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Baby Bunting downgrades full-year guidance

Baby-Bunting-Store-facadeBaby Bunting has downgraded its full-year earnings guidance, after sector consolidation and clearance activity has driven short term pricing and margin deflation.

The baby goods retailer on Monday said it expects 2017/18 earnings, excluding employee equity incentive expenses, to be similar to the $23 million it delivered in the previous year.

Baby Bunting shares have slumped over 9┬áper cent after the retailer’s announcement.

It had previously forecast earnings between $25.3 million and $27 million, but after prices and margins suffered amid challenging market conditions.

Chief executive Matt Spencer said market pricing had not stabilised as industry consolidation and aggressive discounting continued.

“Given the challenging conditions in the first four months, we think it appropriate to adjust our guidance,” Spencer said.

“Nevertheless, the business is performing well and we believe our strategy is working.”

Spencer said the introduction of ‘everyday low pricing’ on the company’s core range of car seats in late July had helped the baby goods retailer grow market share.

Baby Bunting’s total sales for the four months to November 13 were up 11.4 per cent, Spencer said, but comparable store sales were flat.

The company has experienced price deflation of 4.3 per cent in the current financial year, which began on June 26.

As a result, gross margin is currently running about 170 basis points lower than the prior year’s level and this is likely to be reflected for the first half, Spencer told shareholders at the company’s annual general meeting on Monday.

While gross margin will continue to improve over the year, the full-year margin is expected to be about 100 basis points below the prior year’s level, he said.

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