The Baby Bunting Group Ltd (ASX: BBN) share price has jumped 24% in reaction to the company’s trading update.
Baby Bunting is one of the largest retailers of baby and toddler related products in Australia.
Baby Bunting’s positive update
The ASX retail share said total sales from 1 May 2024 to 24 June 2024 were up 1% year on year.
Comparable store sales from 1 May 2024 to 24 June 2024 were down 0.7% year on year, with the second half to date (to 24 June 2024) showing a decline of 5.6% year on year. Baby Bunting said this compares favourably to the January to April run rate of negative 7.7%.
Baby Bunting explained the improvement reflected the “benefits of recently introduced product assortments, a renewed focus on new customer acquisition, the introduction of a refreshed promotional engagement and a proactive branding and go-to-market campaign.”
The company is expecting its FY24 pro forma/underlying net profit after tax (NPAT) to be in the range of between $2 million and $4 million.
It also said it’s targeting a gross profit margin of 40% in FY25, with further expansion targeted in future years. It also believes there is a clear path to achieve its historical EBITDA margin of at least 10%.
Renewed debt facility
The retailer said it had rolled over/renewed its existing National Australia Bank Ltd (ASX: NAB) facility which was due to exposure in March 2025 for a further three years, which is now maturing in September 2027. Existing pricing of the debt has been maintained.
Baby Bunting said the renewed three-year deal provides the company with the headroom to support its growth strategy and demonstrates NAB’s continued support of the business.
Management commentary
The Baby Bunting CEO Mark Teperson:
While it is still early days it is pleasing to see the impact of some of our strategic initiatives on our comparable sales performance over the past eight weeks.
We have today in a separate announcement to the ASX released details of our five-year strategy which is designed to stabilise and optimise our existing business and provide the blueprint for delivering future growth and over 10% EBITDA margin.
We are making good progress in implementing the first phase of our strategic initiatives including the introduction of a program of work to simplify our pricing strategy, renegotiating supplier trading terms, and enabling online fulfilment through all stores which is strengthening our operating leverage and inventory utilisation. We’ve also been focused on expanding our newly established New Zealand team to drive growth in that market.
The rolling over of our existing $70 million NAB debt facility for a further three years on existing pricing terms
provides us with ongoing capacity to implement the future phases of our growth initiatives.We are well positioned to execute our strategy and are focused on delivering sustainable growth and enhanced
shareholder value.
Final thoughts on the Baby Bunting share price
Investors are clearly excited by what they see, though the Baby Bunting share price is still close to 20% lower than where it was six months ago.
It could be an opportunity here, even after the rise, if it’s able to achieve much higher profit margins. But that may be difficult if competition remains strong.
