Here’s why the Baby Bunting (ASX:BBN) share price has dived 5% in 2 days

The pandemic is slowing the company’s expansion plans.

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Key points

  • Baby Bunting share price is down 5.4% since Friday's open
  • This follows the release of the company's half-year results on Friday
  • Shares in the retail company are under pressure despite a dividend boost

The Baby Bunting Group Ltd (ASX: BBN) share price closed lower on Friday, down 3%, following the release of the company’s half year results.

Baby Bunting shares had opened Friday at $5.55 per share, but ended the day trading at $5.27.

At the time of writing, the shares are fetching for $5.25, bringing the loss since Friday’s open to 5.4%.

Below you’ll find the highlights from the company’s results for the half year ending 31 December (H1 FY22).

Baby Bunting share price dips despite dividend bump

  • Total sales of $239.1 million, an increase of 10% from the prior corresponding half year
  • Pro forma earnings before interest, taxes, depreciation and amortisation (EBITDA) increased 18.6% year-on-year to $21.8 million
  • Pro forma net profit before tax (NPAT) of $12.5 million, up 16.4%. on H1 FY21
  • Pro forma earnings per share (EPS) growth of 15.4%
  • Interim dividend of 6.6 cents per share, fully franked up 13.8% from H1 FY21

What else happened during the half year?

Alongside its pro forma NPAT lift of 16.4%, Baby Bunting also reported a 12.2% increase in statutory NPAT to $8.1 million. Statutory figures include items like employee equity incentive expenses and the “significant costs associated with business transformation projects”.

Digital sales also continued to grow at the company, representing 23.8% of total sales, up from 19.7% in H1 FY21.

The Baby Bunting share price may be coming under some pressure with the 1.25% reported increase in its cost of doing business (on a pro forma basis).

The company cited its investments in the new National Distribution Centre and one-off establishment costs for New Zealand, along with $500,000 of COVID-related costs, for bringing the cost of doing business to 30.2% of sales for the year.

What did management say?

Commenting on the results, Baby Bunting’s CEO Matt Spencer said:

Baby Bunting had an exceptional first half in what were, again, some challenging conditions. Through great work by the Baby Bunting team, we achieved record sales and grew gross profit, without compromising value to the consumer. This contributed to a significant growth in NPAT…

Our store performance was supported by our strengthened digital offer, including click and collect and online sales.

What’s next?

After opening news stores during the half in New South Wales, Victoria and Queensland, bringing the total number of stores to 64, Baby Bunting plans to open 2 or 3 more stores in the current half year. It eventually aims to have more than 100 stores across Australia.

The first Baby Bunting store in New Zealand is facing delays from the ongoing pandemic. That opening is now expected to occur early in the 2023 financial year.

Looking ahead, Spencer said:

Baby Bunting remains focused on executing its strategy of growing market share. We will continue to leverage our investments in our transformation program and growing our product range including exclusive relationships with suppliers and our own private label offering. We will also expand our services business and continue to strengthen our logistics and supply chain capabilities.

The company said that due to ongoing uncertainty caused by COVID-19, it could not currently give specific earnings guidance for FY22.

Baby Bunting share price snapshot

The Baby Bunting share price is down 6.1% so far in the new year. That compares to a year-to-date loss of 4.9% posted by the All Ordinaries Index (ASX: XAO).

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Baby Bunting. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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