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Ted Baker tumbles as it swings to interim loss, warns on full year
3rd Oct 2019 07:52
(Sharecast News) - Ted Baker shares slumped on Thursday as the fashion retailer said it swung to an interim loss, slashed its dividend and warned over its full-year results amid "very challenging" trading conditions.
In the 28 weeks to 10 August, the company swung to a pre-tax loss of £23m from a profit of £24.5m in the first-half of last year, with revenue down 0.7% at £303.8m.
Retail sales including e-commerce fell 2.5%, while UK and Europe retail sales declined 3.9% and sales in the rest of the world were 15.2% lower. North America saw a 3.1% rise, however.
Ted Baker said it had been a "challenging" first half, with trading conditions characterised by "unprecedented and sustained levels" of promotional activity across the sector. There was also some "distressed discounting" from brands and retailers and heightened competition.
"The group's performance has been impacted by very difficult trading conditions throughout the period, amplified by heightened levels of consumer uncertainty across many of Ted Baker's global markets," it said.
"This has been exacerbated by the well-publicised challenges that continue to face some of the group's UK trading partners against the backdrop of the continuing shift towards an increasingly digital retail landscape."
The group, which issued a profit warning in June, declared an interim dividend of 7.8p, down from 17.9p a share the year before.
Ted Baker also highlighted some challenges with its Spring/Summer collections, but said these have been "appropriately addressed" as we move into Autumn/Winter.
The company sounded a cautious note about the outlook, noting that second-half trading had started slowly, dented further by unseasonably warm weather in September.
"If these trends continue, we will achieve a second half result below that of last year," it said..
At 1345 BST, the shares were down 34% at 608.30p.
Russ Mould, investment director at AJ Bell, said: "Ted Baker has been thrown onto the market's discount pile after a shocker of a first half results statement. A tough year - and which saw founder Ray Kelvin walk away following a 'forced hugs' scandal - keeps getting worse for the company.
"The threads of today's announcement show the retailer's problems run deeper than just being linked to boardroom turmoil.
"The company's own e-commerce sales actually sank in the period when typically online business comes to the rescue in the retail and fashion sphere. And the company was hit by additional costs associated with its acquisition of retailer No Ordinary Shoes.
"Profit warnings are often said to come in threes, and this is the company's third following significant downgrades in March and June.
"Ultimately Ted Baker's ability to drag itself out of this mess will be dictated by the strength of its brand and how much it has been tarnished by the events of 2019. Investor's patience may be threadbare."
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: "Ted's future fortunes lie in its ability to get its cost base under control. Sales performance hasn't been too bad, so there's clearly demand for what Ted is selling, just not necessarily at the price it needs them to be. Only time will tell if Ted can find a way to rejig its offering in a profitable way, at the moment that looks to be some way off."
Broker Peel Hunt slashed its price target on hold-rated Ted Baker to 500p from 950p after the results.
"Certainly, market conditions are tough, but others are performing much better. There's no customer backlash here, there's just a question of where are they shopping instead? We assume less margin attrition in H2 and downgrade our full-year forecast from £51.5m to £23m underlying, with a further £6m IFRS 16 impact."
RBC Capital Markets analyst Piral Dadhania said: "We rate Ted Baker 'sector perform' with a 900p price target. Our sector perform rating reflects the operational negatives offset by the valuation (and potential bid) positives.
"The growth prospects for the business have largely dissipated, with major markets experiencing structural and transient headwinds that are unlikely to recede in the next 12 months.
"TED's pricing strategy appears to be disconnected with its brand/quality proposition, evidenced by material entry price hikes in categories such as men's blazers (+30% in the past twelve months), and broader and deeper markdowns versus peers in core categories such as men's polo t-shirts and shirts.
"The disruption in the apparel industry from declining traditional distribution channels (stores, department stores) and the growth of online (direct and multi-brand) is driving excessive choice and ill-disciplined pricing behaviours in the marketplace.
