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Ted Baker - Progress, despite some challenging markets

George Salmon | 10 October 2017 | A A A
Ted Baker - Progress, despite some challenging markets

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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: 151.10 | Buy: 151.90 | Change 0.00 (0.00%)
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Half year results show group revenue rising 14%, including a 4.5 percentage point boost from favourable exchange rates. Underlying profit before tax rose 12.7% to £24.2m. The interim dividend rises 12.2% to 16.6p per share.

Ted Baker CEO and founder Ray Kelvin said: "Whilst trading conditions in some of our markets remain challenging, we are confident of making further progress for the full year, in line with our expectations." The shares rose 1.1% on the news.

Our view

In less than 30 years, Ted Baker has grown from a shirt shop in Glasgow to a quirky global lifestyle brand. The ethos is to try and present something a little different to the mainstream, an affordable luxury for consumers seeking individuality and indulgence.

As a relatively young brand, Ted Baker is expanding. However, almost uniquely for a global fashion group, Ted doesn't do above-the-line advertising. It aims for a product that will sell itself, which allows the savings to be reinvested back into the design of the garments.

As far as expansion goes, Ted Baker's management leaves the flashy stuff to the design team. Careful expansion is very much the theme, with the focus on choosing the right locations, rather than just rolling out as many as possible. This strategy has seen the Ted Baker brand go from strength to strength. Sales and operating profits have grown steadily, enabling Ted to deliver dividend increases every year this century, with a double digit increase in all but two years. The prospective yield is currently 2.1%.

Online growth is pretty stellar at the moment, and centralising online distribution under one roof should help improve performance even further. However, there are one or two lingering concerns over the bricks and mortar business. Ted has flagged more difficult conditions in several global markets, and we can't help but notice in-store sales densities are falling.

Nonetheless, Ted's measured approach over the last few years means the group only trades from 511 stores, concessions and outlets worldwide. This should mean there's plenty of room left for growth, going some way to explaining why Ted, at 20.4 times expected earnings per share, trades at a premium to many other retail rivals.

Interim results (Constant currency)

Retail sales rose 9.2% to £217.7m. This growth was driven by a 43.8% rise in online sales, to £42.7m, and a 4.9% increase in sales space. New store openings included one in each of France, China and the UK, with two opening in the US.

Higher marketing costs more than offset the savings from switching to a single distribution centre, meaning operating costs increased by 13.1%. This left margins broadly flat.

A good performance on both sides of the Atlantic helped sales in the Wholesale division rise 10.2% to £78m. In Licencing, a strong showing from products including glasses, fragrances and suits helped income rise to £9.7m.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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 disclosure for more information.

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.