Baby Bunting and its investors are seeing long-term gains ahead after the retailer makes it through the short-term pain caused by the collapse of its four largest competitors.
The baby goods chain on Friday revealed its net profit for last financial year slumped almost 30 per cent amid "unprecedented times" in which its four specialty competitors - Bubs, Baby Bounce, Baby Savings and Babies R Us - all entered administration and started liquidating stock.
Baby Bunting CEO Matt Spencer.Credit: Wayne Taylor
Baby Bunting said competitors' fire sales crimped its own trading, with flat same-store sales, and compressed its profit margins as it matched their discounted prices.
But the company said it was beginning to see the upside from its competitors going out of business, with the market leader enjoying same-store sales growth of almost 10 per cent in the first six weeks of the new financial year.
Baby Bunting gave guidance for 2019 for earnings before interest, taxation, depreciation and amortisation of between $24 million and $27 million, which would represent growth of 30 to 45 per cent compared to last year, when earnings were down 19 per cent.
The company's shares jumped as much as 35 per cent on the news and closed up 34 per cent at $2.33 - the highest they have traded since February 2017. The stock listed in late 2015 at $1.40 and hit a peak of $3.17 two years ago.
“While negative profit growth is unusual for our business… the difficulties experienced are short-term, and have opened up greater market share opportunities for our business," Baby Bunting chief executive Matt Spencer said.
Toys "R" Us and Babies "R" Us closed the last of its Australian stores a week ago. Credit: AP
“We are excited and energised by what lies ahead.”
The company estimated the combined sales of its collapsed competitors totalled $138 million - or about 45 per cent of Baby Bunting's total annual revenue. The largest competitors, the Toys R Us and Babies R Us chain, shut the last of its 45 stores last weekend.
Morgans retail analyst Josephine Little said it appeared Baby Bunting was receiving the windfall from market consolidation earlier than expected.
“It was a victim of its own success, given it was one of the causes of some of its competitors unfortunately having to exit the market, and now there’s a big market share opportunity for them," she said.
"There’s quite a material earnings catch up on the horizon and hence it’s been priced accordingly today."
Baby Buntings' shares entered a slump mid last year amid fears about the arrival of Amazon in Australia and its ability to undercut the company on popular products.
Mr Spencer addressed that on Friday, saying Amazon did not sell 197 of Baby Bunting's top 250 selling products.
And Baby Bunting was cheaper than Amazon on 36 or the 53 products the online retailer did sell, by an average of 17 per cent, he said.
The company will open its 50th store later this year, and with competitors leaving the market, Ms Little said its long-term goal of opening 80 stores now looked more realistic.
Baby Bunting reported net profit after tax of $8.7 million, down 29.1 per cent from a year earlier.
The company declared a dividend fully franked full-year dividend of 5.3¢ a share, down from 7.2¢ last year, paid on September 14.