Australian brand Baby Bunting has reported a pro forma net profit after tax (NPAT) drop of -59% in the first half of FY23, with a dip in gross profit of -2.1% on the same time last year.
The news comes as Baby Bunting revealed continued investment in physical retailing, particularly in New Zealand where the brand is about to open its second store in Christchurch. It has a goal to open a total of 10 stores in New Zealand.
Baby Bunting CEO and MD Matt Spencer said the brand’s strategy is to grow market share through more stores and digital investments.
“We grew total sales by 6.6% for the first half of FY23, with comparable store sales being 0.4%,” Spencer said. “Positive comparable store sales growth was achieved despite cycling the significant growth in sales of 16.1% in Q2 in the prior year as Victoria and NSW emerged from significant periods of lockdown.
“Our core nursery categories, which are less discretionary such as car safety, prams and feeding, continued to perform well through the half and are an important part of Baby Bunting’s future growth and differentiates us from others in the market.”
Spencer said the company experienced a gross profit margin deficit in Q1, which was improved in Q2 driven by the execution of its recovery plans which are expected to deliver further benefits in the second half of FY23.
“Full year gross profit margin is now expected to be between 38% and 39% and ahead of last year in 2H.”
Baby Bunting opened five new stores across Australia and New Zealand and relocated one in 1H FY23. It expects to open three more stores in the second half.
“During [1H FY23], we continued to invest in the business to support future growth as we work towards our long term store network target of 120 stores in Australia and New Zealand and our digital strategy to grow market share,” Spencer said.
“The combination of lower gross profit margin for the half and softer than anticipated sales in December, resulted in a pro forma net profit after tax result of $5.1 million.”
Baby Bunting also incurred $700,000 of start-up costs for the Marketplace project which will launch in the 2H. The company said that actions are being taken to manage costs to appropriate levels, including pursuing opportunities for efficiency improvements.
Baby Bunting reported that total sales of $254.9 million for the first half of FY23 were 6.6% higher than 1H FY22. Sales for Q2 were below Baby Bunting’s expectations towards the end of the quarter as it cycled significant prior year comparable store sales growth of 16.1%, as Australian lockdowns lifted in 1H FY22.
“At our AGM in October 2022, we reported that Q1 gross profit margin was down 230 basis points against Q1 in the prior year driven by a number of factors,” Spencer said. “Since then, gross margin has improved from 36.4% in Q1 to 37.9% in Q2.”
“During the period, we remained focused on being competitive and delivering value to the consumer. Our Price Beat promise is low at around 1% of sales and we expanded our everyday pricing strategy of Best Buys to be 53% of sales for the half, up from 35% of sales in 1H FY22.
“In Q2, we made some important refinements to our loyalty program, effective in mid-December. The full benefit of these changes are anticipated to be an improvement to gross margin of between 50 and 80 basis points in 2H FY23. This, along with strategic adjustments to pricing and changes to domestic freight arrangements, have resulted in a positive movement in margin.
“These changes plus reductions in international shipping rates will pave the way for further margin improvement in the second half. For FY23 we expect full year gross profit margin to be between 38% and 39%, noting FY22 was 38.6%.”