New parents want nothing but the best for their kid, and baby product companies make sure to capitalise on that sentiment. Usually, no price tag can deter a new parent. But with the ongoing pressure on people’s household incomes, the tag becomes a sour spot, urging them to look for affordable ways to ensure their kid’s well-being.

That’s why, now, not only parents but companies, too, are feeling the squeeze as baby products company Baby Bunting (ASX: BBN) reports a profit decline of over 50% to $14.5 million in FY23, and its comparable store sales fall by 3.6%. Its earnings also declined by 38.2% to $31.2 million.

Acknowledging the decline, Baby Bunting’s Acting CEO, Darin Hoekman said, “While our category is less discretionary, our customers are not immune to cost-of-living pressures and we experienced sales decline towards the end of the year as consumer spending slowed.”

Baby Bunting’s costs of doing business were up $16.5 million, with the key contributors being new stores, cost inflation (including wage inflation) and one-off establishment costs associated with the marketplace and launching in New Zealand. Plus, its net debt shot up from $700k in FY22 to $6.2 million in FY23. 

Even so, its gross profit margin was 37.4%, witnessing improvements through the second half. This improvement was driven by the significant reduction in international shipping rates, domestic freight efficiencies, new product ranges and changes to the loyalty program introduced towards the end of the first half.

Hoekman added that the Company has made some changes at the business level for cost management. He expounded, “We are holding the right levels of inventory with minimal seasonal and clearance stock. Our net debt is modest and we have plenty of headroom in our banking facility. We have taken steps in July to reduce overheads and to manage cost inflation in stores and in our supply chain.”

In June, the Company launched the Baby Bunting Marketplace, enabling third-party sellers to offer a curated range of products on its website. With 5,000 SKUs currently and a target of 20,000 SKUs from 150 retail partners by FY24, the marketplace offers a broader range of baby, kids, and related products, serving as an avenue for revenue diversification.

Plus, it’s making some strides in New Zealand. The initial store in Albany, Auckland, which started operating in August 2022, has now achieved annual sales of about $4.5 million and has shown positive earnings in the latter part of the year. In FY24, the plan is to open three new stores: Sylvia Park and Manukau in Auckland to expand the presence there, and a store in Christchurch.

Baby Bunting has pinpointed several actions to make its operations simpler and reduce costs by about $6 million to $8 million in the Group’s current cost structure for FY24.

That said, its outlook for FY24 is still riddled with concerns, as the ongoing economic uncertainty shows no signs of abating. Though Hoekman feels that Baby Bunting has products at entry-level pricing and can help parents save money, it’s upto parents to determine if his words hold tangible weight.