Baby Bunting downgrades guidance amid consolidation

Baby Bunting1Baby Bunting has cut its full year earnings guidance after retail death in the baby goods category adversely impacted its start to the fourth quarter.

The specialist baby retailer said on Tuesday that it now expects earnings before interest, tax, depreciation and amortisation (EBITDA) to be in the $18-$20 million range, down from the $23 million previously forecasted.

The recently flagged administrations of its third and fourth largest competitors, Baby Bounce and Baby Savings, have ruined the company’s sales performance in recent weeks amid elevated levels of clearance discounting.

Baby Bunting’s comparable sales growth have sunk from 4.7 per cent in the third quarter to negative 2.5 per cent in the first six weeks of the fourth quarter as a result of the discounting and reduced volume.

Chief executive and managing director Matt Spencer said there had been “unprecedented” change in the baby goods sector throughout FY18 that has left Baby Bunting and Toys ‘R’ Us owned Baby’s ‘R’ Us as the last major players standing in the market.

“We’ve seen unprecedented changes in our industry and category throughout the year,” he told Inside Retail on Tuesday.

Spencer did not rule out elevated discounting impacting the first quarter of fiscal 19, outlining his expectation that current conditions should subside in due course.

“Those stores are going through administration … its carrying at the moment and you’d expect an end date in the near future.”

Baby Bounce collapsed in April and is proceeding to wind down its ten locations in NSW and Queensland, while Baby Savings four NSW stores are understood to also be closing after it also fell into administration.

Last month both businesses were clearing stock, with Baby Bounce swiping up to 80 per cent off in its Chatswood store in Sydney and Baby Savings dropping prices by between 15 – 65 per cent in Chatswood, Prospect and Kotara.

Baby Bunting’s entire financial year has been hampered by consolidation, including a 27.2 per cent decline in its first half profits.

But the business is already making plans to capitalise on the downfall of its competitors, similarly to stores it opened in place of Bubs Baby Shops after it fell into administration last year.

While Baby Bunting stores already exist in 10 of the 14 catchments Baby Savings and Baby Bounce traded in, a store will likely be opened in Chatswood in the first quarter.

“The Chatswood store will service a market previously supported by two and one Baby Bounce store,” Spencer said.

Spencer is optimistic about increasing market share in fiscal 19 in the wake of the closures and remains unconcerned about online players like Amazon inching in on any emerging gaps in the market.

“At the end of the day we’ve got a really strong business, we’re rolling out stores and we’re growing share,” he said.

“We’re differentiating ourselves from those online pureplays … parents like to come in and touch and feel products.”

Baby Bunting’s year-to-date sales have increased by 9.6 per cent on the back of a 13.1 per cent increase in transaction volume, while comparable sales are flat year-on-year.

The business is due to release its audited full year result on 10 August.

Updated 11:40 AEST – clarifying that Baby Bunting will open a new store in Chatswood rather than moving into Baby Savings now closed store.

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