Some clothing is seen as a necessity or essential, whereas some is seen as a luxury commodity.
The fashion industry and landscape is ever changing. The last few years have seen a move away from more traditional high street fashion towards online shopping. Shoppers’ habits are changing and access to cheap, fast fashion is booming at the moment. The emergence of such brands as Boohoo, and the continued rise of Asos, amongst others has seen more traditional retailers employ online strategies to keep up with the times.
Ted Baker (LSE:TED) has fallen foul of the recent market crash. However its problems lie deeper than that. This current downturn may cause deeper ramifications for the British luxury retailer in the longer term.
With approximately 400 stores across the world, including Europe, Asia, North America, South Africa, and Australia, I feel that tough times are ahead.
Going back six months or so ago, in early October, Ted Baker shares plummeted almost 40% after large losses were revealed. This was partially due to investment to overhaul struggling Asian businesses. Losses for the six months to 11 August came in at £23m. To put this in perspective, it reported a pre-tax profit of £24.5m a year earlier. A major disaster for this revered brand.
December saw a fourth profit warning in a year. It warned of a 90% profit crash. This was further compounded by the departures of its chairman and CEO. It seems the once well-led retailer is now rudderless. The market crash has seen Ted Baker’s share price drop by an alarming 50% in the past month alone.
The sale of its headquarters in London for £78.75m was announced a few days ago. It will put net proceeds of £72m towards debt but did agree a short-term lease of the property. There has been a temporary closure of 384 stores, representing around 70% of its global retail sales. A direct reaction of this has been a £13.5m extension of its £180m revolving credit facility. That is never a good sign but needs must at this moment.
Numbers and next steps
Ted Baker will welcome the news of the government’s business rates holiday. It paid £6.2m in the last year, so the move will ease some pressure on the balance sheet. However, I do not feel it will be enough.
The current price-to-earnings ratio sits close to a worrying high of 60. Dividend per share has increased year on year for the past four years but December’s profit warning saw a cessation of dividend payments.
To highlight the retailer’s problems, which include other scandals and issues, the share price has seen a decrease of almost 95% across the past five years.
At this point I would steer clear of Ted Baker shares and be wary of such a cheap price. I often analyse companies, especially in a market slump, and look for opportunities. This is not one of those times. Although I am a fan of the brand itself and profess to owning some of its menswear products, it is not a name I am interested in from an investment perspective.
The post This FTSE fashion retailer’s shares are cheap. Here’s what I’d do next appeared first on The Motley Fool UK.
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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020