Ted Baker shares dip on profit-taking

Trading is turning around at Ted Baker PLC after a difficult few years due to Covid. The fashion retailer says it is benefiting from the general return to office-based working, travel and events such as weddings.

Revenues at the company, which recently put itself up for sale, rose 20% during the full-year to £428 million (from £355.3 million in 2021). Losses before tax narrowed to £44.1 million from £107.7 million last year.

Shares rose half a percent on the day of the results but fell 3% on Friday to 135.8p, suggesting investors may have decided to take some profits after there was little news about the bid situation for the company.

Ted Baker brand ‘remains robust’

“We continue to make good progress against our transformation plan, helping us deliver strong sales momentum through the year as we focus on driving Ted Baker’s growth as a global lifestyle brand,” chief executive officer Rachel Osborne told investors.

“That momentum has continued into the new year, supported by a steady return to the office and social events. While we remain mindful of what is a challenging macro environment, we are well positioned for growth.”

Osborne says customer’s response to their 2022 collection and new digital platform, which recently launched, has been positive and that its “strong brand, capital light strategy and well-established distribution channels” give the company confidence for its future. The company says the brand remains in “robust health.”

Trading in the UK has remained strong, while it is improving in the US and Germany. Store sales increased by 62% in the US to £64.4 million, boosted by the easing of Covid restrictions and greater demand for formal wear. UK and European sales also rose by 11% to £205 million.

Gross margins improved by 105 basis points for the full-year, with gross margins on full price sales up 810 basis points for the period. The company had net cash of £3 million at the end of the year and bank facilities in place of £80 million.

Ted Baker receives flurry of offers

Ted Baker officially put the company up for sale following two offers from US-based Sycamore Group. However, the private equity firm recently pulled out of the bidding. Management says the company has received a flurry of further offers from other parties. It’s thought that Authentic Brands, the company behind Reebok, is considering making a bid.

“The most urgent task for the new owner of Ted Baker is to revitalise the brand’s fading image,” said Alex Smith, global sector lead at Third Bridge. Our experts say that there are very few brands that have the sheer personality of Ted Baker and the value of a refresh could be huge.

“[However] hybrid working gets more entrenched every day, this leaves a big question mark over the future demand for formal workwear. Ted Baker is wisely moving away from formal occasion wear towards everyday.”

Smith thinks the US offers a “massive opportunity for future growth” because of its size but warns that the likes of Amazon and eBay are also moving into the premium fashion sector.

Like other retailers, the company will also be facing rising input costs and the cost of living crisis’ squeeze on customer’s pockets.

Ted Baker shares are down 22% this year but have benefited of late from takeover talk. Investors may wish to hang on until a recommended offer ensues, but it may also be wise to take some profits in the short term.

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*Based on revenue excluding FX (published financial statements, June 2021).