From its highs of last year, Ted Baker shares have now taken a battering, dropping 70% in the past six months. Brexit, bad weather, weak consumer spending and an allegation of forced hugging against former CEO Ray Kelvin have all been blamed. However, now the fashion retailer is lined up as a strong candidate for the contrarian investor.
I don’t mind making a contrarian gamble, but only when the market seems to have overreacted to a piece of news. With Ted Baker, amid several layers of excuses, everything seems to be going wrong. It makes me question the effectiveness of its management.
This conclusion has made me look elsewhere in the market for a more tailored fit. Here’s what I found.
Suited and booted
As a long-term investor, I remain cautious about fashion companies. It’s extremely difficult for brands to remain on-trend and relevant year-on-year. But in a crowded market, which is being disrupted by online stores like Asos and Boohoo, there is one company that I believe warrants further investigation.
The FTSE 100’s Burberry (LSE: BRBY), seems to have weathered global economic problems and posted a 5% increase to its year-on-year revenue, reaching a massive £1.28bn.
Over the past year, its share price has increased by 12%, making the price-to-earnings ratio a touch on the high side at 25. The prospective dividend yield is approximately 2%.
On November 14, the fashion company issued its interim results and the numbers were broadly in line with analysts’ predictions.
The group is in the first phase of what it calls a ‘multi-year plan’. The initial focus of the company is to re-energise the brand, align distribution to the business’s new positioning in even-more-luxury fashion and to establish a new product offering.
Measuring itself against these objectives, it seems like Burberry has made good progress so far. In all major cities, retail stores have had a refresh. It has also launched an exclusive partnership with Tencent in China, which it hopes will help develop the company’s social retail.
Its global press coverage has expanded too, with its Spring/Summer 2020 show growing its reach by 50%, when compared to its Autumn/Winter 2019 show.
Likewise, social media outreach has grown. Its total reach on Instagram has more than doubled, and the Spring/Summer show was one of the top five trending topics globally on Twitter.
Does this coverage convert to sales?
Creative chief Riccardo Tisci’s collections have been a hit, and have delivered double-digit growth. Burberry has reported that ‘new product’ is now approximately 70% of its mainline retail offering.
The fashion industry remains a difficult area to be involved in. Consumer behaviour will always be fickle, as trends fall in and out of style. But at the moment, it seems like Burberry is hitting the mark. Growing popularity on social media is encouraging, although this is perhaps an unorthodox measure of a company.
It seems that Burberry is pitching itself perfectly to the market, and people are getting excited. That in itself is enough for me.
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T Sligo has no shares in any of the companies mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo group, 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.