Ted Baker can cut a dash in challenging market, says Jefferies

Jefferies said it was confident Ted Baker can outperform and maintained its 'buy' recommendation after shares in the clothing retailer fell when it issued some cautious words about the US trading outlook.

Keeping its price target of 2,820p, Jefferies said Ted Baker's brand strength, measured approach to growth and strong management team were the main appeal of the stock, with the shares closing at 17.6 times forecast earnings.

Final results on Wednesday saw another set of numbers with sales up 16% to £531m and PBT 12% to £66m.

However a further deterioration in sales densities in the US, Ted's fastest growing territory and 28% of group sales, caused concern as management decided to guide cautiously.

While gross margins increased by 110 basis points, mainly driven by improved retail full price sell-through as a function of tight Spring/Summer buying, but higher operating expenses, primarily related to £4m of dual running costs as part of a move to new warehouses, led to operating margins contracting 40bps.

Given the ongoing challenging market conditions, management guided to circa 5% retail space growth, down from nearer 9% over the past three years, despite a healthy order book in wholesale with guidance for sales to grow high single digit excluding-FX in the 2018 financial year.

North America has seen promotion-driven pressures from US department stores and a fall in international tourism due to the stronger dollar, which has led to a 6% decline in US sales densities - a further deterioration from the 3% decline reported for the first half.

Management is confident that brand appeal and recognition has not faded, given healthy US wholesale sales and positive feedback from department store partners, Jefferies relayed, with concessions in Bloomingdales and Nordstrom both ranked highly.

The company can outperform in this market, analysts felt.

"The downside risks to consumer confidence and disposable income in TED's domestic market are well understood...And to the extent that declines in US sales densities are related to external factors we believe TED will continue to outperform peers."