The Ted Baker (LSE: TED) stock is a seriously big gainer today. It is up 10% as I write on Wednesday afternoon. No prizes for guessing why, though. The beaten down fashion retailer released its trading update for the 12 weeks up to 29 January today. And it is clear that the share price increase is a reaction to that. An increase on a single day, however, does not automatically mean that the rise will be sustained. It could be. But after observing day to day changes in stock prices over the years, I am not holding my breath.
Ted Baker’s sales grow
Still, it is worth figuring out whether the UK stock can finally find a firm footing now. As far as positives go, the company’s sales rose by a healthy 35% during the quarter, compared to the same time last year. It also reported an improvement in trading margins over the the year, which I think might just be the highlight of the report. Also, it was net cash positive at the end of 2021.
The company is also showing encouraging on-the-ground trends. Products like bags, footwear, and tops from its new collections are reported to have shown strong sales. It is expanding in the UK as well, expecting to open three new stores each year for the next three years. The company has extended its home and bedding product license to North America.
What’s the downside to the UK stock?
This could be a positive for the stock going forward, however, I think it is important to look at the downside as well. The Ted Baker share price is still a little below where it was at the same time last year. And it is also still way below its pre-pandemic levels. This was probably to be expected considering that for the last two years, the company has reported both declining revenues and has been loss-making too. Considering that its financial year runs from February to January, its 2020 losses cannot be explained by the coronavirus, which turned into a full-fledged pandemic only by March. In other words, the company’s troubles are more fundamental than that.
Encouraging signs for the Ted Baker share price
It is encouraging to see that it is now in better financial health. As a consumer, I actually quite like Ted Baker products, and see potential from it purely from that perspective. But it is hard to look away from the fact that it has been struggling in recent years. Still, I think there is room for optimism here. Economic recovery is a good time for cyclical stocks like fashion brands. And considering its premium positioning, like in the case of the FTSE 100 retailer Burberry, consumers are less likely to be concerned with small changes in price.
What I’d do
So would I buy it? If I were feeling speculative, I would make a small investment in it because if it does manage to pull itself together, the stock could reap me some big gains. At the same time, if I only wanted to exercise caution, I would much rather go for safer stocks like its FTSE 100 peer, Burberry.
Manika Premsingh owns Burberry. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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