Ted Baker shares trade higher after second quarter trading update

Shares of British luxury clothing retail company Ted Baker were trading higher in early London price action after it reported its second-quarter trading update. The FTSE 100 was trading lower as prime minister Boris Johnson is set to announce a tax hike to raise over £10 billion.

Ted Baker released the trading update for the 16-week period between 25 April to 14 August. The global lifestyle brand reported a 50% increase in sales during the period. The steep rise is however coming from a lower base as its sales had plummeted in the corresponding quarter in 2020 amid the COVID-19 related restrictions.

Ted Baker trading update

Ted Baker reported a 30% year-over-year (YoY) rise in the second-quarter fiscal 2022 retail sales. However, the sales were 30% below the fiscal second quarter 2019 sales. The company’s store sales increased 145% YoY during the period but were 45% lower than the corresponding period in the fiscal year 2019.

“While many of our stores were open during the trading period, footfall remains below prior levels and continues to be stronger in out-of-town and regional locations where we have a smaller physical presence,” the company said in its release.

Ted Baker said that its non-metro locations continue to show better recovery as compared to the metro locations. It expects the pattern to continue in the second half of the fiscal year. The company attributed the slower recovery in metro locations to limited return to the office and slower pace of recovery in international tourism.

“We have made encouraging progress, with trading over the second quarter in line with expectations, albeit the speed of recovery is different across store locations and region,” said CEO Rachel Osborne in the prepared remarks

Discounting

Notably, Ted Baker’s online sales fell 25% during the period as stores reopened and more people visited stores as compared to the last year. Online sales were also hampered as the company went slow on the heavy discounting model. While cutting back on heavy discounting has meant lower sales, it also helped the company improve its margins. Ted Baker reported a 500 basis point expansion in retail trading margins on better full-price sales in its total sales mix. The company said that it is now re-establishing its premium positioning even as it means lower online sales.

Ted Baker continues to see recovery in retail sales and the trading momentum in the last four weeks was stronger than the fiscal second quarter.

The company has been focusing on a transformation strategy under which it has been strengthening its e-commerce platform. “Our transformation programme remains on track, and we have moved forward on the three key pillars of our plan in refreshing and re-energising the product and brand, prioritising digital and capital light growth and through our cost savings programme,” said Osborne commenting on the ongoing transformation.

Ted Baker delayed the launch of the new e-commerce platform to early next year. While it said that it has made good progress on the platform “but some technical aspects have taken longer than expected to fully resolve.” As the peak trading season is approaching, the company has delayed the launch to maintain stability. It however clarified that the delay of the launch wouldn’t have any material impact on the e-commerce operations.

Ted Baker shares have been strong in 2021

Ted Baker shares have gained almost 60% in 2021 and have outperformed the markets by a wide margin. That said, the shares have closed with losses in the preceding five years and have lost a cumulative 92% over the last five years. That’s a lot of capital loss for investors who have held on to the shares over the period. Looking at the momentum, the shares could close the year with massive gains which would be a welcome break for investors.

Share price forecast

Analysts see more upside in Ted Baker shares and its median target price of 207.5p implies an upside of 24.5% over the next 12 months. The street high target price of 300p is a premium of 80% while the lowest target price of 100p is a discount of 40% over current prices. Of the four analysts covering the shares, three rate them as a buy or higher, while one analyst has a hold rating.

Ted Baker shares were trading 0.8% higher at 168p at 10 AM London time today while the FTSE 100 was around 0.2% lower at the time. The shares have a 52-week trading range of 80.04p-217.60p.