Shares in Baby Bunting Group Ltd (ASX: BBN) are charging higher on Tuesday after the retailer released its half-year results.
In early afternoon trade, the Baby Bunting share price is up 10% to $2.42. It marks a welcome bounce for investors after the stock fell roughly 15% earlier this year.
Let's take a closer look at what impressed investors.
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Record gross margin and solid sales growth
For the first half of FY26, Baby Bunting reported total sales of $271.4 million, up 6.7% on the prior corresponding period.
Comparable store sales increased 4.7%, above the company's earlier guidance range of 2% to 3%.
Gross margin was a standout metric, increasing 124 basis points to 41%, the highest level in the company's history. Management said this was driven by better supplier terms, growth in private label and exclusive products, and improved pricing discipline.
Gross profit increased 10% to $111.4 million.
Profit lifts, but costs still a focus
On a pro forma basis, net profit after tax (NPAT) came in at $5 million, up 4.1% on last year and in line with guidance.
Underlying NPAT, which strips out one-off items linked to store refurbishments and network changes, jumped 44% to $7.2 million.
However, cost of doing business rose to $96.8 million. This reflects investment in new stores, refurbishments, marketing, and general inflation pressures.
Management also confirmed no interim dividend will be paid as it focuses on funding growth.
Store upgrades delivering results
A key part of Baby Bunting's strategy is its 'Store of the Future' refurbishment program.
The company said refurbished stores delivered sales uplifts of around 25%, which is at the top end of its target range. In total, 6 refurbishments were completed in the first half, with more planned in the second half.
The company's online channel grew by 18% and now accounts for almost one quarter of overall sales.
Trading update and guidance
Importantly, momentum appears to have continued into the second half.
For the first 7 weeks of the second half, comparable sales are up 6.7%. That includes solid growth in both Australia and New Zealand.
Management maintained second-half pro forma NPAT guidance of $12.5 million to $14.5 million. Full-year pro forma NPAT guidance remains at $17.5 million to $19.5 million.
The company is also targeting full-year comparable sales growth of 5% to 7% and gross margin above 41%.
What's driving the share price?
Today's 10% jump reflects a positive market response to stronger sales momentum and record margins.
While the stock is still down for the year, these results show a business that is stabilising after a tougher retail period.
The focus now shifts to whether this improvement can be sustained. If comparable sales stay solid and margins remain above 41%, earnings growth in the second half could accelerate.
