Why the Baby Bunting (ASX:BBN) share price is tumbling 10% lower

The Baby Bunting Group Ltd (ASX: BBN) share price is on course to end the week on a disappointing note.

In morning trade, the baby products retailer’s shares are down 10% to $5.05.

Why is the Baby Bunting share price tumbling lower?

Investors have been selling Baby Bunting shares this morning following the release of its half year results.

According to the release, for the six months ended 31 December, Baby Bunting delivered exceptionally strong sales and profit growth.

Following a 15% increase in comparable store sales (or 21.8% excluding Victorian stores) and a 95.9% increase in online sales, the company delivered a 16.6% increase in total sales to $217.3 million.

And thanks to a 41-basis points expansion in its gross margin, the company recorded a 43.5% increase in pro forma net profit after tax to $10.8 million. This result was achieved without any government support during the pandemic.

Its margin improvement was driven by private label growth and stronger buying power.

In light of its strong profit growth, the Baby Bunting board elected to increase its fully franked interim dividend by 41.4% to 5.8 cents per share.

How does this compare to expectations?

Although the company delivered very strong sales and profit growth, the latter fell short of expectations. This appears to be what is weighing on the Baby Bunting share price today.

According to Morgans, its analysts were expecting a 53% increase in net profit to $11.4 million. This compares to its actual profit growth of 43.5% to $10.8 million.

Mangement commentary

Baby Bunting’s CEO & Managing Director, Matt Spencer commented: “Maternity and baby goods are essential products for parents and parents-to-be and are less discretionary in nature. Our strong comparable store and total sales growth performance demonstrates that we continue to deliver on our strategy of growing market share.”

“Sales in all channels were up. Our online sales growth in the half was very pleasing, with total online sales (including click & collect) up 95.9%. Significantly, we still have over 90% of sales occurring or being completed in our stores highlighting the importance of our store network across Australia. And we continue to progress our store network expansion in Australia with three stores opened in the half and more planned for the period ahead,” he added.

At the end of the period there were 59 Baby Bunting stores around Australia, with plans to see a network of over 100 stores in the country in the future.

The company also revealed that after a successful online launch in New Zealand, it now plans to open its first physical store in the country in FY 2022.

Outlook

Baby Bunting has started the second half in equally positive form.

Management advised that it achieved comparable store sales growth of 18.5% during the first six weeks of the second half. This lifts its year to date comparable store sales growth to 15.7%.

However, due to COVID-19 uncertainty, it was unable to provide guidance at this point.

More reading

• 2 ASX shares rated as strong buys by brokers
• The Baby Bunting (ASX:BBN) share price is trading near record highs
• Top brokers name 3 ASX shares to buy today
• 2 ASX retail shares delivering stellar growth in FY 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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