Baby Bunting Group Ltd (ASX: BBN) has announced its FY20 result to investors this morning, which showed a large increase in its operating profit.
Baby Bunting’s FY20 result
Baby Bunting announced that total sales rose by 11.8% to $405.2 million. It generated comparable store sales growth of 4.9% which includes the online store. Online sales growth (including click and collect) was 39.1%, with 66.1% growth in the second half. Private label and exclude product revenue grew by 47.9% and represented 36.5% of sales, compared to 27.6% in the prior year.
The baby product retailer reported higher profitability on its sales. Its gross margin improved by 120 basis points (1.2%) to 36.2%.
Baby Bunting pro forma EBITDA (click here to learn what EBITDA means) grew by 24.1% to $33.7 million and its pro forma net profit after tax (NPAT) increased by 34.1% to $19.3 million.
‘Pro forma’ is a term to describe the company’s attempt to provide a useful number for investors, even if it isn’t the statutory number in the accounts. Baby Bunting’s pro forma numbers exclude the significant costs with business transformation projects and also exclude the impairment of its investment in its digital commerce technology of $3.2 million and the impairment of brand assets of $2.6 million. The pro forma EBITDA also excludes the impact of AASB 16 lease accounting.
When including all of the above things that were excluded, statutory net profit was down 14% to $10 million. I don’t think investors should entirely ignore business transformation costs because management has deemed it necessary for Baby Bunting’s continuing growth.
Baby Bunting admitted that it did not qualify, or receive, any jobkeeper support which required a larger decline in sales.
Baby Bunting’s board decided to declare a final fully franked dividend of 6.4 cents per share, up 25%. That brought the full FY20 dividend to 10.5 cents, also up 25%.
In the first six weeks of FY21 it saw comparable store sales growth of 20%. Melbourne stores remain open during the stage 4 restrictions. Sales growth is slower in Melbourne. Excluding Victoria, comparable sales growth was 28.7%.
During FY21 the company expects to open between four to six stores, with three stores in the first half of FY20.
However, due to COVID-19 uncertainty the company wasn’t able to provide guidance for FY20. Though it has clearly gotten off to a good start. I’m really not sure if this growth is only due to the government stimulus and the second half of FY21 will be challenged, or whether Baby Bunting’s growth is sustainable due to the closure of several competitors over the past couple of years. I think Baby Bunting is too expensive to buy at the pre-open Baby Bunting share price, there are other ASX growth shares I’d go for first.