Baby Bunting Group Ltd (ASX: BBN) shares are having a strong session on Wednesday.
In morning trade, the ASX retail stock is up 11% to $1.75.
Why is this ASX retail stock jumping?
Investors have been buying the baby products retailer's shares today after responding positively to the release of a first-half update.
According to the release, Baby Bunting returned to form during the first half with comparable store sales growth of 2.2%. This was driven largely by a strong performance in the second quarter, which saw comparable store sales increase 4.5% over the prior corresponding period.
Another positive is that the ASX retail stock expects to report a first half gross profit margin of 39.8%. This up 260 basis points on the prior corresponding period and means that Baby Bunting is on track to deliver on its FY 2025 margin target of 40%.
The sum of the above is that the company expects to post a pro forma net profit after tax of $4.8 million for the first half. This represents a 37% increase on the $3.5 million recorded for the same period last year.
Commenting on the half, the ASX retail stock's CEO, Mark Teperson, said:
We are pleased to share this update today which demonstrates our successful progress in executing our strategy of growing market share, EBITDA and return on capital.
The November and December trading periods were particularly strong, with well-executed campaigns resonating with our consumers, driving comparable store sales growth of 4.5% in Q2.
At the same time, our focus on renegotiating supplier terms, simplifying our price architecture and our exclusive brands and private label works delivered significant gross margin expansion, finishing at 39.8% for 1H.
Outlook
Baby Bunting has reaffirmed its guidance for the full year.
It is forecasting FY 2025 pro forma net profit after tax in the range of $9.5 million to $12.5 million.
This is based on the expectation that comparable store sales growth will be in the range of 0% to 3%, its gross margin will be 40%, and its cost of doing business will increase.
The latter reflects new and annualising store costs, wage inflation of 3.75%, and additional roles and marketing to support strategy execution.
When speaking about the company's outlook, Teperson revealed that the second half has started positively. He said:
Pleasingly, this momentum has continued into the first weeks of 2H, with strong customer engagement and positive feedback driven by our strategic range innovation across our key categories.
Our store refurbishment program is on track, and we look forward to providing a further update in February. This result reinforces our confidence in the transformative opportunity of our strategic roadmap as we continue to navigate the evolving retail landscape with discipline and focus.
