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Baby Bunting share price on watch after delivering more strong profit growth

baby shop

The Baby Bunting Group Ltd (ASX: BBN) share price will be one to watch this morning.

The baby products retailer has just released its half year results and revealed further strong profit growth.

How did Baby Bunting perform in the first half?

For the six months ended December 31, Baby Bunting delivered total sales of $186.4 million. This represents growth of 8.1% over the prior corresponding period.

This was driven by a combination of new store openings and modest comparable store sales growth of 1%. Though, it is worth noting that the company was cycling a 9.5% increase in comparable stores sales in the prior corresponding period.

Furthermore, management advised that its comparable store sales principally reflected the short-term effect of sales re-direction arising from the opening of four new stores in Sydney and one in Melbourne. When adjusting for this sales re-direction, underlying comparable store sales growth was 4.1% for the half.

Also supporting its sales growth was its online sales (including click & collect). They grew 10.5% during the half and now account for 11.7% of total sales.

Another metric heading in the right direction was its gross profit margin. Baby Bunting’s gross profit margin improved by 223 basis points to 36.9%. Pleasingly, further gross profit margin improvement is expected in the second half, which should see a 37% gross profit margin achieved for the full year.

Management advised that this has been achieved without compromising value to the consumer. It is the outcome of working with its supplier partners on range improvements, further improvements in trading terms, optimising supply chain opportunities, and increases in direct import volumes. It also notes that there has been significant growth in the Private Label and Exclusive Products range.

This ultimately led to the company posting a pro forma first half net profit after tax of $7.5 million. This was a 30.6% increase on the prior corresponding period.

As a result of its strong performance, the Baby Bunting board has lifted its fully franked interim dividend by 24% to 4.1 cents per share.

Outlook.

Management advised that the second half has started strongly both in-store and online. It has achieved comparable store sales growth of 5.7% in the first six weeks of the half. Year-to-date comparable store sales growth is now 2%.

In light of this, its FY 2020 guidance remains unchanged. The company expects pro forma net profit after tax to be in the range of $20 million to $22 million.

This guidance assumes no significant disruption from the coronavirus outbreak. Management notes that its sources products, either directly or through distributors, from China. It warned that the effect on Baby Bunting arising from the coronavirus outbreak cannot yet be readily determined. But for now, it expects to have sufficient stock to support the business.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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