Is the Baby Bunting Group Ltd (ASX: BBN) share price about to come under pressure?
Baby Bunting is a retailer that specialises in baby goods with over 6,000 lines such as prams, cots, car safety equipment, toys, feeding and other accessories. It was started in Melbourne in 1979 and now the company has over 50 stores in Australia with plans to grow the store count beyond 80 over the next few years. It currently employs over 700 people.
What’s Going On At Baby Bunting?
The outlook for Baby Bunting has been promising in recent times after a number of competitors closed. With all of those other baby stores like Babies R Us out of the picture, Baby Bunting would be free to dominate the baby retailing market.
In the recent December 2018 half year result Baby Bunting reported that total sales grew by 17.2% to $177.7 million with strong comparable store growth of 9.5%. The gross profit margin improved to 34.6% from 33%. EBITDA (click here to learn what EBITDA means) increased by 25% to $11.6 million and net profit went up by 27.8% to $5.2 million.
You can see why David Lennan said that Baby Bunting looked interesting three months ago. But, whilst the growth of Amazon has always been an issue, another competitor has come back from the dead.
The Return of Babies R Us
Just a year on from the closure of Toys R Us and Babies R Us, they will be re-opening online next week in Australia and New Zealand by family-owned online retailer Hobby Warehouse according to the Australian Financial Review.
Hobby Warehouse also plans to open physical retail Toys R Us and Babies R Us stores in a year or two, but they’ll be much smaller than before. Apparently they will be more like showrooms where customers can touch and feel toys & games before ordering online and having orders delivered to homes.
Toys R Us was Australia’s largest toy retailer with a 20% market share before it shut down, so I don’t think it’s good news for Baby Bunting.
Baby Bunting’s growth now seems like it will be more challenged, and retailing is a tough industry so I wouldn’t want to buy shares for my own portfolio today.
I’d rather invest in the reliable ASX shares in the free report below instead of Baby Bunting.
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