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Can Ted Baker beat analysts poor expectations?

With market forecasts indicating a tough year, what can we expect from Ted Baker’s full-year earnings?

When does Ted Baker report earnings?

Ted Baker PLC (TED LN) full-year (FY) earnings are finally due to be published on 10 June 2021. The announcement was delayed two weeks because of the disruption caused by Covid-19.

What to expect

Market forecasts suggest the group will confirm it had a tough year. Covid-19 aside, Ted Baker was already trying to re-establish its purpose as a bricks-and-mortar retailer, being undercut by high street competitors and online sales of other businesses that have proved to be more nimble.

Analysts are expecting it to report an operating loss of £65.2 million on revenues that have halved during the lockdown restrictions. The enforced closure of bricks-and-mortar stores and the group’s focus on occasion wear and formal clothing had a particular heavy toll on its trading last year.

Downturn in crucial festive season sales

Retail sales nearly halved in its crucial Christmas trading quarter, falling 47 per cent in the 13 weeks to 30 January as lockdowns and restrictions hit trading. Casual wear is usually a good retail sub-sector to be exposed to at the end of the year with both Christmas and new year parties, but Christmas 2020 was one of the worst on record for many retailers and in particular the casual clothing area.

Because of all this the company has shed 950 staff, around a quarter of its workforce.

Brexit effect

Leading up to the end of the Brexit transition, on 1 January 2021, Ted Baker had already said that the company would take a hit. In the event, the warning that it may cost the business £16 million, it was not as bad as expected. At its interim results the retailer said that ‘following the trade agreement between the UK and European Union (EU) signed in late December 2020, the Group anticipates up to £5 million of incremental costs associated with Brexit, reflecting extra duty and shipping costs partially offset by a new customs warehouse capability.’

Lending extended

The last year has been such a difficult time for the busines it announced, on 27 May, that it had signed a £108 million extension to its revolving credit facility (RCF) with its existing lending syndicate. The new agreement extends the revolving credit facility maturity to November 2023 and amends the covenants to be more flexible on earnings before interest, tax, depreciation and amortisation (EBITDA).

Ted Baker said that this, with its strong net cash position of £66.7 million at the end of the financial year 30 January 2021, ensures the Group has the necessary cash and liquidity to continue the successful delivery of its transformation plan.

Online

The seismic shift in retailing during the Covid-19 lockdowns is only part of the story. It could be said that Ted Baker had already failed to take advantage in the online opportunity and when the pandemic hit it was grappling around trying to make up ground to establish an online presence. To this end traders should be on the lookout for an update to see just what has been done to push forward into the online opportunity.

Ted Baker share price: trading the numbers

Knowing the FY numbers are going to be a tough read, the toughest in the company’s 33 year history, since it was founded as a specialist shirt retailer in Glasgow by Ray Kelvin, one has only to look at the long-term chart.

On chart one, the current price can be seen down below the levels just in the wake of the great financial crisis. Back then Ted Baker was just beginning its big run, all the way up to £36.49 a share as it competed head on with the mighty Marks & Spencer and Next. However, management turbulence and a lack of direction, especially online, has seen it lose 95% of its value in recent years.

The next move?

Depending on what the results look like will clearly depend on where the share price goes next. As explained above, if the current chief executive officer (CEO), Rachel Osborne, outlines a big initiative online and stirs originality within the clothing retail space, the upside potential looks good, but give the uncertainly the future continues to look bleak.

As at the time of writing the UK government appears to be willing to be persuaded whether the 21 June exit from lockdown is a good idea and Ted Baker, along with the entire retail space is desperate for clarity, something the pandemic cannot endorse.

As always there are two ways to look at the potential outcome of any earnings release.

The writer is leaning towards the belief that Ted Baker management will undershoot expectations. This, combined with the company likely to highlight that the tough times will continue because lack of clarity on the pandemic front, could have a downward effect on price action. The big question is where the day trader should place a stop-loss.

Using chart two, with a short position at 174p the price target is the near-term support at 158p. The stop loss should be placed above recent price action, however the main line of resistance is 217p is too far away. Instead the £2.00 level, being a big round number, may be a better point to use, suggesting the stop goes at around 205p.

There is one other point of interest on this chart, the trend-following momentum indicator, moving average convergence divergence (MACD). The last time the MACD line (the solid blue indicator) was last at current levels price action was well-below where it is now, at 121p.

If you believe that shares have been beaten up too much, and the FY earnings will provide upside surprise, a long trade would be accompanied by a stop-loss below recent price action around 155p.

Earnings are due at 7am on Thursday 10 June.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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