Ted Baker unjustly dragged down

The designer brand reported total retail sales up 15.4 per cent for the 19 weeks to June 7 and selling space having increased by 13.6 per cent. This implies average sales density growth (what others might call like-for-likes) slowing to an increase of 1.5 per cent after 19 weeks.

When you compare this with the tough comparatives last year and the worsening state of consumer spending then it is a decent performance. Certainly the brokers thought so with Investec and Landsbanki re-iterating their 'Buy' recommendations.

The argument in favour of Ted Baker is that it still represents a good growth story - both in the UK and overseas - and what makes it particularly attractive to investors is its valuation, which has been dragged down with the rest of the retail sector. In fact it has been pulled back to the point that its PE is now at a 10 per cent discount to the sector.

This is a result of its shares having fallen to 404p, which is close to their 12-month low of 394p that they reached in early June. This puts them some way off their peak of 620.5p back in July 2007.

This seems somewhat unjustified for a company that has continued to manage its brand with the utmost care. Yes, it has continued to expand (with its increase in square footage accelerating) but this has resulted in no loss of control as all its brand values have been assiduously kept intact. This stems right back to day one when founder and chief executive Ray Kelvin first introduced 'Ted' to the British public.

Latterly the company has been introducing Ted to different parts of the market. It has developed a standalone store dedicated to womenswear, with the second outlet recently opening in central London, and there has been the launch of the first 'Ted Baker & Friends' store that was also the group's maiden outlet in the City of London.

Evidence of how it has a strong handle on its brand came with the statement from Kelvin about the group's wholesale business where sales have been erratic to say the least. Turnover declined by 8.6 per cent after 19 weeks, which was an improvement on the 21.6 per cent fall experienced during the first seven weeks of this period.

He indicated that with conditions anticipated to remain challenging for some of the company's wholesale customers Ted Baker would therefore continue to "take action in respect of those customers who are no longer appropriate for our brand". No messing about there it seems.

As well as the brand continuing to retain a certain level of edginess there have been arguments put forward that its younger core audience will give the company some defensive qualities as they are relatively less exposed to the housing market and personal debt.

Whether this proves to be the case for the duration of the downturn or if Ted Baker will ultimately also get caught remains to be seen, but at its current valuation this is probably already (to some extent) factored into the share price. This suggests that there might well be more upside than downside to the company at this stage for investors who are rightly nervous about gaining any exposure to the retail sector.