Solid performance in UK helps put Ted Baker on track

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Ted Baker performed ahead of expectations in its first half, with a strong UK performance offset by dire trading conditions in the US.

The quirky retailer, which operates 32 stores and 122 concessions in the UK as well as licences in the Middle East, Asia and Europe, reported total sales rose 7% year on year to £76.5m in the 28 weeks to August 15, when pre-tax profit fell 18.4% to £6m. The decline in part reflected a shift away from wholesale.

Retail sales rose 15% and sales densities were driven by the UK division. Retail gross margins dropped 70 basis points, impacted by promotions overseas, which offset an uplift in the UK.

Wholesale sales dropped 16.3% and gross margins rose 10 basis points. A third of the sales fall was a result of the transfer of wholesale accounts to concessions and dropping of partners “no longer appropriate” for the brand.

Ted Baker founder and chief executive Ray Kelvin said the retailer was “where we should be” in terms of the wholesale to retail ratio. He said the improving trend had continued in to the second half. “While we remain cautious the initial reactions to our autumn collections have been encouraging,” he said.

Singer analyst Matthew McEachran said “action taken to control brand distribution is paying off”. He added the seasonal effect of shifting profit from the first half of the year to the second half has been limited and that the “uplift in second-half profit could be greater than forecast”.

He said profitability could improve in the US as it takes control of distribution and brand recognition increases. “Ted Baker is emerging as a quality and differentiated global brand with a risk averse strategy to expansion,” said McEachran

House broker Investec analyst Katharine Wynne said the fall in retail gross margins “masked a robust performance in the UK”.

Numis analyst Andy Wade said implied like-for-likes in the first half in the UK and Europe were down 1.6%, with gross margin up 60 basis points. Wade saw “opportunity on UK retail like-for-likes” through the second half and has raised expectations for a January 2010 pre-tax profit by £1m to £18.7m.