The Baby Bunting Group Ltd (ASX: BBN) share price is down 22% following the company’s disappointing FY23 trading update.
Baby Bunting sells a wide array of products for babies and toddlers, such as prams and baby seats.
Baby Bunting’s rough half
The ASX retail share revealed that, as at 4 June 2023, total sales growth was only 1%, while comparable store sales growth was negative 3%.
A recently-commenced promotional event called Storktake has seen trading in store and online “well below” expectations during this period. Despite the launch of that sales event, revenue has been “unprecedently low”, with a comparable store sales decline of around 21%.
Management said that if that trend continues, the company expects FY23 sales to be in the range of between $509 million and $513 million, and a comparable sales decline of between 4% to 5%.
Profitability commentary
Baby Bunting noted that June usually delivers a larger proportion of the company’s second half profit, it will have a “significant impact” on the full year profit if the current trend continues.
Due to that, ‘pro forma’ (underlying) net profit after tax is now expected to be between $13.5 million and $15 million. Previous guidance was for pro forma net profit to be between $21.5 million and $24 million.
Baby Bunting said that up until the end of May, it was on track to reach within the lower end of its guidance range of between 38% to 39%. It now expects the gross margin to be “moderately below the bottom end of that range.”
Inventory is expected to finish at around $100 million for FY23, up from $96.7 million in FY22, though it has “limited exposure to seasonal stock”.
Marketplace update
Baby Bunting said that its initiatives have “successfully launched” and the company is now “activating” the initial third-party seller stock-keeping units (SKUs) on its website. It expects to have over 2,000 third-party SKUs available by the end of FY23.
Final thoughts on the Baby Bunting share price
It has fallen a long way, things have gone very wrong for the business and there has been a huge deterioration over the last few months.
The company may be facing a cyclical downturn and this could be an opportunistic to jump on the business. It depends on what’s driving the sales down so much – is it households tightening their belts amid higher interest rates?
I’m not sure what’s going to happen next for the company and the economy, so it’s not the first beaten-up ASX share I’d buy.
