Why Baby Bunting (ASX:BBN) is up 200% from March.Â
From a distance, things look to be heading in the right direction for Australiaâs dominant specialist baby goods retailer, Baby Bunting. Baby Bunting shares have been on a huge run lately, up over 200% (as of 24/09/20) since their year to date lows in mid-March. In this week's newsletter, I thought Iâd take a bit of a shallow dive into Baby Bunting and figure out whatâs driven their rapid share price rise and how they plan on growing in the future.
About Baby Bunting
Baby Bunting (ASX:BBN) is Australiaâs largest specialist Baby goods retailer (by store). Baby Buntings core purpose is to support new and expectant parents during the early years of parenthood, and their vision is to be the most loved baby retailer for every family, everywhere.
Baby Bunting specialises in prams, bassinets, cots, nursery furniture, and toys. The retailer also stocks consumables like clothing, baby food, and nappies.
Interesting Facts about BBN
Number of Stores (Aug 20): 56
Founded in 1979 as a family business
First store was in the Melbourne suburb of Camberwell
Listed on the ASX in Oct 2015.
Around half (47%) of the Companyâs 1,279 team members were shareholders of the Company as of August 2020.
Share price bounce since March
From what I can gather, BBN's share price run-up can be attributed to a few reasons including but not limited to the following:
Baby Bunting CEO Matt Spencer said In May this year via an ASX announcment that âAll Baby Bunting stores have remained open throughout the current periodâ In the same announcement, Baby Bunting also gave a positive update on some key financial metrics.
In August 2020 Baby bunting announced that all Melbourne stores will remain open during the stage 4 lockdown period given their essential nature.
Baby Buntings share price was boosted again in the mid-August after the release of their full-year FY20 results. Some of the headline numbers included revenue of $405.2m up 11.8%, comparable store sales growth of 4.9%, net profit after tax up 34.1%, and free cash flow up 64% over the prior year. Baby Bunting also reinforced that all stores remained open and that the company was not receiving any Job Keeper payments.
Growth Strategy
Baby Buntings share price rise seems to be based on stability of earnings and expectations for future growth. Hereâs a quick snapshot of how the company plans to continue growing into the future. Some of Baby Buntings key growth strategies are defined below:
Digital
Baby Bunting have recognised that investing in digital is a non-negotiable if they want to remain competitive in what can be a cut-throat retail landscape. As such, BBN has been investing heavily in its digital offering to provide the best possible customer omnichannel experience for its customers.
In their FY20 full-year results, BBN announced that online sales are now 14.5% of total sales up from 4.3% in FY16, while their average website visits are up 26%Â in comparison to the previous year.
While these are great numbers, BBN has also faced some headwinds with the implementation of its new website back in July 2019, impacting customer experience and sales growth. In November 2019, BBN rolled back to their previous website and have observed improved customer experience and sales growth as a result.
Profit Margin Improvement
Baby Bunting has reported gross margins in the low-mid 30âs over the past four years, which seems reasonable when you compare them to other retailers like JB HI-FI and Harvey Norman who reported gross margins of 21% and 54% in FY20 respectively. BBN plans to continue growing their margins by honing in on the strategies below:
Growth of their Private and Exclusive Label program. In FY 20 Private Label & Exclusive Product sales grew 47.9%, now 36.5% of total sales, with the long term target being 50% of total sales.
Growth in their services business (Baby car seat installation and hire), requiring customers to visit physical stores. Car seat installation services sales were up 42.2% over the past year.
Improvement in product sourcing and striving for greater efficiencies in their supply chain.
3. Growth from new markets
With 56 stores as of August 2020, Baby Bunting is planning to roll out over 100 stores across Australia with a variety of store formats including shopping centres. While growing store numbers sounds good in theory, the return on investment for new stores needs to be proven for BBN to bother. Baby Bunting says that new stores achieve a 28% return on invested capital after the first year of operation and over 80% after four years on average since 2008.Â
With zero debt on the balance sheet, Baby Bunting hasnât historically been dependent on outside capital to fund the fit-out and stocking of new stores either. This essentially means BBN can fund growth without reliance on debt, which is a huge plus.Â
The Final Word
Based on this shallow dive, things seem to be looking up for Baby Bunting, but there is still a lot more ground to youâll need to cover before considering BBN as a potential investment. Keep an eye out for a future article, where Iâll go into some more depth on Baby Bunting based on my approach for analysing individual stocks.
 For full disclosure, I personally own shares in Baby Bunting.
All facts and figures related to Baby Bunting were sourced from their 2020 Annual Report, which you can find here.
Disclaimer: This website (the âThe Money Palâ) is published and provided for informational and entertainment purposes only.  The information in this newsletter is general in nature constitutes the Content Creatorâs own opinions. The information in this blog should not be regarded as financial advice.Â