Shares in Ted Baker have been under pressure for much of this year, and were recently hit by a sell note from analysts at Panmure Gordon despite the clothing chain reporting a 20% rise in annual profits.
But now analysts at the company’s house broker Liberum have given some support to the shares, which have jumped nearly 5% to £23.76. Liberum’s Tom Gadsby issued a buy note and raised his target price from £31 to £37. He said:
The stock is down 22% year to date as wider concerns over China and US Wholesale have, wrongly in our view, impacted Ted. We address investors’ concerns and find the company in good shape.
In a challenging environment we believe that Ted will outperform its peers given the strength of the brand and the channels to market. Despite a tough market in teh second half of 2015 for luxury goods and retail Ted performed well with Retail sales growth of 8% and total sales growth of 12%.
Ted is developing a well-balanced business with multiple routes to market. Retail, Wholesale and Licencing are complemented by an increasingly important online business which brings the brand to a wider audience without necessarily needing to roll out new stores. Online reached 15% of group Retail sales last year, and 19% of UK and Europe Retail sales. Licensing revenues grew by 23% to £14.4m, 24% of Group EBIT.
Ted’s sales densities slowed in the second half of 2015 impacted by a tough trading environment, unseasonal weather patterns and the terror attacks in Paris which saw fewer shoppers on the High Street and a reduction in tourist traffic. Our analysis of Ted’s sales patterns over the past year shows two things: that there has been a continued channel shift with trade moving online, which we believe is margin accretive; and that there is a misconception in the market that sales densities are a direct proxy for like for like sales. In our view the timing of store openings can be a negative drag on sales density metrics while like for like sales growth at peers is flattered in relative terms by excluding immature space.
While the retail sector saw a slowdown in growth in the second half of 2015 the tide has turned more sharply for the luxury goods sector as seen in profit warnings from Burberry and Hugo Boss. As an international brand we find that, in the minds of some investors, Ted’s fortunes may be similarly under pressure. We believe that this is the wrong interpretation.
Ted’s exposure to China is minimal at around 2% of sales. Its US wholesale business is strong and performing substantially better than peers. The company’s pricing architecture, with product prices comfortably below Ralph Lauren and Hugo Boss, as well as pricing integrity with low promotional participation, supports demand for full price sales.
