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Ted Baker - Profits up 19%, dividends up 19%

Steve Clayton | 17 March 2016 | A A A
Ted Baker - Profits up 19%, dividends up 19%

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Ted Baker Ordinary 5p

Sell: 93.10 | Buy: 93.90 | Change 4.20 (4.72%)
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Ted Baker has reported full year results, to Jan 31 2016, broadly in line with market expectations. Profits rose 19% to £59m on sales up 18% to £456m. The dividend is increased in line with profits, rising 19% to 47.8p per share. Adjusted earnings per share rose 21% to 100.6p (2014: 83.2p). In early market trading, the shares responded with a rise of 1%.

Retail sales rose 13% to £348m, including 46% growth in e-commerce sales, now worth £54m, circa 15% of total group Retail sales. At constant currency sales rose 11% in the UK and Europe and 21% in the US & Canada, but trading in Asia, only 3% of Retail sales, continued to be difficult.

Wholesale revenues rose 31% at constant currency, £108m reported and Licence income, from product and territorial licensees rose 23% to £14m.

During the year, Ted completed the £58m purchase of their head office freehold and have announced the leasing of a new distribution centre to serve their UK and European business. Fitting out the new facility, as well as new store openings will mean that current year capex will be unusually high for a second year at circa £45m. Net debt was £85m at year end.

Outlook:

The Group say the early reaction to the Spring and Summer range is positive and trading is in line with expectations, except in the small Asian division. New European stores and concessions are planned for France, Germany and Spain. Seattle has opened in the USA already this year and five more North American stores are planned. In Asia, Ted is primarily focused on brand development, along with an extra Beijing store and concessions to be opened in China and Japan. Low double digit wholesale growth is expected.

Our view:

Retailers with immature store estates and can be good bets for predictable growth. With plenty of new territory to expand into, growth is not so dependent on achieving same store sales gains. Ted Baker has grown from a shirt shop in Glasgow to a quirky global lifestyle brand; the ethos is to try and present something that is a little different to the mainstream, an affordable luxury for consumers seeking individuality and indulgence. There are over 400 stores and concessions around the world currently, but still many, many places on the map where the Group is currently unrepresented.

Almost uniquely, for a global fashion brand, Ted does not advertise. They aim for a product that will sell itself and that people will talk about, and some of the savings on advertising can be reinvested back into the design of the garments, to try and make the quality shine out.

The company is currently investing significant amounts into its infrastructure behind the stores. Acquiring their HQ freehold and a new distribution facility, means that group debt is likely to edge up further, until cash generation brings it back down again. That ought to be fine, but Ted cannot afford to have a fashion faux pas until a fair chunk has been repaid.

Over the last ten years, Ted Baker has delivered compound annual sales growth of 14% per annum and operating profit growth of 12% compound. New stores take time to reach profitability and then mature, so growth through store openings inevitably holds near term profits back at first, but ultimately drive returns higher.

The consensus of analyst forecasts suggests the City is expecting EPS growth averaging 14% this year and next. The historic growth has allowed Ted Baker to increase its dividend per share by 14% per annum on average over the last decade.

The economy can grow, splutter or stall, but Ted can open stores in new cities in any conditions. The Great Recession knocked Ted; in 2009 sales only rose by 7% and profits fell. But the strength of the balance sheet allowed the dividend to rise regardless, and profits soon enough caught back up. It's that combination of growth and resilience that catches our eye. With consumers having more money to spend as energy costs fall, Ted Baker's clothes and accessories should be an even more affordable luxury to more and more people.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.


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