Once the little angels that lit up young family households, it seems that even our littl’ist bubbas are flying with a pair of low-cost wings as Australia’s cost-of-living pressures have flowed down to our smallest residents, evidenced by a lacklustre half year reported by Baby Bunting (ASX: BBN).
For the Half Year ended 31 December 2023, Baby Bunting reported $248.5 million in revenue which represented a 2.5% decrease on the previous year. More notably, comparable store sales were down 7%, despite H1 FY24 seemingly being a friendlier economic environment with interest rates stagnating, instead of rising.
While statutory net profit after tax (NPAT) saw a marginal decline of 1% compared to last year, pro forma NPAT experienced a more substantial decrease of 31.3%.
CEO Mark Teperson emphasised the Company’s commitment to enhancing customer acquisition, inventory management, and cost control measures to mitigate the impact of these challenges.
“In the face of challenging economic conditions continuing, our focus on customers has led to an improvement in new customer acquisition over the half, a disciplined approach to inventory management, and cost control which delivered a significant year-on-year improvement on operating cashflow.
“Trading has tended to be softer outside promotional periods with our customers more attracted to key promotional events during the year, such as the Boxing Day promotion, while the Black Friday promotion was our largest ever.”
Despite Baby Bunting’s resilience in maintaining a gross profit margin of 37.2%, in line with the previous year, cost of living pressures and competitive pricing on national brands have presented obstacles to margin enhancement. Additionally, targeted inventory clearance exerted a downward pressure on margins as the retailer resorted to greater discounting than previous years.
The cost of doing business rose to 32.9% of sales on a pro forma basis, attributed to increased operational expenses such as new store running costs and higher wages. However, the company’s focus on cost containment, including a recent organisational restructuring resulting in $3 million in savings, has partially offset these escalations.
Furthermore, Baby Bunting displayed prudence in managing its working capital, with an improvement in cash conversion and a net debt reduction of $14 million compared to the prior year. The company retains significant financial flexibility with a $70 million borrowing facility at its disposal.
Expanding its footprint in New Zealand with the opening of three new stores, Baby Bunting remains optimistic about its growth prospects, particularly in leveraging market share and achieving operational efficiencies in the region.
Looking ahead, Baby Bunting underscores its commitment to enhancing trade, productivity, and customer experience as key priorities for the second half of FY24. While announcing an interim dividend of 1.8 cents per share, the Company has refrained from providing earnings guidance for FY24 due to the persisting uncertainties surrounding cost of living pressures.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, bloodstock enthusiast and former Analyst.
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