Ted Baker and DFS Furniture star in retail horror show

Shoppers were more interested in sun, sea and sand than fancy threads and colourful sofas, writes Lee Wild, head of equity strategy at interactive investor. This is the result.

Ted Baker

Ted Baker shares fell as much as 14% in early trade to a near-four-year low; a bounce back from the previous 2018 low in August proving short-lived.

Both revenue and underlying pre-tax profit grew by 3.5% in the 28 weeks ended 11 August to £306 million and £25 million respectively. A decent UK performance and even better effort in the US had wholesale sales up 10.1%, or 12.8% at constant currency, to £85.9 million. The internet business grew by 24%, demonstrating the significant shift to online across the sector.

Like every other retailer, though, Ted Baker can't change the weather, and it struggled to sell its threads to shoppers who preferred the beach to the high street. Ted was also caught out by the failure of House of Fraser. A 1.1% increase in retail sales and 140 basis-point decline in margin is hugely disappointing.

Sales did keep growing, and should be positive for the full-year, despite Brexit and weak consumer confidence, but a decent Christmas will be crucial not just to Ted Baker, but to the entire retail sector.

Source: TradingView  Past performance is not a guide to future performance

Ted Baker is a classy operator, but is not immune from the wider challenges affecting the retail sector. Double-digit growth at the wholesale business and prediction of high single-digit growth there is a positive, but these numbers do not inspire confidence. 

Ted shares lost more than a third of their value between March and August this year. They are at an historically significant level. Between 2,300p and 2,320p has proved either a major area of support or resistance during at least eight periods since 2014. Dropping back below that level is a bad sign, and there is further risk here that the company doesn't hit those wholesale targets.

DFS Furniture

We were warned in July that business was tough and that the hot weather was bad for business, which explains these sub-par results. DFS Furniture's container shipping delays at Felixstowe didn't help, but the worrying thing for DFS is the 'exceptional downturn in market demand' during the fourth quarter.

Strip out the Sofology acquisition and revenue fell 2% to less than £748 million, and a big increase in costs helped drive underlying pre-tax profit down 24% to £38.3 million. 

While orders are up in the first nine weeks of the new financial year, don't get excited. These are likely just deferred purchases, so expect more of the same Brexit and consumer downturn stories over the next six months.

Source: TradingView  Past performance is not a guide to future performance