Baby Bunting has gone from high flying rooster in the pandemic and lockdowns to unloved feather-duster after being got at by inflation and the weaker Aussie dollar, in concert with drifting consumer activity.
And that’s not me saying that, it was the judgement on the market on Tuesday when the company lost a quarter of its value in a matter of minutes after the company’s annual meeting heard a detailed and gloomy trading update for the start of the 2022-23 year.
The meeting was told that as a result of “the continuing economic uncertainty, inflationary pressures and other global challenges, we will not be providing any further guidance about FY23 earnings at this time.”
So shareholders will be operating in the dark now, at least leading up to the interim results release next February.
The shares hit a two year low of $2.89 for a drop of 26% before edging back to $3.10 at the close – a loss of 20% on the day.
According to the release, as of last Friday (October 7), Baby Bunting’s sales were up 12% year to date (against 2.1% a year ago when Covid lockdowns were more prevalent). This has been driven by total transaction growth of 15.2%, comparable store sales growth of 7.6% (-0.9% a year ago), and online sales growth of 19.6% (down from a growth rate of 28.6% a year ago).
This all left the company with a first quarter, gross profit margin 37.2%, which is down 230 basis points against the first quarter of 2021-22.
That in turn led to first quarter net profit after tax falling $3 million year over year despite the 12% top line sales growth.
Baby Bunting’s CEO Matt Spencer explained that this has been driven by the company’s decision to compete with rivals on pricing despite rising inflation.
“In Q1 FY23, we expected a minor year-on-year reduction in gross margin as a result of the Loyalty program only commencing in November 2021 plus more products moving to Every Day Low Price.
“The amount of the actual reduction has been greater than anticipated.
“In tougher economic times, we continue to emphasise value in a competitive environment. We have maintained entry price points across our range ensuring great value every day, every visit.
“During the quarter, we have seen some competitors discounting top selling items to drive sales.
“Our 5% Price Promise is a key part of our response to this and it means we will not be beaten on price,” Mr Spencer said in Tuesday’s statement to the AGM.
The company said that in addition, unrecovered cost increases, soft demand for play gear, and loyalty program redemptions weighed on its margin.
“This has primarily been in the form of higher domestic freight charges and some FX movements.”
The company said its inventory levels “are well-controlled “and it says it has plans in place to address the first half impacts to recover earnings over the full year.
Despite the profit pressures, Baby Bunting is still expanding.
“We anticipate opening 8 new stores in the year. We have plans for 6 new stores in Australia, which includes the new stores already opened at Burnside in Melbourne and Hornsby in Sydney.
“We have also recently relocated our Ringwood store to a new, more convenient location at Eastland. In New Zealand, in addition to our new store at Albany, Auckland we expect to open a store in Christchurch later in the year,” Mr Spencer confidently told the meeting.
