Profits slump means uphill battle for Ted Baker

FIRST-HALF results showed Ted Baker has swung to a loss, compared with profits of £25million this time last year.

That was significantly worse than either the board or the market expected, and the shares fell more than 30 per cent following the news.

The underperformance reflects increased discounting across the retail sector and weak consumer spending. That makes items less profitable, even if it helps sales volumes. But that’s only one half of the story. Cost rises are making the effects on profit even more painful.

Admin and distribution costs rose 14.9 per cent and 14 per cent respectively. Ted is reorganising in a bid to become more profitable and sustainable. Some extra spending is temporary, including acquisition costs after the group brought its footwear business in-house, but others are more permanent.

Another thing to consider is online. Online competition is fierce, but is an important channel. Ted Baker’s online sales in the UK and Europe fell 3.3 per cent, testament to the competitive marketplace.

Despite the challenges, there is light on the horizon. Revenues have held up relatively well. There is still demand for Ted Baker products, even if customers don’t want to pay as much for them.

Less enthusiastic customers are still a problem, though.

Ted Baker aims to save on advertising by developing a product that sells itself. Branding is typically on the light side, helping it skirt the risk of going out of fashion.

The group links dividend payouts with earnings, with about half of profits earmarked for return to investors. That means the dividend will wither if management can’t get profits moving again.

All things considered, the group’s differentiated product remains a significant advantage but only time will tell if it’s enough to tempt customers back at full price.

And with costs also under scrutiny, Ted Baker has plenty of work to do.