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Ted Baker unfashionable in the extreme

The fashion retailer missed its already lowered profit expectations
October 3, 2019

Shares in established fashion brand Ted Baker (TED) – a one-time darling of the sector – plunged after management revealed an unexpected loss for the six months to August 2019.

IC TIP: Sell at 593p

The group warned in June that pre-tax profits would come in at £50m-£60m for the full year to January – far short of broker Peel Hunt’s forecast of £70.5m. In the event, even the subsequently lowered guidance is starting to look ambitious. The group swung to a £23m pre-tax loss in the first half, prompting Peel Hunt to cut its full-year forecast to just £16.7m, giving EPS of 29.3p, down from £73.5m and 128.9p in 2018. The drop in earnings had a knock-on effect on the half-year dividend payment, which fell to less than half last year’s level.

Management blamed the problems on issues in the wider sector, citing heightened competition, as well as “unprecedented and sustained levels of promotional activity across the sector”. The group responded with its own promotions, leading to a 400 basis point erosion in the gross margin to 54.3 per cent. 

Heightened anxiety on the high street also affected clients of the wholesale business, leading to an 11.7 per cent constant currency decrease in sales for the division. The group also sells some stock through third party websites, such as those of department stores, which inadvertently pushed e-commerce sales down 2.4 per cent at constant currencies in the period, despite growth in the core Ted Baker website.

Ted Baker’s stock levels have been a cause for concern. Inventories have grown consistently in recent years, reaching a peak of 37 per cent of revenues at the full year. Thankfully, this has fallen back to 34 per cent, which management said was inflated by the acquisition of the footwear business. 

TED BAKER (TED)   
ORD PRICE:494pMARKET VALUE:£220m
TOUCH:490.2-494.6p12-MONTH HIGH:2,370pLOW: 494p
DIVIDEND YIELD:9.8%PE RATIO:190
NET ASSET VALUE:472pNET DEBT:67% *
Half-year to 10 AugTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201830624.542.817.9
2019304-23.0-46.17.8
% change-1---56
Ex-div:10 Oct   
Payment:22 Nov   
*Excludes lease liabilities of £178m