As U.K. retail sales surged in October surprising many, analysts say that retailer Ted Baker (TBAKF) could be the stock to watch.
Retail sales in Britain saw the biggest monthly growth in more than 10 years, despite Brexit uncertainties, according to Thursday's data from the Office for National Statistics
Sales in October were up 1.9% from a September reading of 0.1%, the ONS said, far outpacing the 0.4% consensus estimate and the highest rate of growth since April 2002. The largest contributor to the sales growth was clothing and footwear, the ONS said.
The FTSE 250-listed self-proclaimed "global lifestyle brand" Ted Baker reported a 14.8% increase in group revenue for the 13 weeks ending November 12 earlier Thursday, saying its sales increased by 15.4% in a difficult trading environment including a fall in tourism in North America and terrorist attacks in Europe.
The London-based retailer also saw an increase of 30.3% in online sales, while wholesale sales were up 13.2%.
Ted Baker is however seeing currency headwinds, with retail sales up 6.7% in constant currency and online constant currency sales up 25.9% thanks in part to the pound's 2.325% decline against the U.S dollar in the company's reporting period.
"The group's full-year results will, as always, be dependent on trading conditions over the important Christmas period," founder and CEO Ray Kelvin said in a statement.
Ted Baker Stock rose 3% to £25.67 in London, paring its year-to-date loss to just under 15% since the beginning of the year. It has also lagged gains for the broader FTSE 350 retail index, which has risen 5.09% in the past three months against a 2.68% gain for Ted Baker shares.
Analysts, however, seemed positive on the results.
Liberum analysts in a note Thursday said that Ted Baker remains one of its "preferred plays in the sector with sustainable long-term growth driven by a strong brand and complementary multi-channel growth across retail, wholesale, licensing and online."
They have a buy rating on the stock with a target price of 3100 pence. Stocks with a primary listing on the London Stock Exchange, like Ted Baker, are priced in British pounds.
Jefferies analysts said in a note to clients today that Ted Baker's resilience despite challenging market conditions was reassuring. They predict Ted Baker needs to deliver sales of 19% during the festive season to achieve full year sales growth of 16%.
The analysts said, "We remain cautious on the U.K. consumer given the risk of weakening real disposable income growth on the back of inflationary pressures. Nevertheless, we believe Ted Baker's brand strength, unique and diversified business model, as well as proven track record and management team will navigate the brand in volatile market conditions.
Liberum also said Zara-owner Inditex was a good play due to high full-price sales and its speed in getting new designs to market.
Inditex (IDEXY) shares gained 1.22% to €31.44 in Spain. The stock has lost just 0.79% since the start of the year.