Interactive Investor

Could this be Ted Baker's saviour?

7th September 2021 08:04

Richard Hunter from interactive investor

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After a good run for the shares, our head of markets looks at this second-quarter update for signs of further progress. 

 

Despite the difficulties the company has faced, the relevance of this luxury brand seems to have remained intact, which has enabled some light to be seen at the end of the tunnel.

Ted Baker (LSE:TED) will rarely face the tribulations of the past couple of years again, with the dual impact of Covid-19 and an aggressive transformation plan requiring a significant overhaul of the business.

Cash raising exercises and cost cutting have helped to revitalise the balance sheet, such as the sale of its head office resulting in annual rental savings of £3.3 million. 

Perhaps the most promising news from the update is the group’s improvement to the full price mix. In the corresponding period last year, an overhang of stock needed to be sold at a discount. This time around better stock control and fewer sale stickers have improved trading margin by over 5%, with the momentum of group sales growth of 50% spilling over into current trading, after the period which these results cover.

Retail sales have improved by 30% over last year and store sales by 142%, although these remain down on pre-pandemic levels by 30% and 45% respectively. The lack of international tourism has also affected the travel business, while footfall to the high street is still constrained as shoppers prefer the out of town experience, which does not play into the group’s hands.

The company has also decided that the new online platform is not yet quite fit for purpose, and has delayed its launch until early next year. In the meantime, Ted has stated that this will not have a material impact on business as usual, although this element of the business remains disappointing given competitive pressure elsewhere.

Ted Baker represents an absolute recovery play, bringing a much higher risk for investors. There are, however, some real signs of progress and while the retail arena remains one of fickle fashion tastes and highly competitive pricing, Ted’s position in the luxury space could yet be its saviour.

The shares have had a good run leading up to these numbers and are ahead by 47% over the last year, as compared to a gain of 25% for the wider FTSE All Share. However, to put matters into perspective, the shares remain down by 92% over the last three years, a sobering reminder of the work to be done.

The limited market consensus of the shares as a 'strong buy' is likely predicated on a strong return to form, or even some speculation that the company could be subject to a takeover approach at current levels.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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