No Baby Steps for Baby Bunting, Sales up Double Digits Despite COVID-19

Baby Bunting Group Limited (ASX:BBN) is a baby goods retailer and one of the companies enjoying robust trade performance during the corona crisis. In its latest business update, the company reported continuous sales growth.

The latest update by Baby Bunting share price surged on ASX after the company posted its latest update. Morgan Stanley, an American investment firm, continued its Add rating for BBN stocks and increased its target by 39% to AUD 3.33 from AUD 2.39.

The worst period for retailers seems to be over now with more and more retailers reopening their brick and mortar stores with new security guidelines. Would Baby Bunting sail smoothly through this difficult period and continues to perform well in the market?

Baby Bunting stores implementing the government’s safety guidelines

Baby Bunting retail stores remained open throughout the period, while the company incorporated the safety guidelines given by the Federal government. The stores practice social distancing and stringent hygiene measures.

BBN introduced no contact click & collect and telephone assisted shopping service across its stores to offer a choice of shopping any time.

Company's CEO and Managing Director, Matt Spencer said with ease in restrictions more customers are coming to the stores; however, he stated that health and safety of customers and staff is the top priority for the company.

Mr Spencer also stated that their business revolves around supporting new and expectant parents by offering the products and services they need. In Australia, approximately 6,000 babies are born each week and BBN is aware of the significance of providing their services at a time with so many additional challenges for new and expectant parents.

Baby Bunting Reports Double Digit Sales Growth

Image source: company’s announcement

Baby Bunting has released its business performance updates for the second half period (30 December 2019 to 17 May 2020):

• 13.2 per cent growth in total sales.
• 8.1 per cent growth in comparable store sales; and
• online sales were 17.3 per cent of total sales, representing growth of around 66 per cent on the corresponding prior period.

On a year-to-date basis:

• 10.3 per cent growth in total sales.
• 3.4 per cent growth in comparable store sales ; and
• online sales were 14.3 per cent of total sales, representing growth of around 34 per cent on the corresponding prior period.

Online Platform Soar Baby Bunting sales

BBN's online stores continue to perform well all through the pandemic period. The sales grew from 12.4 per cent of all sales before 23 March 2020 to 22.4 per cent of sales through the following two-month period to 17 May 2020.

Online sales soared by 2x on yoy for that period, with the click and collect service well accepted among the customers as close to 42 per cent of all online orders ending up as click and collect transactions at BBN's stores.

Highlighting on the online sales, Mr Spencer stated that during the initial phase when restrictions were strict; the company witnessed robust demand for consumable products of lower margin that include baby wipes and nappies.

As the period progressed, the demand for nursery products increased like cots, furniture, bedding, toys and play gear. The sales of travel-related products such as prams and car seats reduced during the initial restriction phase, but with the restrictions easing, the sales for these products are recovering.

He cited that it is hard to predict the purchasing trends over time and how gross margin will shape up. Furthermore, the costs increased due to the changing business environment. Stores business performance remain mixed, select stores in New South Wales and Victoria and stores in shopping centres have been affected by lower foot traffic.

Business initiatives during the pandemic

• BBN commissioned another online fulfilment hub at Casula (NSW). The long term goal is to deliver 90 per cent of metro online orders the same day.
• Introduced Helping-Hand assisted telephone shopping service for a personalized shopping experience over the phone.
• BBN launched Our Price Promise, if a customer finds a similar product at a lower price on the competitor's list, BBN will reduce the price by 5 per cent.
• BBN is working towards facilitating cross-border sales towards the end of the financial year.

Introduced cost management program in March and April

Anticipating potential future cash flow pressures during the pandemic crisis, BBN made adjustments to its capital expenditure program and introduced a cost management program in March and April.

As pandemic's impact became clearer on financial performance, the company decided to restart the capital expenditure that was paused. The cost is associated with launching new brand across the store network expected to be completed by the end of Q1 FY2021.

BBN to invest more in digital stores

Encouraged by online sales performance during the crisis, Baby Bunting is planning to invest more in online stores in years to come. Even before the onset of a pandemic, investment in the digital medium was a crucial part of the company's investment plan over the last few years.

BBN intends to move from its current Magento 1 e-commerce website to a headless e-commerce architecture in the next 12 months. It will help BBN to deliver top of the line customer engagement through the digital network. For several years, BBN's IT has used integration layer software for handling data interaction, in turn helping the company with agility and ease of development.

The next phase, that is a headless approach to digital, is a carryover of this technology. Due to the change in technical architecture of the e-commerce site, BBN expects its FY20 results to book a non-cash impairment to the carrying value of its investment in digital technologies in the range of AUD 2 million to AUD 3 million.

BBN provides no guidance for FY20 amid the uncertain situation

BBN has already withdrawn its FY20 guidance towards the end of March due to unknown potential impact of great virus crisis (GVC).

As BBN services come in the essential category, the bricks and mortar stores remained open throughout the lockdown phase. However, BBN finds it challenging to anticipate consumer behaviour in the changing retail environment and how it will impact sales, gross margin and the cost of doing business. As a result, Baby Bunting has not released any FY20 guidance. However, it stated that the company's financials remain strong, with around thirty-five million in undrawn debt facilities.

Mr Spencer appreciated the efforts of the team members across BBN stores including Distribution Centre, Customer Care Centre and Store Support Office. They have successfully adapted to new ways of working.

BBN traded at AUD 3.40, with a market cap of AUD 398 million, up by 0.641 per cent on 21 May (AEST:12:42 PM). The stock is up 22 per cent in the past one month.

Baby Bunting comes in the essential category, and the company adapted well to the changing environment. Though the company is not immune to GVC, the sales reports are robust, which shows that the business is least impacted in the challenging environment. Next time you visit one of BBN's store be ready to see social distancing and strict hygiene practices as is the case with other retails that are reopening after the ease of restrictions.