Baby Bunting profit has crashed by two thirds and its long-serving CEO will leave at the end of the year

Once a high flyer of the retail sector, Baby Bunting has seen its profit plummet by two thirds, slashed its dividend, warned of slowing sales since January and will see its CEO exit.

Long serving Baby Bunting CEO Matt Spencer will leave the company at the end of the year.

Baby and infant goods retailer Baby Bunting has revealed a two-thirds slump in its interim profit as earnings were slashed by a blow out in costs, with the company also announcing on Friday its long-serving chief executive Matt Spencer would leave at the end of the year.

The retailer has also slashed its interim dividend by almost 60 per cent and warned that like for like sales growth since the start of 2023 has turned negative.

Baby Bunting said the business had substantially held onto the significant market share gains made over the last three years of Covid, noting that all Baby Bunting stores remained open during that time, but that rising costs and supply chain disruptions had evaporated profits for the first half.

It held out hope that costs would normalise in the second half and the retailer would see an improvement in its margins.

However, the December half was dominated by a slump in profitability and bloated costs, with Baby Bunting announcing that interim net profit had crashed by 66.7 per cent to $2.709bn as revenue lifted 6.6 per cent to $254.865m.

The retailer also announced details of the planned succession process for the CEO after more than 11 years in the role. Mr Spencer will finish with the company towards the end of the year. Mr Spencer joined Baby Bunting in the years before its IPO and led the team that successfully listed Baby Bunting in October 2015.

The CEO departure comes as Baby Bunting hits a hurdle in its traditional strong earnings growth that has characterised its performance in the last few years.

Baby Bunting December half profit down by two thirds comes as pro forma net profit was 59 per cent weaker at $5.1m and inline with a profit warning issued in January that revealed higher costs, changing consumer trends in the baby and infant sector and other operational issues had substantially shrunk its profit for the half.

Baby Bunting said comparable store sales growth for the half was 0.4 per cent, cycling 6.8 per cent in the prior corresponding period. In the first half in-store sales, which made up 80 per cent of sales, performed strongly during the period. These sales grew by 12.2 per cent, largely driven by the core category of nursery essentials.

Online delivery sales grew 6.5 per cent for the period. As consumers have reverted to pre-pandemic shopping behaviours, touchless Click & Collect has fallen in the first half by 30.2 per cent.

The bottom line profit was sunk by higher costs. Gross profit margin finished the half at 37.2 per cent which was down 212 basis points on the prior corresponding period. This was a consequence of several factors including, supply chain cost increases, rapidly increasing domestic transport costs, better than expected engagement with the recently launched loyalty program and the impacts of the contraction of the play gear category, Baby Bunting said.

“As the supply chain impacts seen in the first half normalise, and other management actions undertaken in the second quarter take effect, gross margin recovery is expected to continue through the second half,” it said.

Full year gross margin is expected to be between 38 per cent and 39 per cent. Gross profit percentage for January is in line with the recovery plans and up on the prior year.

Baby Bunting announced an interim fully franked dividend of 2.7c per share, down from 6.6c, payable on March 17 March.

In a trading update also provided, Baby Bunting said sales growth from January to mid-February was 3.3 per cent and like for like sales growth fell 2.1 per cent. It confirmed its earnings guidance for the full year of pro forma net profit of $21.5m to $24m.