October 4, 2012 10:19 am

Overseas expansion cuts Ted Baker profits

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Ted Baker Store in Paris

Rising sales could not stem a decline in pre-tax profit at Ted Baker as the British fashion brand counted the cost of expansion.

Pre-tax profit fell 8.4 per cent to £7.8m in the 28 weeks to August 11, burdened by exceptional costs of £1.6m due to rent on new stores on Fifth Avenue in New York and in Tokyo before they began trading. Sales rose 15.4 per cent to £118.6m in the period.

The self-styled affordable luxury brand is ramping up its presence in the US and Asian markets, where it has recorded strong growth, as part of an overseas expansion strategy.

Ted Baker expanded into the Japanese and South Korean markets this year, and since mid-August has also opened a store in Beijing – its first in mainland China. The retailer, which operates 28 outlets across Asia and the Middle East, plans to add a second outlet, in Shanghai, in the second half.

Ray Kelvin, founder and chief executive, said the retailer’s expansion plans would depend on suitable opportunities as they arose, and that the group was not following a “formulaic rollout”.

Without the extra costs in the US and Japan, pre-tax profit rose 10.4 per cent to £9.4m. The group has almost 300 outlets worldwide, nearly two-thirds of which are in the UK, selling its branded merchandise through retail stores and department store concessions.

“The pipeline for new stores is healthy, the balance sheet is strong and the record for controlled growth is formidable,” analysts at Espirito Santo said.

So far the economic downturn has not deterred Ted Baker’s core base of fashion-conscious, affluent customers.

Retail sales rose 7.9 per cent across the UK and Europe to £74.7m, while sales in the US rose by more than 50 per cent to $25.6m.

Diluted earnings per share fell 6.4 per cent to 13.2p.

The retailer proposed an interim dividend of 7.9p, up 10.5 per cent.

Shares closed at 921p, up 0.82 per cent.

FT Comment

“Slow fashion” takes on a new meaning with Ted Baker, the brand that prefers a steady-as-she-goes approach to expansion and setting store opening targets, despite its evident popularity. However, maintaining a manageable size will help it in the case of material pressure on consumers globally, especially in the event of a slowdown in Asia.

The retailer, which trades on a consensus forward p/e of about 18 times, lacks comparable peers – being more aspirational than the high street but less so than a fully fledged luxury brand. But with a solid record of dividend growth, the stock remains attractive for investors who, like Ted Baker, play a long game.

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