The Baby Bunting Group Ltd (ASX: BBN) share price is sinking after revealing its FY21 result and a sales decline in FY22.
Baby Bunting is the largest retailer of baby product retailing in Australia with a large bricks and mortar store network, and a growing digital presence.
Baby Bunting’s FY21 result
The baby item retailer said that total sales increased by 15.6% to $468.4 million, with comparable store sales growth of 11.3%.
Private label and exclusive products grew 31.1% to be 41.4% of total sales (up from 36.5%). It’s aiming for these sales to be 50% of sales in the future.
It was the online sales that grew particularly fast, jumping 54.2% to $90.8 million. Baby Bunting’s online sales now represents 19.4% of total sales.
Profit margins also improved across the business.
The gross profit margin grew 83 basis points (0.83%) to 37.1%. Pro forma (meaning the company’s calculated underlying number) cost of doing business ratio improved by 14 basis points (0.14%) to 27.8%. That means costs were a smaller percentage of sales in FY21 compared to FY20.
Pro forma EBITDA (EBITDA explained) grew 29.2% to $43.5 million. The pro forma net profit after tax (NPAT) rose 34.8% to $26 million.
Statutory profit, which includes things like business transformation projects and employee equity incentive expenses, soared 76% to $17.5 million. It’s making available $1,000 of Baby Bunting shares to eligible team members – more than half of its employees are shareholders.
Baby Bunting dividend
The board of Baby Bunting decided to declare a final dividend of 8.3 cents per share. That brings the full year dividend to 14.1 cents, up 34.1%.
Other highlights
A new national distribution centre and store support centre were successfully commissioned in the second half of FY21 in Dandenong South. It doubles the distribution capability and reduced the reliance on third party logistics. The supply chain is a key driver of continued gross profit margin expansion.
The company said that any short-term sales hit from lockdowns were recovered quickly once restrictions eased. Baby Bunting stores have remained open as a provider of essential goods and services.
Outlook for Baby Bunting and the share price
Comparable store sales at 12 August 2021 were down 6.4% for the financial year to date.
It’s expecting to open three new stores in the first half of FY22. There is a strong pipeline of leases committed in the second half of FY22, with two in New Zealand.
Baby Bunting warned that trading conditions could continue to be volatile during FY22 with ongoing COVID-19 impacts.
Management believe that the company’s operating strength in its category and transformation plans should see it well placed for the year ahead.
I think the Baby Bunting is one of the best retailers in Australia, however the valuation became too rich for the market. Using the ASX’s market capitalisation, Baby Bunting is valued at 30 times the pro forma net profit and 44 times statutory profit.
The Baby Bunting share price is down 8% at the time of writing. Baby Bunting could be one to think about for the long-term, but it’s still not ‘cheap’, particularly if sales fall in FY22. But the New Zealand expansion plans are promising.
