Baby Bunting declares turnaround under way after consumer cutbacks hit latest full-year earnings

The specialty infant and nursery retailer has posted a $1.7 million net profit after tax for the year to June 30, down 82.8 per cent from $9.9 million in FY23.

The result was triggered by a 4.9 per cent slide in revenue to $498.4 million despite Baby Bunting opening four new stores during the year, three of them in New Zealand. The year also saw the closure of its Camperdown store in the fourth quarter due to a lease expiring.

Comparable store sales slumped 6.3 per cent, which the group says reflects the challenging trading conditions and cost-of-living pressures faced by consumers.

Baby Bunting’s preferred measure of business performance is the pro forma result which strips out a number of costs such as restructuring costs and employee equity incentive expenses.

Pro forma net profit is reported to be $3.7 million, down 74.7 per cent, which CEO Mark Teperson says is in line with forecasts of between $2 million and $4 million announced in June.

Gross profit of $183.7 million was down 4.8 per cent on FY23 as profit margins weakened.

Baby Bunting says it is addressing its declining margins by pursuing a “simplification of pricing architecture, renegotiation of trading terms with suppliers and elevating exclusive brand partnerships in our range offer”.

Despite the weak performance in FY24, Baby Bunting reports an “improvement in sales trajectory” in the first seven weeks of FY25 which has been supported by changes in the go-to-market strategy.

Baby Bunting says sales so far in FY25 are up 3.5 per cent and same-store growth is up 2 per cent.

“While it is still early days, it is pleasing to see the implementation of the strategic growth initiatives that we announced as part of our Investor Day in June 2024 starting to deliver positive momentum in our trading and financial performance,” says Teperson.

“Of note has been the improvement in trajectory of our comparable store sales since May, reflecting the change in our go-to-market strategy and the 180-basis points improvement in our gross profit margin achieved in July 2024 following simplification of elements of our pricing structure.”

Among the changes implemented by Baby Bunting to boost its performance are the introduction of new product assortments, a renewed focus on new customer acquisition, the introduction of a refreshed promotional engagement and a proactive branding and go-to-market campaign.

“We remain focused on continuing to implement our strategy and maintaining the positive momentum achieved over the past three months,” says Teperson.

“Our key priorities for the rest of the financial year are completion of trading terms renegotiations with our key suppliers, which is progressing well, redesign of our store format due to be launched in market end of Q3, the phased roll-out of new stores and refurbishments in 2H FY25 and continuing the progress we have made to date on range innovation and exclusive brand offerings.”

Supporting its growth plans, Baby Bunting has announced the renewal of a $70 million debt facility with National Australia Bank (ASX: NAB) for three years until September 2027.

Baby Bunting is targeting a sharply improved performance in FY25, although it does place several caveats on this forecast.

The group expects FY25 pro forma net profit after tax to range from $9.5 million to $12.5 million, assuming comparable store sales growth of flat to 3 per cent and a full-year gross profit margin of 40 per cent.

“This outlook assumes no significant changes in economic and retail conditions, and no significant increases in sea freight expense,” says the company.

Teperson points out the positives for the company including Baby Bunting’s “85 per cent unaided brand awareness rate with over 800,000 active loyalty customers generating over 90 per cent of our sales”.

“We operate in a large addressable market with enormous potential to grow our share in the $3.4 billion soft goods market where we are currently underrepresented with around a 3 per cent market share,” he says.

“We have hit the ground running in implementing the strategy we announced in June which is designed to deliver sustainable top line revenue growth, enhance our gross margins, fund our strategic growth from operating cashflows and create shareholder value.

“We are making good progress in implementing our strategy and it is pleasing to see our initiatives already delivering demonstrable improvement in our performance.”

Baby Bunting’s shares were trading at $1.69, up 16.5c, at 10.23am (AEST).