What’s weighing on Baby Bunting (ASX:BBN) share price?

Highlights:

• Baby Bunting (ASX:BBN) released a company update through the ASX today (11 October 2022).
• Its gross profit margin dropped during the first quarter of financial year 2023 (FY23).
• The company has not shared any update on FY23 earnings.

The share price of Baby Bunting Group Limited (ASX:BBN) has been falling today (11 October 2022), being quoted at AU$3.06 per share at 12:30 PM AEDT, down by 21.67%. On a year-to-date (YTD) basis, it has lost 45.80%, and it has reported a fall of 37.78% in the past six months.

The benchmark ASX 200 Consumer Discretionary (INDEXASX:XDJ) index lost 6.60 points, landing at 2688.90 points (at 1:19 PM AEDT). Noteworthy here is that the XDJ was in green till 12:50 PM AEDT.

Why are Baby Bunting shares sinking on the ASX?

Today, Baby Bunting released an ASX announcement sharing the following trading updates (as on 7 October, YTD):

• Total transactions grew by 15.2%.
• Total sales increased by 12%.
• Comparable store sales grew by 7.6%.

During the first quarter of financial year 2023 (FY23), the gross profit margin of the company dropped 230 bps over the previous period.

The fall in gross profit margins could be the reason for the substantial fall in Baby Bunting's share price. 

Matt Spencer, CEO and managing director at Baby Bunting, commented on the trading update:

Reasons behind fall in quarterly gross margin performance

According to the ASX announcement, the margin performance in the first quarter of FY23 was driven by the following factors:

• The company maintained entry points across its range during the challenging economic times.
• The loyalty program begun in November 2021 resulted in higher redemption than expected.
• Competitors' pricing affected the top-selling items.
• Input costs increased at a greater pace than retail prices, because of FX movements and increased domestic freight charges.
• The playgear department severely impacted the gross margin, by almost AU$1 million, compared with the previous year.

Operating priorities for FY23

Baby Bunting aims to grow in these uncertain times by pursuing market share growth, restoring the gross profit margin, progressing the transformation project, expanding its online range, launching the Baby Bunting marketplace, expanding its Every Day Low Price program, and harnessing the benefits that will be generated by the new loyalty program.

The company expects to open eight new stores in FY23, six of them in Australia.

Baby Bunting has said,