Why did this ASX 300 share just crash 12%?

Most companies inside the S&P/ASX 300 Index (ASX: XKO) are moving in a positive direction to start the week off. However, the Baby Bunting Group Ltd (ASX: BBN) share price is not following the crowd as the market digests its FY23 half-year update.

In the early hours of trading, shares in the baby goods retailer are down 11.6% to $2.68 a pop. The move is in stark contrast to the performance of other consumer discretionary shares today. Shares in companies such as Premier Investments Limited (ASX: PMV) and JB Hi-Fi Limited (ASX: JBH) are firming.

It seems shareholders have been shaken by the latest results from Baby Bunting today.

Putting baby in the corner

Investors are turning away from Baby Bunting shares today as they get cold feet from a weak half-year update.

In the lead-up to earnings season, the market eagerly awaits any information to suggest how companies are faring in the current economic environment. Unfortunately for Baby Bunting shareholders, today’s preliminary numbers didn’t meet their expectations.

According to the release, the company’s gross profit margin weakened by 2.1% to 37.2% in the half ending 26 December 2022. But the most debilitating blow for shareholders is likely the staggering 59% slump in group net profits after tax (NPAT). Management attributed the NPAT slashing to its impacted margin and ‘softer than anticipated’ sales in December.

On the bright side, the ASX 300 company managed to increase sales by 6.6% to $254.9 million despite comparing against strong figures from this time last year. The company has been consistently growing its top line at a compound annual growth rate (CAGR) of 13.5% over the last six years.

Commenting on the performance, Baby Bunting CEO and managing director Matt Spencer said:

Our core nursery categories, which are less discretionary such as car safety, prams and feeding,
continued to perform well through the half and are an important part of Baby Bunting’s future
growth and differentiates us from others in the market.

Additionally, management relayed its substantial investment in establishing its New Zealand business in the first half. The company expects to open another store in Christchurch as it works toward its goal of more than 10 stores across the country.

What’s next for this ASX 300 share?

Moving forward, management is taking action to reduce costs and improve margins for the full year. One such adjustment is an amendment to the company’s loyalty program, which has been effective since mid-December.

For FY23, the Baby Bunting team is expecting pro forma NPAT of between $21.5 million to $24 million. Management is expecting the full-year gross profit margin to be in the range of 38% to 39% — which would be an improvement over the recent 37.2% figure.

The Baby Bunting share price has tumbled 49% over the last year. Meanwhile, the ASX 300 index is only down 1%.

The post Why did this ASX 300 share just crash 12%? appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Baby Bunting Group. The Motley Fool Australia has recommended Baby Bunting Group, Jb Hi-Fi, and Premier Investments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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