In morning trade the Baby Bunting Group Ltd (ASX: BBN) share price has been amongst the worst performers on the local share market.
At the time of writing the baby products retailer's shares are down almost 15% to $1.26.
What happened?
This morning the company released its annual general meeting presentation to the market ahead of its meeting later today.
Within the presentation was a trading update which revealed that Baby Bunting continues to operate in a tough environment. As a result, the company has had to downgrade its full-year earnings guidance.
Due to sector consolidation and related clearance activity driving short-term pricing and margin deflation, Baby Bunting now expects FY 2018 EBITDA to be flat year-on-year at approximately $23 million.
Previous guidance, last given under six weeks ago on October 11, had been for EBITDA in the range of $25.3 million to $27 million in FY 2018.
While it is disappointing to see its guidance revised so soon after reaffirming it, the company did warn that things would need to stabilize in order for its to achieve its guidance. This has not yet happened and some aggressive discounting continues, leading to price deflation of 4.3% year-to-date.
Management does however believe that it is well placed to grow market share once activity cycles through.
Should you buy the dip?
I feel confident that the headwinds the company faces are only short-term and that it will bounce back stronger in FY 2019. While it may be best to wait for the dust to settle, I do see a lot of value in the company's shares for patient long-term investors.
Based on its new guidance I estimate that Baby Bunting's shares are changing hands at an undemanding 13.5x forward earnings. And if the company holds its dividend steady at 7.2 cents per share, then investors buying shares today can look forward to a generous fully franked 5.6% yield over the next 12 months.
In light of this, I would put it up there with Super Retail Group Ltd (ASX: SUL) and RCG Corporation Ltd (ASX: RCG) as good options for income investors in the retail industry today.
