The Baby Bunting Group Ltd (ASX: BBN) share price has suffered a sizeable fall after its FY24 first half update.
Baby Bunting is the largest retailer of baby products in Australia.
FY24 first half update
The retailer reported that it’s expecting to reveal in the first half of FY24 it generated $248.5 million of sales, down 2.5% year on year. However, its gross profit margin was 37.2%, which was flat compared to the first half of FY23.
Its sales performance improved in the second quarter compared to the first quarter of FY24. Q1 total sales were down 3.3%, with a comparable store sales decline of 8.8%. Q2 total sales were only down 1.8%, with a comparable store sales decrease of 5.3%.
Pro forma, or underlying, net profit after tax (NPAT) was down 31.3% to $3.5 million. Statutory net profit was only down by 1% to $2.7 million.
Baby Bunting acknowledged that it is a more competitive pricing environment. It has increased its volume in both categories, but it thinks it has seen a sales impact of around $6 million because of increased price competition.
What are the positives?
The company said that while conditions remain “challenging”, it’s beginning to see improvements in operations and performance from changes it has introduced into the business reflecting its focus on trade, productivity and customer experience. It thinks changes made to date will “continue to deliver a trend of improved performance in the second half.”
Baby Bunting also said it won more customers in the second quarter thanks to its marketing and social media, which has been a “key driver in sales impacts”. It has also focused on expanding its onmi-channel fulfilment and building momentum in New Zealand.
The retailer said over the last nine weeks, its comparable store sales have been “positive” with 1% sales growth and “positive transactional growth in consumer staple categories negating the price compression experienced in some categories.”
Baby Bunting said its expenses remain “well managed”. The FY24 first half saw a decrease of its net overheads of around $3 million. Marketing cost reductions from the elimination of catalogues have been reinvested in digital and social marketing.
Final thoughts on the Baby Bunting share price
It’s a lot cheaper, but profit has reduced significantly as well. Can it regain its margins, or is this the new operating environment for Baby Bunting? I’m not sure. Management seem hopeful a turnaround is coming, so the stock could be a contrarian opportunity, but it’s not very attractive to me because of how easy it is for competitors to come along and reduce margins.
