This month Baby Bunting Group Ltd [ASX:BBN] has suffered a fall in first-half profits.
The decrease mainly stems from aggressive discounting in the baby goods sector.
Products such as car seats, baby carriers and toy varieties have all played a factor in Baby Bunting’s lack of first-half profits.
In the six months to 31 December Baby Bunting made a $3.44 million net profit, a significant decrease from the corresponding periods profit of $5.22 million.
Baby Bunting sits on a $194.011 million market cap and enterprise value close at $195.48 million.
How did the discounts generate such an impact?
As previously stated, Baby Bunting describes their baby goods sector as having experienced ‘aggressive discounting.’
The purpose for this discount was to clear as much stock as possible before retailers closed shop. Chief Executive Matt Spencer stated:
‘While our market share continues to grow, the impact of price deflation and some supply issues in the car seat, baby carrier and toy categories during the first half, constrained our earnings growth.’
Matt believes they are seeing signs that the market conditions are stabilising.
Trade was completely subdued from November to December, luckily Boxing Day and stocktake sales turned over a strong trading half.
Despite their unfortunate first-half, Baby Bunting remains Australia’s market leader in baby goods.
Baby Bunting had strong sales success in South Australia, as their sales grew by 22% over the period.
What is Baby Bunting Group’s next plan of action?
Two new stores have opened in Adelaide, which have doubled the state’s store network.
Spencer believes the stores are in excellent locations which allows them to meet an existing high demand and improve the overall customer experience in Adelaide. He stated:
‘As we pass the anniversary of the opening of the two new Adelaide stores, this effect on comparable store sales will diminish. While there has been a short-term impact on comparable store sales growth, we are seeing the benefits in terms of market share growth.’
Expectations for their full year earnings are forecasted to be roughly $23 million. The expectations have not changed from the company’s November guidance.
Editor, Money Morning
PS: Retail stocks have been feeling the pressure recently, as today’s news for Baby Bunting Group demonstrates. But that doesn’t mean all is doom and gloom for Australian investors. Matt Hibbard, Money Morning’s income investing specialist, has put together a free report titled ‘The Top Five Dividend Stocks in Australia for 2018’. You can read that free report here.