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Ted Baker - full year profit guidance lower than expected

Nicholas Hyett | 11 June 2019 | A A A
Ted Baker - full year profit guidance lower than expected

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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: 128.40 | Buy: 129.00 | Change 9.10 (7.62%)
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Ted Baker has said underlying pre-tax profit for the full year will be between £50m - £60m. That's below the £72.4m analysts had been expecting.

The group blames "extremely difficult trading conditions" across global markets for the news.

The shares fell 28.8% following the announcement.

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Our view

Coming hot on the heels of an involuntary change of leadership, disappointing financial performance is something Ted could really do without.

While overall performance had been up and down recently, the top-line continued to grow steadily. Until now. Discounting across the sector means competition is tough, and cuttings prices has dented like-for-like sales, while margins and profits also take a hit.

Perhaps more worrying is the rather cool response to Ted's most recent collections. While wider conditions are tough, we'd hope that the floral-famed retailer would be able to lean on its ability to create and distribute popular designs. It's assured us the troubles on that front have been resolved - but it's something to keep an eye on as we head in the summer.

The longer term picture isn't totally bleak though. Ted's saving grace is that it's distinguished from the mainstream. It offers an affordable luxury for consumers seeking individuality. In a cluttered and competitive market that should be attractive niche. We're also fans of the expansion strategy, which has been well tailored. Selective store openings has helped offset some of the declining footfall.

Ted's particularly notable for its limited above-the-line advertising - think billboards and glossy magazines. Instead, it aims for a product that will sell itself, with marketing savings invested back into design. Branding is typically on the light side - which should help Ted avoid the boom and bust the likes of Superdry and Abercrombie & Fitch have endured.

Share price weakness means there's now a prospective yield of 4.8%. Investors should remember though that the stated policy is to pay out around half of earnings as a dividend, so falling profits will feed through to falling shareholder returns. That's likely to end a run which had seen the group increase the distribution every year this century.

Despite the difficulties, consensus forecasts are for earnings to return to growth in the next year, so investors can hope for a rising payout. As ever though, there are no guarantees.

All-in-all performance has been far from perfect lately, and that's reflected in a price to earnings ratio of 10.3, 45.5% below the longer term average. We think Ted's unique proposition should hold it in good stead in the longer term, but conditions are likely to remain tough for now.

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Latest trading details (all figures in constant currency)

Group revenue for the 19 weeks to 8 June increased 1.9%, with like-for-like (LFL) sales down 2.9%. Trading was held back by unseasonable weather in North America, and increased promotional activity across global markets.

Ted Baker also experienced challenges with its Spring/Summer collections, which are now said to have been addressed.

Retail LFL sales, including online, decreased 2.6%. Online sales increased 1.2%, and accounted for 26% of all sales in the period. Retail space rose 5.3% to 443,036 sq.ft.

In Wholesale, sales rose 11.4%, but this was driven by the acquisition of No Ordinary Shoes Limited and No Ordinary Shoes USA LLC, which completed on 1 January 2019. Excluding these purchases, Wholesale sales actually fell 3.6%.

The group said "in light of the challenging start to the financial year, management are actively focused on product initiatives and cost control".

Half year results are expected in October 2019.

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.