retailer.
The international dimension to the business is attractive to investors given the uncertainties facing the UK retail sector. While retail sales grew by an annual 1.9% in September on a like-for-like basis, according to the British Retail Consortium (BRC), up from 1.6% in August, much of the rise reflected higher food and clothing prices due to weak sterling.
Ted Baker’s interims are impressive on numerous fronts, with group revenue up 14% to £295.7m, retail sales on the rise in the UK and Europe, North America and Asia and e-commerce sales shooting almost 44% higher to £42.7m.
Wholesale revenues and licence income are also up strongly, Ted Baker continuing to export its quirky designs everywhere from Los Angeles and Shanghai to Dubai; a first store in India opens later this year.
ONE FLY IN THE OINTMENT
In North America however, Ted Baker continues to experience ‘higher levels of competitor promotional activity and lower international tourism which have impacted retail sales’, as demonstrated by a decrease in sales per square foot.
Neil Wilson, Senior Market Analyst at ETX Capital, explains, ‘the UK still accounts for the lion’s share of sales but the fastest growth is seen in Asia (+29.5% versus 15.8% last year), while North America is also strong (+18.8%), albeit this was down from 28.7% growth in the same period of last year. The slowing in North American sales growth does take a shine off otherwise stellar numbers.’
Nevertheless, given the growth being delivered in across all channels and territories, management remain confident in achieving full year forecasts, consensus before the announcement pitched at £74m of pre-tax profits.
Cantor Fitzgerald Europe’s Mark Photiades sticks with his buy rating and £31 price target, writing: ‘Ted Baker is an iconic British brand gaining increasing traction with an international audience. TED’s global reach is widening as management looks to develop the brand through a number of distribution channels. A strong operational and financial track record has been established over the years and a well-invested and scalable platform has been created. We see significant global growth potential for TED led by an experienced and highly capable management team.’
Also with a £31 price target, Liberum Capital leaves its forecasts unchanged, looking for a year-to-January rise in profit before tax from £65.8m to £73.6m, and reiterates its ‘buy’ stance: ‘Group infrastructure projects have progressed well and helped support what has been another period of impressive double-digit growth. The outlook remains strong and we see further margin, return on invested capital (ROIC) and free cash flow (FCF) improvements as key catalysts over the next few years as Ted Baker leverages its well-invested and best-in-class systems.'