"Coupled with persistent adverse weather relative to traditional fashion cycle selling periods is accentuating the markdown issue that brands such as TED (and others face) whilst lead times remain 6m+ for main collections."
In the 28 weeks to 10 August, the company swung to a pre-tax loss of £23m from a profit of £24.5m in the first-half of last year, with revenue down 0.7% at £303.8m.
Retail sales including e-commerce fell 2.5%, while UK and Europe retail sales declined 3.9% and sales in the rest of the world were 15.2% lower. North America saw a 3.1% rise, however.
Ted Baker said it had been a "challenging" first half, with trading conditions characterised by "unprecedented and sustained levels" of promotional activity across the sector. There was also some "distressed discounting" from brands and retailers and heightened competition.
"The group's performance has been impacted by very difficult trading conditions throughout the period, amplified by heightened levels of consumer uncertainty across many of Ted Baker's global markets," it said.
"This has been exacerbated by the well-publicised challenges that continue to face some of the group's UK trading partners against the backdrop of the continuing shift towards an increasingly digital retail landscape."
The group, which issued a profit warning in June, declared an interim dividend of 7.8p, down from 17.9p a share the year before.
Ted Baker also highlighted some challenges with its Spring/Summer collections, but said these have been "appropriately addressed" as we move into Autumn/Winter.
The company sounded a cautious note about the outlook, noting that second-half trading had started slowly, dented further by unseasonably warm weather in September.
"If these trends continue, we will achieve a second half result below that of last year," it said..
At 1345 BST, the shares were down 34% at 608.30p.
Russ Mould, investment director at AJ Bell, said: "Ted Baker has been thrown onto the market's discount pile after a shocker of a first half results statement. A tough year - and which saw founder Ray Kelvin walk away following a 'forced hugs' scandal - keeps getting worse for the company.
"The threads of today's announcement show the retailer's problems run deeper than just being linked to boardroom turmoil.
"The company's own e-commerce sales actually sank in the period when typically online business comes to the rescue in the retail and fashion sphere. And the company was hit by additional costs associated with its acquisition of retailer No Ordinary Shoes.
"Profit warnings are often said to come in threes, and this is the company's third following significant downgrades in March and June.
"Ultimately Ted Baker's ability to drag itself out of this mess will be dictated by the strength of its brand and how much it has been tarnished by the events of 2019. Investor's patience may be threadbare."
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: "Ted's future fortunes lie in its ability to get its cost base under control. Sales performance hasn't been too bad, so there's clearly demand for what Ted is selling, just not necessarily at the price it needs them to be. Only time will tell if Ted can find a way to rejig its offering in a profitable way, at the moment that looks to be some way off."
Broker Peel Hunt slashed its price target on hold-rated Ted Baker to 500p from 950p after the results.
"Certainly, market conditions are tough, but others are performing much better. There's no customer backlash here, there's just a question of where are they shopping instead? We assume less margin attrition in H2 and downgrade our full-year forecast from £51.5m to £23m underlying, with a further £6m IFRS 16 impact."
RBC Capital Markets analyst Piral Dadhania said: "We rate Ted Baker 'sector perform' with a 900p price target. Our sector perform rating reflects the operational negatives offset by the valuation (and potential bid) positives.
"The growth prospects for the business have largely dissipated, with major markets experiencing structural and transient headwinds that are unlikely to recede in the next 12 months.
"TED's pricing strategy appears to be disconnected with its brand/quality proposition, evidenced by material entry price hikes in categories such as men's blazers (+30% in the past twelve months), and broader and deeper markdowns versus peers in core categories such as men's polo t-shirts and shirts.
"The disruption in the apparel industry from declining traditional distribution channels (stores, department stores) and the growth of online (direct and multi-brand) is driving excessive choice and ill-disciplined pricing behaviours in the marketplace.
"Coupled with persistent adverse weather relative to traditional fashion cycle selling periods is accentuating the markdown issue that brands such as TED (and others face) whilst lead times remain 6m+ for main collections."