Global lifestyle brand (and Fool favourite), Ted Baker (LSE:TED), provided an update on trading early this morning. With its share price down from last November’s all-time high of 3,555p to today’s 2,508p, investors will have been looking for signs that the last three months have been kind to the company, particularly in the wake of June’s EU shock vote and growing economic uncertainty.
Looking good
As updates go, this one wasn’t too bad at all. In the three month period to mid-November, revenue rose 14.8% on the year. Despite the difficult trading environment, retail sales were up by 15.4% (6.7% in constant currencies) and e-commerce sales jumped by 30.3% (25.9% in constant currencies). The last of these figures is noteworthy given how important it is these days for retailers, particularly those operating in the competitive fashion and lifestyle markets, to offer a quality online experience to consumers.
Elsewhere (and as predicted by the Motley Fool), Ted Baker looks like it’s making progress on growing its brand around the world. There were new stores openings in Atlanta, Miami and Calgary and new concessions in major department stores in China, Germany, Japan and Spain. Today’s update also made reference to the successful relocation of two stores (in New York and Hong Kong) and that its product and territorial licensees continue to perform well with new shops in Dubai, South Africa and Mexico.
While those already invested in the company will be buoyed by all this plus the positive response to its collection and its board’s belief that Ted Baker is trading in line with expectations, CEO Ray Kelvin wisely sounded a cautious note. Full year results “will, as always, be dependent on trading conditions over the important Christmas period,” was what he said. Indeed, the company’s next update, due mid-January, could be particularly telling.
Steep valuation?
Of course, one positive trading update isn’t a sign that you should go out and immediately purchase a slice of a company. When scrutinising any business, it pays to look closer, just as you would check the stitching when buying a new item of clothing.
On a forecast price-to-earnings ratio (P/E) of 22 for 2017, shares in Ted Baker certainly aren’t cheap, even after the drop in its share price recently. For comparison, shares in FTSE 1oo luxury goods purveryor Burberry trade on a forecast P/E of just over 18. Does this mean the former is overvalued?
Not necessarily. Ted Baker can boast an excellent run of growing earnings and high returns on capital (an average of 31% over the last six years). While a 2.2% yield is unlikely to get income seekers salivating, its bi-annual payouts also look safe and the consistent double-digit annual increases to its dividend signal a company in rude health. As many Fools will know, a stagnant dividend suggests the opposite. Net debts of £116m and much higher levels of capital expenditure in recent times are a little concerning but the company does have £25m cash in the bank.
Based on today’s figures, it looks like Ted Baker is doing all the right things to come through our forthcoming EU exit relatively unscathed. That said, given the importance of the company having an excellent festive period, I think it may pay for prospective investors to re-evaluate the shares early in 2017.
