Baby Bunting fights back from retail downturn with 5-year strategy, includes Gen-Z focus and self-funded growth

Australia sees about 300,000 births every year, creating a fertile ground for businesses like Baby Bunting (ASX: BBN) to thrive, but that hasn’t been the case in recent months as sales have reflected a big pullback in spending amid cost-of-living pressures on young families and online competition from the likes of Temu and Shein. 

From May 1, 2024, to June 24, 2024, Baby Bunting reported a minimal 1% increase in total sales compared to the prior corresponding period. Though comparable store sales for this period were down 0.7% versus the previous year, this marks an improvement from the January to April period, which saw a decline of 7.7%. 

The Company credits this positive shift to new product assortments, a renewed focus on customer acquisition, refreshed promotional engagement, and a proactive branding and go-to-market campaign.

Baby Bunting’s CEO, Mark Teperson, said, “While it is still early days, it is pleasing to see the impact of some of our strategic initiatives on our comparable sales performance over the past eight weeks. We have today in a separate announcement to the ASX released details of our five-year strategy, which is designed to stabilise and optimise our existing business and provide the blueprint for delivering future growth and over 10% EBITDA margin.” 

Baby Bunting’s five-year strategy includes strengthening its market position in nursery essentials, capitalising on opportunities in the soft goods market, and growing gross margins through focused media and marketing strategies. The Company also plans to optimise its property strategy by rolling out over 40 new stores in identified catchments and refreshing older formats.

Finally, in a bid to enable self-funded growth, it has taken a disciplined review of Cost of Doing Business and is leveraging customer data to provide a renewed and targeted retail experience.

Teperson added, “We are making good progress in implementing the first phase of our strategic initiatives, including the introduction of a program of work to simplify our pricing strategy, renegotiating supplier trading terms, and enabling online fulfilment through all stores which is strengthening our operating leverage and inventory utilisation. We’ve also been focused on expanding our newly established New Zealand team to drive growth in that market.”

In FY25, Baby Bunting’s capital investment program includes commitments for large format store openings, refurbishments of existing stores, and the introduction of small format stores. Additionally, it plans to invest $10 million to $13 million in digital architecture, funded from operating cash flow. The Company aims for a 40% gross margin in FY25, with further expansion targeted in future years.

The General Store, one of Australia’s leading brand and store design agencies, has been appointed to undertake a brand and store redesign. Final store design plans are expected by the end of Q2 FY25, with the first refurbished stores expected in the market by Q3 FY25.

Teperson also highlighted the importance of Generation Z as Baby Bunting’s core customer base in the next five years, indicating a strategic focus on this demographic to drive future growth.

The Australian nursery retailer has rolled over its existing $70 million National Australia Bank (NAB) facility, maintaining the same pricing terms. The Company has also reaffirmed its full-year 2024 (FY24) pro forma net profit after tax guidance range of $2 million to $4 million.