Is today’s more than 30% plunge from Ted Baker a buying opportunity?

If you are looking for a bargain with Ted Baker plc (LON: TED), consider this.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In early trading this morning, fashion and lifestyle retailer Ted Baker (LSE: TED) plunged more than 30% on the release of its disappointing half-year results report.

That’s no doubt a blow for shareholders who had previously been attracted to the firm because of its relatively small earnings multiple and high dividend yield. However, I reckon retailers tend to show low-looking valuations when the stock market is worried about the possibility of a cyclical downturn in trading ahead.

Weak retail markets

Sadly, today’s report suggests that weakness in the company’s markets has arrived as feared. Compared to the equivalent period last year, constant currency revenue slipped back 2.5% in the six months to 10 August. That doesn’t sound like much of a change, but profits have completely collapsed. Adjusted earnings per share swung from almost 44p last year to a loss of 4.5p.

It looks bad, and the directors appear to think it’s dire too, because they slashed the interim dividend by more than 56%. No wonder the share price has taken a dive. And even digging into the figures underlying the headline declines provides little reassurance. In terms of constant currency rates, UK and Europe retail sales slipped back 3.9%, North America sunk by 2.3%, sales to the rest of the world plunged over 17%, e-commerce sales dipped 2.4% and licence income tumbled by more than 13%.

We can cling to one positive figure because wholesale sales ticked up 1.8%. To put that in perspective, wholesale accounted for around 25% of overall sales in the period and the wholesale business delivered around 46% of total operating profit.

Chief executive Lindsay Page explained in the report that significant challenges” are affecting the sector and have contributed to these poor financial figures — things such as weak consumer spending, macro-economic uncertainty, and “the accelerating channel shift towards e-commerce.”  I reckon if the shift to online is listed as a challenge, it suggests Ted baker could be on the wrong side of the trend and behind the curve with its own online business development.

Long-term vision intact

However, the company is battling on with its long-term expansion plans and, during the period, opened a new store in Detroit, USA, and broke into the market in Germany with two new outlets. On top of that, the firm signed two strategic deals to “accelerate growth” in Asia and, after the period ended, it set up a children’s clothing product licence agreement with Next.

Talking of Next, the firm recently released its own half-year figures showing retail profits sharply down but online profits up. Luckily for Next, the firm earns more from e-commerce than from traditional store-based retailing, which led to a slight increase in earnings per share overall.

Meanwhile, Ted Bakers figures suggest the plunge in the share price today was justified, so I see no greater value today than there was apparent yesterday. Therefore, I’m avoiding the shares for the time being.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Ted Baker. 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.

More on Investing Articles

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Down 78%, is this once-hot AI growth stock set to explode like the Rolls-Royce share price?

Our writer asks if he should invest in Super Micro Computer (NASDAQ:SMCI) following the growth stock's massive recent decline.

Read more »

Investing Articles

Is it madness to buy Palantir shares after Q3 earnings?

Palantir stock's surging again after the firm's Q3 earnings report. But after a 150% gain, is it too late to…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!

A small investment in high-dividend-paying stocks with the returns used to buy more shares can generate big passive income over…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

As Lloyds’ share price tumbles 14%, is this an unmissable opportunity for me to buy at a bargain-basement price?

The Lloyds share price is substantially below its year high, but decent earnings prospects should drive its price and dividend…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »