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The Ted Baker share price is down close to 50% in 6 months. Here’s what I’m doing now

A Ted Baker store in Cairo
Image: Ted Baker

The Ted Baker (LSE:TED) share price has dropped substantially in the past six months. At current levels, is there an opportunity to buy cheap shares for my portfolio or should I avoid the stock? Let’s take a look.

Ted Baker shares plummet

Originally launched as a shirt specialist in Glasgow, Scotland, Ted Baker is one of the fastest growing lifestyle brands in the UK. Its collections include menswear, womenswear, accessories, fragrance, footwear, eye wear, and watches. It has a number of stores in the UK, US, and Asia.

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As I write, shares in Ted Baker are trading for 109p per share. A year ago shares were trading for 141p, which is a 22% decrease over 12 months. In the past six months, the share price has dropped by 48%, from 212p to current levels. So what’s been happening and is there a recovery opportunity here?

Pandemic hangover?

Ted Baker’s full-year results announcement in June is when the share price drop started. Revenues fell close to 45% in the 12 months to January. As a result, it reported a pre-tax loss of £59.2m compared to the £4.8m profit back in 2020. Sales dropped substantially, highlighting its dependency on its retail network — a retail network that suffered many closures throughout 2020 and some of 2021. 

Trading updates since have been a bit better. A Q2 update in September reported that group sales were up 50% compared to the same period last year. I believe this was a result of reopening and restrictions being eased.

Ted Baker’s half-year results released earlier this month were a mixed bag in my opinion. Sales were up 23% to £433m compared to the same period last year. Revenue was up 17.6% but this was still short of pre-pandemic levels. Losses reduced and net cash was also up offering Ted Baker a stable balance sheet to cope with any financial headwinds ahead.

I found there to be more negatives than positives from these three updates from Ted Baker. I believe the share price dropping is a sign of this. Unfortunately, there could be further issues ahead which could hinder any recovery. 

Risks ahead

There are several macroeconomic pressures that could pose problems for Ted Baker, as well as the new Covid-19 variant it may need to contend with. Rising inflation and costs could hamper margins and profitability. Furthermore, the current supply chain crisis could affect operations too. Finally, if new restrictions come into force, retail outlets could be forced to close. The previous results show Ted Baker’s heavy reliance on sales from its retail locations in my opinion.

Overall I would avoid Ted Baker shares currently. I believe it faces too many challenges ahead and is still suffering from a pandemic hangover as shown by its recent results. There are better stocks out there that offer good levels of safety and better returns in my opinion.

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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.

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