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Key Points:
- Baby Bunting reported a 40.3% gross profit margin in Q1 FY25, an increase of 240 basis points.
- The company opened a new store in Maroochydore, now operating 75 stores across Australia and New Zealand.
- FY25 pro forma NPAT is forecasted to be between $9.5 million and $12.5 million.
Baby Bunting (ASX:BBN), a leading retailer in baby goods, provided a promising trading and strategy update at its Annual General Meeting (AGM) today, driving an uptick in its stock price by 2.25%. The update highlighted the company’s strong start to the 2025 fiscal year, solid sales growth, enhanced profit margins, and strategic initiatives that are positioning the retailer for future expansion.
Q1 FY25 Trading Performance
Baby Bunting's trading update showcased a robust first quarter performance in fiscal year 2025 (Q1 FY25). The company reported a gross profit margin of 40.3%, representing a notable improvement of 240 basis points compared to the prior corresponding period (PCP) of 37.9%. This improvement places the retailer well on track to meet its FY25 margin targets. In terms of sales growth, Baby Bunting experienced a 2.4% increase in total year-to-date sales and a modest 0.6% growth in comparable store sales as of October 13, 2024. The company's performance momentum is underpinned by a revised go-to-market strategy, which has been instrumental in driving these gains.
Key product categories also contributed to Baby Bunting's success, with strong innovations in its product range bolstering sales in high-performing subcategories. Additionally, Baby Bunting’s net debt stood at $21 million by the end of Q1, which aligned with the company’s plan. The increase in inventory ahead of the key Q2 trade period was a significant factor behind this level of debt, reflecting normal working capital cycles.
Strategic Initiatives
Baby Bunting's strategy update detailed several initiatives aimed at enhancing profitability and ensuring continued growth. A major focus has been the renegotiation of supplier terms in both Australia and New Zealand, which has resulted in significant and sustained improvements in gross margins. This ongoing program of renegotiating trading terms is expected to continue driving positive results in the near future.
Furthermore, Baby Bunting's exclusive brand partnerships have opened up new revenue streams for the company, and discussions are underway to secure additional exclusive brand arrangements. The company is also expanding its physical retail presence, with the recent opening of a new store in Maroochydore, Queensland, in August 2024. With this addition, Baby Bunting now operates 75 stores across Australia and New Zealand. Plans are already in motion for a new store design, which is expected to open on time in the third quarter of FY25.
Outlook for FY25
Baby Bunting's outlook for the remainder of FY25 remains positive. The company has maintained its earnings guidance, expecting a pro forma net profit after tax (NPAT) in the range of $9.5 million to $12.5 million. This forecast is based on several key expectations: comparable store sales growth between 0% and 3%, a gross margin of 40%, and increases in the cost of doing business due to new and annualizing store costs, wage inflation of 3.75%, and additional roles and marketing expenses to support the execution of its strategy.
In terms of capital expenditure, Baby Bunting anticipates spending between $10 million and $13 million during FY25, which will be fully funded through operating cash flow. The company’s outlook also assumes no significant changes in the broader economic environment or retail trading conditions, as well as stable sea freight expenses.
