The Baby Bunting Group Ltd (ASX: BBN) share price has risen more than 3% after the retailer announced a FY24 trading update its AGM.
Baby Bunting is the largest retailer of baby and toddler products in Australia, it sells things like toys, prams, car seats, clothes, blankets and so on.
Baby Bunting Group Ltd (ASX: BBN) share price
FY24 trading update
The ASX retail share said that pressure on discretionary spending and affordability remains.
It revealed 2024 financial year to date had seen total sales were down 3.3% year on year. Last year, total sales growth was 12%. Comparable store sales were down 8.5% year on year, though last year it reported positive same-store sales growth of 7.6%.
However, there was a very useful positive in the first quarter of FY24 – the gross profit percentage was 37.9%, up 70 basis points (0.70%) compared to the first quarter of FY23.
It also said that administration costs had reduced $1.7 million year on year, which reflected “management’s focus on cost management initiatives”.
It’s expecting to open five new stores in the year, including the recently opened Cranbourne store. In New Zealand it’s planning to open three new stores.
What to make of this for Baby Bunting shares
It seems likely that the business will report stronger profit margins in the first half of FY24 with both the gross profit margin higher and costs seemingly lower.
Sales growth may be challenged in the shorter-term, but I believe it’s better that the company makes profitable sales.
The Baby Bunting share price has dropped close to 65% since July 2021, so there’s plenty of room for a recovery in the next couple of years.
It’s expanding the store network and also growing the marketplace offering with more brands and products. The marketplace is a very scalable platform – it has added over 9,000 products and wants to finish the year with 20,000 different products. This shouldn’t impact its supply chain nor add inventory risk.
I think it could be a high-risk contrarian opportunity at the current price, though it could take a while for the recovery to play out.
