The Baby Bunting Group Limited (ASX: BBN) share price will be on watch this morning after revealing a FY20 trading update.
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. Starting in Melbourne in 1979, the company now 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.
Baby Bunting’s FY20 Sales Update
Baby Bunting is currently holding its annual general meeting (AGM) and it has given a trading update as part of the presentation.
The gross profit margin in FY20 so far is 36.6%, which is an increase of 2.70% (270 basis points) compared to the prior period. This was better than management’s expectations.
Baby Bunting attributed the better profit margin to an increase of private label and exclusive products range, whilst also less clearance sales. Excitingly, management expect this level of performance to continue throughout the year.
Comparable store sales growth was 3.1% for the first quarter of FY20. If you were expecting more then Baby Bunting has an explanation. The closure of Babies R Us, the clearance sale of high end cots and prams last year and the transition to a new web platform were reasons for the growth number.
Baby Bunting’s management said that its FY20 guidance assumes mid-single digit same store sale growth for the year.
In terms of FY20 guidance, it remains unchanged
. (Pro forma) net profit is still expected to be in the range of $20 million to $22 million and pro forma EBITDA (click here to learn what EBITDA means) – using the old lease accounting standards – is expected to be between $34 million to $37 million.
Baby Bunting also said that the new Westfield Doncaster store opened on the weekend and is the first to have the new branding. It will also be opening two new stores in Sydney and another two new stores in the second half.
Is The Baby Bunting Share Price A Buy?
Since mid July 2019 the Baby Bunting share price has gone up 151%, so I think the closure of competitors in the last couple of years is likely already accounted for in the profit growth and investor expectations.
Growth may be limited to store openings and relatively low same store sales growth in the coming years – not bad at all, but I think there could be better growth share options at better valuations in the free report below.
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