Liberum slashes target price on Ted Baker following profit warning

Analysts at Liberum slashed their target price on menswear retailer Ted Baker to 1,280p from 2,300p previously after the group issued a profit warning a day earlier.

Ted Baker cautioned on Monday that it now expected full-year underlying pre-tax profits to be at least £10m lower than its own forecasts of £70m, with management setting a new range of £50m - £60m as a result of "extremely difficult trading conditions".

Liberum, which maintained its 'buy' rating on the group, highlighted "a mixture of market conditions and internal issues" as having led to a 30% cut to its own forecasts for pre-tax profits.

The analysts believed the short-term and identifiable issues around product were being addressed swiftly by Ted Baker's management but remained cautious, saying the unpredictable trading backdrop across all markets appeared to have "less end in sight".

"The management are doing what they can targeting the cost base as well as launching a number of initiatives such as faster speed to market, monthly drops and ship from shop. These will be incrementally positive in H2, but heightened promotional activity looks set to remain for some time," said Liberum.

Liberum also pointed out that comparatives were easier in the second half than the first so while its new forecasts did not account for any recovery in the tail end of the year, the initiatives and swift action by management "should at least steady trading" if not see a modest uptick.

The broker now expected Ted Baker to deliver sales of roughly £619.2m, gross profits of £353.9m and underlying earnings of £84.3m in 2020 - down 1.9%, 5.4% and 19% on its pre-warning estimates, respectively.

Over at RBC Capital Markets, which made no change to its 'outperform' rating, analysts said they liked the brand's "universal appeal" with a "premium positioning and quality-led proposition", but noted that it would likely take "a number of years" for the group to enable the delivery of working-capital efficiencies.

"Whilst valuation is compelling given share price weakness in recent months/years, for the stock to benefit from multiple expansion requires improvements in free cash flow, which have been disappointing for a number of years (despite healthy top-line growth)," said RBC.

"We believe this is high priority for management and, given recent systems upgrades and new logistics centres, should enable the delivery of working-capital efficiencies, in our view, although this will take a number of years."

As of 1100 BST, Ted Baker shares had tumbled 26.21% to 993.26p.