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Ted Baker - On track, despite a weaker October

George Salmon | 16 November 2017 | A A A
Ted Baker - On track, despite a weaker October

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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: 111.40 | Buy: 112.30 | Change -0.40 (-0.36%)
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In a brief trading update covering the period from 13 August to 11 November, the group said it remains confident of meeting full year expectations, but trading conditions have been tougher in some markets. The shares dipped 1.7% 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. We see this as an attractive niche in the market.

As a relatively young brand, Ted Baker is expanding. However, almost uniquely for a group in Ted's position, it doesn't do above-the-line advertising. Instead, the group aims for a product that will sell itself, with the marketing savings reinvested back into the design.

As far as expansion goes, Ted Baker's management leaves the flashy stuff to the design team. The group takes a considered approach 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 2.7%, and analysts expect further dividend increases from here.

Online growth has been pretty stellar, and plans to centralise 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 18.4 times expected earnings per share, trades at a premium to many retail rivals.

Trading update

Revenues increased 8% at constant currency, with gross margins in line with group expectations.

Retail sales rose 5.1%, driven by a 31.3% rise in online sales. Online sales now represent 19.2% of total Retail sales.

Average retail square footage rose by 5.6% to 405,000 sq ft. New openings included a new store in Oxford, an outlet in Chicago and concessions in Canada, Germany and the UK.

Wholesale sales rose 15.4%, with a good performance from both the UK and US businesses. The group is also happy with trading in the smaller licencing business.

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 for more information.