Baby Bunting ((BBN)) is growing strongly. First half results were broadly in line with broker estimates although gross margins were soft. Morgans believes the company’s strategy of investing some of its top line back into prices and customer service is the right one and should confirm the company’s proposition as a category killer in the baby/nursery goods segment.
FY19 results beat Morgan Stanley's estimates at every line. Moreover, the broker was surprised by the outlook which points to the durability of the company's leadership. FY20 estimates for earnings per share are lifted 8%.
As several more players in the Australian baby goods industry have entered into administration this provides further headwinds for sales and margin at Baby Bunting as clearance activity ramps up, and there could be a risk to FY18 guidance, Morgans notes.
Baby Bunting’s result was in line with guidance downgraded in November. The second half has started well and the broker has confidence in FY guidance given margins have stabilised, new prams are set for release, car seat restocking will help drive sales and a major competitor has closed.