Baby Bunting share price sinks 10% as profits crash

Baby Bunting has reported a huge decline in its profits today.

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The Baby Bunting Group Ltd (ASX: BBN) share price is falling on Friday following the release of the company's FY 2023 results.

In early trade, the baby products retailer's shares are down 10% to $1.91.

Baby Bunting share price sinks on FY 2023 results

  • Total sales up 1.7% to $515.8 million
  • Comparable store sales down 3.6%
  • Online sales down 8.6% to $103 million
  • Gross margin down 118 basis points to 37.4%
  • Pro forma net profit after tax down 51% to $14.5 million
  • Full-year dividend down 51.9% to 7.5 cents per share (final dividend of 4.8 cents per share)

What happened in FY 2023?

For the 12 months ended 30 June, Baby Bunting delivered a 1.7% increase in total sales to $515.8 million.

This was driven by seven new store openings, which offset a 3.6% decline in comparable store sales and an 8.6% fall in online sales to $103 million. The latter now represents 20% of total sales. While this is down since last year, it remains up markedly from pre-COVID times.

Baby Bunting's margins came under pressure in FY 2023, which weighed heavily on its profits. Management notes that its costs of doing business were up $16.5 million against the prior corresponding period. The key contributors were new and annualising stores, cost inflation, and one-off establishment costs associated with the launch of Baby Bunting marketplace and its New Zealand operations.

This ultimately led to the company's pro forma net profit after tax falling 51% to $14.5 million, which forced the Baby Bunting board to cut its dividend by 51.9% to a fully franked 7.5 cents per share.

Thrown out with the bathwater

It hasn't been a good 12 months for shareholders. As you can see on the chart below, the Baby Bunting share price is now down 60% since this time last year.

Management commentary

Baby Bunting's acting CEO, Darin Hoekman, commented:

We have continued to grow market share and experienced positive sales growth despite the increasing macroeconomic factors impacting the retail sector. While our category is less discretionary, our customers are not immune to cost-of-living pressures and we experienced sales decline towards the end of the year as consumer spending slowed.

[W]e have moved to focus on lowering our cost of doing business and managing our working capital to align to sales and the ongoing uncertainty around the trading environment. We are holding the right levels of inventory with minimal seasonal and clearance stock. Our net debt is modest and we have plenty of headroom in our banking facility. We have taken steps in July to reduce overheads and to manage cost inflation in stores and in our supply chain.

Outlook

Possibly weighing on the Baby Bunting share price today has been the company's outlook commentary.

It reveals that during the last six weeks of trading, the company's sales have fallen 4% over the prior corresponding period, with comparable store sales down 9%.

In light of the continued economic uncertainty and challenging trading environment, Baby Bunting has elected to not provide earnings guidance for FY 2024.

Hoekman concludes:

Baby Bunting has the leading position in our category and our strategy remains sound. We will continue to invest to grow and strengthen our market share with plans to open five new stores in Australia and New Zealand in FY24 and we will expand our product range and our marketplace offer.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 no position in any of the stocks mentioned. 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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