Ted Baker PLC (LON:TED) shares dropped on Thursday as Jefferies downgraded the stock following a warning from the retailer about challenging trading conditions.
In a trading statement last week, Ted Baker’s chief executive Ray Kelvin gave a cautious outlook as retailers struggle in the face of higher cost inflation, weaker consumer confidence and the shift to online shopping.
“We anticipate that external trading conditions will remain challenging across many of our global markets,” he said.
He also said the recent unseasonal weather across Europe and East Coast of America has had an impact on the early part of trading for Spring/Summer.
The FTSE 250-listed firm saw its pre-tax profit increase by 12.3% to £68.8mln in the year to January 27, 2018, as its revenue rose by 11.4% to £591.7mln.
READ: Ted Baker warns on challenging global trading conditions as annual profits rise
Jefferies lowered its rating on the stock to ‘hold’ from ‘buy’ and cut its target price to 2,700p from 3,000p.
“We believe Ted’s strategy to moderate growth in a tough environment is the right thing to do to protect the long-term strength of the brand,” the analyst said.
“However, with top line growth pared back and our 3-year pre-tax growth expectations reduced from 16% to 13%, we lower our target multiple to 17x calendar year 2019 price to earnings ratio and downgrade to hold; price target 2,700p.”
Shares fell 2.8% to 2,539p in late morning trading.
Jefferies said given the unseasonal weather in the US and Europe and management's cautious guidance, it believes the “historical sales momentum underpinning the equity story will prove more elusive in the near term”.
Jefferies lowers profit forecast
Following three years of 15% sales growth, Jefferies expects a slowdown to 9% in fiscal year 2019. This brings the broker’s pre-tax profit forecast down to £81.5mln from £85mln previously, implying a 11% increase on the previous year.
Risks include significant weakening in UK consumer spending, execution in international markets and weather driven promotions by peers, Jefferies said.
The broker said it believes Ted’s “unique quirkiness, quality offering at affordable prices and meaningful international growth prospects remain attractive features”. However, it moves to a ‘hold’ rating as it awaits more indications that could support a re-acceleration of the company’s growth momentum.