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Ted Baker - macro slow, weather a headwind

George Salmon | 12 June 2018 | A A A
Ted Baker - macro slow, weather a headwind

No recommendation

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: 152.50 | Buy: 153.30 | Change -0.30 (-0.20%)
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Over the 19 weeks to 9 June, Ted Baker revenue rose 4.2%, or 7.5% at constant currency. This represents slower growth than has been reported recently, although the group had braced investors by highlighting tougher economic conditions in many markets, with unseasonal weather bringing a further headwind.

The shares fell slightly on the news

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Our view

Ted Baker shares have fallen from around 30 times expected earnings in 2015 to a shade over 16 today.

That's largely a function of what the group says are short-term challenges in several global markets. While total retail sales are rising, growth is coming from web sales and the addition of new space. In-store sales densities are falling.

However, we've been impressed by Ted Baker's transition from Glaswegian shirt shop to quirky global lifestyle brand. The short-term outlook may appear challenging, but we think there's reason to believe this success could continue.

Ted's 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.

Almost uniquely for a young fashion brand, the group doesn't do above-the-line advertising. Instead, it aims for a product that will sell itself, with marketing savings reinvested back into the design. Branding on the garments themselves is typically on the light side - which should help Ted avoid the boom and bust cycle brands like Superdry and A&F have endured.

So far, expansion has been tailored nicely, with the focus on choosing the right locations, rather than just rolling out as many stores as possible. As a result, sales and operating profits have grown steadily, helping Ted deliver dividend increases every year this century, with a double digit increase in all but in two years in the depths of the financial crisis.

The balance sheet still looks strong despite an increase in debt last year. This should give investors confidence Ted can continue increasing the payout, but as ever, there's no guarantees attached. The prospective yield is currently 3.2%.

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Trading details - at constant exchange rates

Retail sales rose 3.6%, boosted by a 36.2% jump in online sales and a 5.7% increase in sales space. Ted Baker now operates from a shade over 420,000 sq. ft.

Wholesale revenues came in 18.9% higher than the comparative period last year, although the group benefited from favourable timing. Looking ahead, Ted expects at least high single digit sales growth this year.

Licencing revenues were strong in the period, with notable performances from Childrenswear, Glasses, Lingerie and Suits.

Commenting on results, Ted Baker CEO Ray Kelvin said that "despite an uncertain consumer outlook, we are well positioned to continue Ted Baker's long-term development."

Find out more about Ted Baker shares including how to invest

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.