Ted Baker's tailored plan delivers profits growth but 'external factors' worry

In contrast to the travails of others in the rag trade, Ted Baker reported strong growth in sales and profits last year and, apart from remaining watchful for the impact of "external factors", seemed confident about its expansion path.

Founder and chief executive Ray Kelvin hailed another year of progress in the expansion of Ted Baker as "a global lifestyle brand" as revenue increased 16.4% to £531m, driven by a 15.0% rise in retail sales and wholesale revenues up 20.9%.

"We have continued to trade well and develop despite a backdrop of on-going external challenges across our global markets. This success reflects the strength and appeal of the brand as well as the outstanding quality of our collections," Kelvin said.

Looking forward he said the Spring/Summer collections "have been well received and we have a clear strategy for continued growth across both established and newer markets".

But in the outlook statement, there was an admission that trading across its markets continued to be "impacted by on-going external factors", which saw increased levels of promotional activity and a fall in international tourism in North America, while the trading environment continued to be "challenging" in Asia.

Nevertheless Ted's strategy for continued expansion remained in place, underpinned by a "controlled distribution across channels as well as the design, quality and attention to detail that are at the core of everything we do".

For the year to 28 January, as the store estate was increased with average square footage gain of 8.5% that helped drive retail sales in UK and Europe up 10.7% to £279.5m, with North American up 28.3% to £103.4m, more than half of which was due to currency effects, while e-commerce sales picked up 35.1% to £72.3m.

Profit before tax and exceptional items of £65.8m climbed 12.1%, with reported PBT up 4.4% to £61.3m.

Adjusted basic earnings per share, which excludes exceptional items, increased by 13.3% to 114.0p and basic earnings per share increased by 5.1% to 105.7p.

A proposed final dividend of 38.8p will see the total dividend lifted 12.1% to of 53.6p.

Further store openings and concessions are planned in the UK and Europe, along with continued investment in e-commerce.

For North America there are plans to open stores in Los Angeles and Houston, and a Miami relocation, plus new concessions in Canada, while in Asia the focus is on "building brand awareness, where we are still in the relatively early stages of investment", with plans for a further store in Shanghai and new concessions in Japan and South Korea.

The wholesale businesses is expected to see "high single-digit" sales growth in constant currency in the coming period.

TED shares fell 4.5% to 2,713p in the first hour of trading on Thursday.

Broker Canaccord Genuity said the gross margin was better than it expected but a 40 basis point decline in the EBIT margin to 12.6% was due to operating costs being higher than expected, with headwinds from £4m of dual-running costs for the European warehouse as well as £2m of North American pre-opening costs.

They noted that there were "no numbers, as usual" in the outlook statement, but picked up on the allusion to continuing impact of "on-going external factors".

"We think the company will maintain earnings growth within its target range of 12-15% - FY18E is unlikely to be a super-normal year as things stand."

Analyst Nicholas Hyett at Hargreaves Lansdown said while the cost of the new European distribution warehouse led to a slight miss versus expectations, the strategy of licensing out underdeveloped markets "mean that others are bearing much of the capital expense of its rapid expansion, while its distinctive patterned products are continuing to perform well in the department store setting – another relatively low cost route to market."

"Strength in the US is particularly notable, having been the graveyard of many British retailers. Ted is performing well there and only has a fraction of the concessions/stores it holds in Europe, suggesting growth could continue for years to come. The group isn’t immune to wider economic headwinds, but so far it’s weathering them well.”