Baby Bunting started FY23 with a margin downgrade

Nick Sundich, October 11, 2022

Baby Bunting (ASX:BBN) shareholders punished the company today for revealing a hit to its gross margins. Despite recording sales growth, it has not been enough to outweigh the impact of increased freight and forex costs.

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Baby Bunting hit by rising costs

Baby Bunting has been relatively resilient to the pandemic as people have continued to have babies. But at today’s AGM, the company revealed its gross profit margin in the first quarter of FY23 fell from 38.7% to 37.2% in 12 months. As a consequence, BBN shares plunged over 20% this morning.

Baby Bunting (ASX:BBN) share price chart (Graph: TradingView)

The company blamed unrecovered cost increases, particularly freight charges and forex movements., as well as the commencement of its loyalty program and reduced demand in the play gear department.

The company told shareholders that total sales growth was 12% and comparable store sales growth was 7.6%. It also still planned to open a total of 8 stores in FY23, having opened 3 so far. But it declined to provide guidance for the full year.

A rough AGM

Baby Bunting revealed the bad news at its AGM this morning. It reminded shareholders about its achievements in FY22, including achieving sales of over $500m for the first time, and it grew its net profit (which was $29.6m) despite its expansion into New Zealand.

Looking forward, BBN told shareholders its current addressable market was $2.5bn and could grow to $3.5bn with its new Baby Bunting Marketplace.

This did not stop Baby Bunting shares from falling as its reputation as a safe-haven to external economic pressures is at risk, if it is not gone already.