Baby Bunting shares dive after profit warning as consumers pullback on spending

The baby clothing and accessories retailer’s shares nosedive after joining a growing list of companies to warn on profit as consumers pullback on spending.

Investors dumped Baby Bunting shares on Tuesday after the retailer revealed crashing sales and issued a harsh profit warning.

It said annual profit could potentially slump by almost half as the retail chain fell victim to a significant consumer spending slowdown.

The group’s same-store sales growth has fallen off a cliff, diving 21 per cent, while profit margins will also be weaker than expected to underline the stress shoppers are under at the moment as interest rates continue to climb, rents spike and other household bills are forcing a clamp down on non-essential purchases.

Baby Bunting – which has 69 stores in Australia and one in New Zealand – conceded that a key stocktake promotional event had failed to find traction with shoppers, with trading both in the stores and online well below expectations over the period of the promotional campaign.

As at June 4, total sales growth was only 1 per cent and like for like store sales growth was negative 3 per cent. Since the launch, sales have been unprecedentedly low, with comparable store sales of around negative 21 per cent, Baby Bunting warned.

“If this trend continues, the company expects fiscal 2023 sales to be in the range of $509m to $513m and comparable store sales to be negative 4 per cent to negative 5 per cent,” the company said.

“As June delivers a larger proportion of the company’s second half profit, a continuation of the current trend will have a significant impact on the company’s full year profit result.”

Accordingly, pro forma net profit after tax is now expected to be in the range of $13.5m to $15m for 2023. This compares to previous guidance of pro forma net profit after tax in the range of $21.5m to $24m.

The dour profit outlook panicked investors, sending Baby Bunting shares down as much as 25 per cent before later closing down 30c, or 17 per cent, to $1.48.

Baby Bunting said gross margin performance up until the end of May was on track to land within the lower end of the company’s expected full year gross margin range of 38 per cent to 39 per cent. The company now anticipates that the full year gross margin performance will be moderately below the bottom end of that range.

Inventory levels are expected to finish around $100m for the year, against $96.7m in 2022. There is limited exposure to seasonal stock, Baby Bunting said.

Toby Harpham with his son Fred shopping at a Baby Bunting store. Picture: Adam Smith

Baby Bunting’s profit warning and crashing sales is becoming a growing trend within the retail sector as more firms come out to reveal that over the last few months their once strong sales and profit trajectories had begun to dive.

Most have blamed weakness in discretionary spending by the consumer as the cumulative weight of a year of rising interest rates, higher rents and other cost of living pressures puts the squeeze on household budgets.

In the last few weeks retailers such as Treasury Wine Estates, jewellery chain Michael Hill, foods business Maggie Beer Holdings, fashion and accessories chain Universal Store, candle seller dusk and home furnishings retailer Adairs have issued profit warnings off the back of a pullback in consumer spending.

This month Wesfarmers boss Rob Scott, who oversees a number of the country’s biggest retail chains, such as Bunnings, Kmart, Coles, and Officeworks, warned the “honeymoon is very much over” for the retailer, as surging mortgage repayments bite into household budgets and the spending tailwind from the Covid cash splash runs out of puff.

Baby Bunting last month announced the appointment of former Afterpay executive Mark Teperson as its new chief executive, starting from October 2. Baby Bunting will release its full-year results on August 11.