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Ted Baker bucks the trend

Daniel Lane

Daniel Lane - Fidelity Personal Investing

Sales at high street clothier Ted Baker jumped by 12.2% over Christmas compared to the same period last year. During the 2 December to 5 January window, online sales rose by 18.7% making up a quarter of the brand’s total retail sales and highlighting the value of the firm’s online proposition.

The market seems to like this morning’s update, sending Ted Baker shares up 12% at the time of writing. Shareholders will welcome the lift after a sour ending to 2018 that saw shares slump upon complaints about inappropriate behaviour from the company’s founder Ray Kelvin and a subsequent internal probe.

Today’s positive update is all the more noticeable given the continuing tribulations among fellow high street retailers. 2018 was a tough year for the sector that not even the online poster boys could escape. ASOS and Boohoo kept the pace for most of the year but felt the tail end of the whip after a torrid November. ASOS shed 40% of its share value in one day as the market digested a downward revision to its sales growth projections into 2019, with Boohoo falling more modestly.

Both have seen a steady rise since then however the message remains: solid online propositions may be the way forward but they won’t protect firms from every bump in the road. This is where Ted Baker has had the edge on a lot of its competitors.

The company has been able to manage the balance between its store count and online presence arguably much better than many of its high street neighbours. The likes of Carpetright, Mothercare, and a host of mid-tier restaurants are now dealing with the transition to a more manageable retail footprint after years of overexpansion. Here again, the message is one of constant adaptation to consumer behaviour and preference, rather than a gung-ho leap into bricks and mortar or pure online experience.

Ted Baker also made mention of its ability to keep gross margins in line with expectations against a backdrop of ‘increased promotional activity’ (i.e. massive Black Friday discounting). A race to the bottom line is often a Pyrrhic victory but is one that brands often feel they have to take part in to stave off the competition (ASOS chief Nick Beighton certainly felt his hand was forced by competitors’ discounts) and holding strong can feel like a bold move. However, it seems this is another area Ted Baker got right over the holidays, with acting chief executive Lindsay Page relying on “the strength of the brand and the quality of the collections.”

Away from today’s update, investors will be keen to hear the outcome of the company’s internal investigation not least because its founder holds around a third of company shares. It’s often a good sign that the boss has so much skin in the game but when that person is under such scrutiny or is forced to consider unwinding his holding, confidence can become risk quite quickly.

The company might be saying all the right things from a sales perspective but there may still be investors on the side lines waiting to see how strong and efficient the internal corporate governance controls are before fully buying in. 

More on Ted Baker

Five year performance

As at 8 Jan
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
Ted Baker 5.7 22.2 -5.8 9.3 -41.1

Past performance is not a reliable indicator of future returns

Source: Fe, as at 8.1.19, in GBP terms with income reinvested

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