What I’d do with Ted Baker after its share price fell 76% in a year

Would I sell and run or would I stick it out?

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At its last close, FTSE 250 luxury brand and retailer Ted Baker (LSE: TED) saw its share price drop by 76% from last year, hit by what looks like a perfect storm. However, it was not all sudden.

TED’s woes have been accumulating for some time and its share price has been falling. When I wrote about it for the first time last year around this time, it was already clear that TED isn’t for the faint-hearted. Six months down the line, it’s amply obvious that there are better-performing companies to consider.

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Freefalling financials

But it’s this latest blow that seems to be particularly severe. TED continued to report a fall in revenue and profits, and both its CEO Lindsay Page and executive chair David Bernstein stepped down as well.

With this as background, it follows that the outlook would also be disappointing. And it is. The latest update cautions that it’s “appropriate to take a more cautious outlook for the remainder of the financial year”.

Part of the turn in TED’s fortunes has nothing to do with the company at all, but with larger macroeconomic uncertainties. Among those whose updates I have been poring over, company after company have flagged this as a key issue affecting their business. Yet, there are luxury brands that have managed to effortlessly buck the trend, FTSE 100 company Burberry being one example.

A perfect storm

While TED, like Burberry, has standalone stores, it also has tie-ups with third-party retailers like House of Fraser. With the latter going into administration in 2018, TED had mentioned the hit in its last annual report, even though revenue had grown during the 2019 financial year.

Debenhams has met the same fate, and that too is likely to have impacted performance. Added to this, there was an inventory accounting error earlier this year and the unceremonious departure of its previous CEO, Ray Kelvin, who was also the founder, from his position.

Not all’s lost

The big question now is – what’s next for Ted Baker? First things first, in the short term it’s reasonable to expect that the share price will recover from its current lows. Of course, I don’t think it’s headed to the highs seen last year anytime soon, but there’s often some recovery after a dramatic price drop, like the 13.4% decline we saw from the previous close.

In its update, TED says the last year has been “the most challenging in our history”, and for investors I do believe it needs to be looked at in exactly that context. TED has seen rising revenues over the years and though it reported lower profits in 2019, it was seeing consistently rising profits in the years before that.

If I were an investor in the share, which I’m not, I wouldn’t panic and sell. But I wouldn’t invest in it right now either.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry and 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.

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