Baby Bunting (ASX:BBN) share price on watch after very strong Q1 sales growth

The Baby Bunting Group Ltd (ASX:BBN) share price will be on watch today after the release of a trading update ahead of its AGM…

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The Baby Bunting Group Ltd (ASX: BBN) share price will be on watch on Tuesday after the release of a trading update ahead of its annual general meeting.

How is Baby Bunting performing?

When Baby Bunting released its full year results in August, it revealed that its comparable store sales growth for the first six weeks of FY 2021 was 20%.

Pleasingly, this morning the company revealed that this strong form has continued into October.

According to its update, Baby Bunting’s financial year to date comparable store sales growth to 2 October was 17%. These figures include its stores in the Melbourne metropolitan region, which have been impacted by lockdowns.

Excluding these stores, Baby Bunting’s comparable store sales growth would have been an impressive 28.5% over the same period.

A key driver of this growth has been the company’s online business. During the first quarter of FY 2021, Baby Bunting’s online sales (including click and collect) were up 126% on the prior corresponding period. Excluding the Victoria region, online sales growth was 92% during the first quarter.

Click and collect has proven to be increasingly popular with consumers in FY 2021. Management advised that click and collect sales grew 233% during the first three months of the financial year.

The positives don’t stop there. The company’s gross margin has continued to widen in FY 2021. At the end of the first quarter, Baby Bunting’s gross margin stood at 37.5%. This compares to a gross margin of 36.2% in FY 2020.

One potential negative is that COVID-19 has impacted the company’s operating costs.

It commented: “We have also seen an increase in COVID-19 related costs, whether that be direct costs such as cleaning and general operating costs. But there has also been increased costs due to channel switching and impacts on the supply chain in relation to freight, storage and handling.”

However, it chose not to quantify this statement, so investors may need to wait until its half year results in February to see where its operating margins stand.

In line with the outlook given with its full year results in August, Baby Bunting expects to open 4 to 6 new stores in FY 2021. Though, no full year earnings guidance has been provided due to the uncertain operating environment.

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