Baby Bunting on track to deliver FY20 guidance

Baby Bunting reported a solid start to FY20 and reaffirmed its full-year earnings and profit guidance at its annual general meeting on Tuesday, where the business laid out its plan to grow market share by investing in digital, increasing sales from its existing stores, entering new markets and improving profit margin.

“We have had a solid start to the year and the business continues to be on track to deliver our FY20 guidance,” Matt Spencer, Baby Bunting’s CEO, said in a statement.

The retailer is anticipating pro-forma net profit after tax to be in the range of $20-22 million and pro-forma earnings before interest, tax, depreciation and amortisation (as measured under the old lease accounting standards) to be in the range of $34-37 million, a 25-36 per cent increase year on year.

Comparable store sales are up 3.1 per cent in FY20 so far, reflecting the cycling of unusual trading conditions in the first quarter of FY19 due to the closure of Babies R Us and clearance activity in September 2018.

Sales growth has been affected by technical issues associated with the transition to a new web platform in July, which led to a drop in conversion.

The retailer said traffic to the site continues to grow and the average item value has increased, and it has made further investments in its digital team to improve the customer experience on the new platform, and the retailer is still expecting comparable sales growth to be in the mid-single digits for the year

“[W]e expect to see online sales growth momentum continue to build,” Spencer said.

Baby Bunting’s year-to-date gross profit margin is 36.6 per cent, up 270 basis points on the prior period and in line with guidance.

Spencer attributed the better-than-expected result to the company’s investment in private label and exclusive products and fewer clearance activities, and said the same level of performance is expected to continue throughout the year.

Private label and exclusive products accounted for roughly a third of sales so far this year, and the business is in the process of expanding its own-brand portfolio. In addition to its 4baby products, the retailer soon will offer a new range of soft goods under the Bilbi brand and will continue to launch new brands going forward.

The retailer also has identified opportunities to improve margin in its supply chain. These include reducing the amount of direct-to-store deliveries and instead routing products through its own supply chain.

It’s exploring the possibility of relocating to a larger distribution centre and support office when the lease on its current premises in south-eastern Melbourne is up for renewal in April 2021 and establishing more store-based online fulfilment hubs to provide same-day delivery in metro areas.

The retailer expects to open five to six new stores in FY20. The first of these opened at Westfield Doncaster last week, marking the 40-year-old retailer’s second store in a shopping centre, after entering Chadstone in 2018.

Spencer at the AGM said shopping centres provide an opportunity to sell more convenience and consumable items and grow the sales in soft goods, such as apparel and bedding, while providing the same services as large-format stores, such as car seat fitting bays, dedicated parcel pick-up areas, layby facilities and parenting amenities.

“I believe the strength of our offer in shopping centres allows us to compete with a broader range of retailers and also exposes our value offer to more consumers,” he said.

Baby Bunting will open a third shopping centre store at Westfield Knox in the second half. This is in addition to two new stores opening in NSW – at Weatherill Park and Casula – this calendar year.

The new stores will all feature the new look and feel that Baby Bunting unveiled at is Doncaster store, the first major brand change since the business was established 40 years ago by Gail and Arnold Nadelman.

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