Financial Analysis of Ted Baker

Topics: Financial ratios, Dividend yield, P/E ratio Pages: 12 (2356 words) Published: December 3, 2013
 REPORT

ToMr. D.G. Farmer
Froman analyst working for Devon Fund Managers (DFM)
Date15 / 03 / 2013

Devon Fund Managers
A regular report that analyses
industry and performance of
Ted Baker plc. based on the
Ted Baker Annual Report 2011-12.

Executive Summary
This report is going to analyse and evaluate the Ted Baker plc. by providing the most important ratios of the company and interpretations to them. Furthermore, it is going to recommend to hold shares of this company to existing shareholders and also recommend potential investors to purchase the shares of Ted Baker plc. since the return of the company is expected to be high in the nearest future.

1. Introduction
This report is going to analyse the apparel-textile industry and company performance of Ted Baker plc. by using financial analysis. It will also provide useful recommendations for users about investing in the company.

1.1 Industrial characteristics

Ted Baker plc. operates in apparel-textile industry. This kind of industry is famous for designing and selling accessorizes and clothing[1]. Apparel industry consists of wholesalers and retailers. Since retail stores can sell their own merchandise in retail, they are more profitable but also highly risky[2]. Moreover, sales revenue in this industry, especially in retails, tends to be highly seasonal. Sales are usually being maximised during holidays and at the beginning of school periods[2].

1.2 Industry averages and competitors
Textile-apparel industry has an average market capitalisation of 12B, which shows the average total estimated number of issued shares in companies of this industry[3]. Net profit margin of 6.5% is a measure of profitability as well as, shows pricing strategy and how the companies within Apparel store manage their costs. Additionally, dividend yield in this industry is only 1.1%, which illustrates the rate of return on investment. P/E ratio in this industry is 22.0[3] (refer to Appendices 2). In apparel-clothing sector,Burberry Group plc. ranks first for market capitalization. [3], but it might not be a main competitor of Ted Baker, because of a different style and a price. The main competitors of Ted Baker are Paul Smith, Levi’s, Gap, Reiss and so on.

1.3 About the Company
Ted Baker plc. is a British and world leading clothing brand that operates mainly on three channels: wholesale(45.1%), retail(46.6%) and licensing(8.1%)[4]. Beginning from 1988 in Glasgow, they offer two collections per year, which include products such as: menswear, womenswear, accessories, footwear, born by Ted Baker, watches and etc.[4]. Ted Baker is a listed company in London Stock Exchange(LSE:TED) and share price today is 1243.0p (13-03-2013 at 16:47) [5].

1.4 Press media and future strategies
According to The Independent (2012), company beats its profit target by overseas expansion such as a new store in Beijing[6]. Its founder and chief executive Ray Kelvin said that despite of the uncertainty in trading sector, company has made a great start to 2012 with a 16% boost in sales[8]. Ray Kelvin recently spoke to media by emphasising that their future plan is to make Ted Baker a global business by opening more stores in Asia and Latin America. Another future prospect is reducing taxation and costs[7][1].

2. Financial Analysis of Ted Baker

2.1 Horizontal or Trend Analysis

Table1[1] (Workings in Appendices 1)

Table 1 shows a horizontal analysis drawn about Ted Baker, which shows percentage changes in the elements of Income Statement. It is an effective way of tracking long-term trends. From 2011 to 2012, there is 20% change in revenue, however after deducting costs and expenses this has fallen to 1.6% as profit for the year. In details, there is a critical change in cost of sales, distribution costs and administrative expenses. As mentioned in part 1.4, company has expanded its outlets and production in...

Bibliography: 1. Annual Report 2011/12. (2012). Ted Baker London. Ted 's Passport to Success. 2012 (1), (Hard Copy)
2
3. Yahoo Finance. (2013). INDUSTRY CENTER - TEXTILE - APPAREL CLOTHING. Available: http://biz.yahoo.com/ic/320.html . Last accessed 09th MAR 2013.
4. Ted Baker Official Website. (2013). About us. Available: http://www.tedbaker.com/about_us/content.aspx . Last accessed 14th MAR 2013.
5. London Stock Exchange-LSE:TED. (2013). Ted Baker Plc.. Available: http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary.html?fourWayKey=GB0001048619GBGBXSTMM . Last accessed 13rd MAR 2013 at 16:47.
6. The Independent-Business news. (2012). Smart Ted Baker beats profit targets. Available: http://www.independent.co.uk/news/business/news/smart-ted-baker-beats-profit-targets-8198352.html . Last accessed 10th MAR 2013.
7. Retail Week News. (2012). Q&A: Ted Baker chief executive Ray Kelvin.Available: http://www.retail-week.com/sectors/fashion/qa-ted-baker-chief-executive-ray-kelvin/5041478.article . Last accessed 10th MAR 2013.
8. BBC News. (2012). Ted Baker 's sales boosted by overseas growth. Available: http://www.bbc.co.uk/news/business-18406260 . Last accessed 9th MAR 2013.
9. Annual Report 2010/11.(2011).Ted Baker London. Ted 's Material World.(1), 1-77.Available at:http://www.palgrave.com/business/collis/ba2/students/TedBakerAnnualReport2010-11.pdf
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12. Barry E. and Jamie E. (2008). Financial Accounting and Reporting. 12th ed. Essex. England: Pearson Education Limited. 259-748.
13. Richard B. (2008). Financial Ratios: How To Use Financial Ratios To Maximise Value and Success For Your Business. Oxford, UK: CIMA Publishing. 33-131.
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