Key Takeaways

  • FY26 pro forma NPAT is guided to $16.0 million to $17.0 million, down from February's $17.5 million to $19.5 million but 32% to 40% above FY25.
  • Comparable store sales growth of about 3.5% missed the 5% to 7% guided in February.
  • Gross margin is expected above 41% against 40.2% in FY25, with a 42% target flagged for FY27.
  • Refurbished Store of the Future sites lifted sales about 18%, but the capital bill has risen sharply and no dividend has been paid since March 2024.

A softer fourth quarter forced Baby Bunting to cut its full-year profit forecast in late June, yet the baby goods retailer still expects pro forma net profit to grow by roughly a third. With shares near multi-year lows and results due on 14 August 2026, investors are weighing a real margin recovery against a stalling sales line.

FY26 pro forma NPAT is guided to $16.0 million to $17.0 million, down from February's $17.5 million to $19.5 million but 32% to 40% above FY25.

Comparable store sales growth of about 3.5% missed the 5% to 7% guided in February.

Gross margin is expected above 41% against 40.2% in FY25, with a 42% target flagged for FY27.

Refurbished Store of the Future sites lifted sales about 18%, but the capital bill has risen sharply and no dividend has been paid since March 2024.

Few ASX-listed retailers have had a rockier five years than Baby Bunting Group Ltd. The Dandenong South-based chain sells prams, car seats, cots, nursery furniture and consumables to parents of newborns through to toddlers, dominating a category most competitors treat as a sideline. A gross margin collapse in FY24 cut statutory net profit to $1.7 million and dividends stopped.

The recovery under managing director and chief executive Mark Teperson, who joined from Afterpay in October 2023 and succeeded long-serving chief Matt Spencer, rests on two ideas: rebuilding gross margin through exclusive and private label product, and physically rebuilding the store fleet under a program called Store of the Future. Both worked in FY25 and again in the December 2025 half. Then the fourth quarter arrived. On 24 June 2026 the company said trading had softened and cut full-year guidance for the first time under the current strategy. Shares closed at $1.125 on 24 July 2026, a market capitalisation near $152 million against a 52-week high of $3.29, on StockAnalysis data.

What Has Happened?

The 24 June trading update put FY26 pro forma net profit after tax at $16.0 million to $17.0 million, growth of 32% to 40% on FY25's $12.1 million. At the half-year result on 17 February 2026 the company guided to $17.5 million to $19.5 million, itself a narrowing of the $17.0 million to $20.0 million issued with the FY25 accounts in August 2025. Second-half guidance fell from $12.5 million to $14.5 million down to $11.0 million to $12.0 million.

Sales held up better than profit, expected at $553 million to $555 million for FY26, about 6% above FY25's $521.9 million. Comparable store sales, which strip out new-store contribution to measure like-for-like performance, should grow about 3.5% with the second half near 3%. February guidance called for 5% to 7% full-year and 6% to 8% in the second half, so that is where the miss sits.

Mr Teperson attributed the softness to three Reserve Bank cash rate rises in the second half plus higher fuel prices, which pressured household spending and distribution costs. RBA data confirms increases on 4 February, 18 March and 6 May 2026 taking the cash rate target to 4.35%. Weakness was concentrated in higher-priced prams and car safety products, dragging on average transaction values. Results for the year to 28 June 2026 are due on Friday 14 August 2026.

Understanding the Company

Baby Bunting is the only national specialty retailer of its kind in Australia and New Zealand. At 28 December 2025 it operated 79 stores, up from 76 a year earlier, including five in New Zealand. Management sizes the addressable market at about $6.3 billion and its share of Australian hard goods near 23%. The model pairs durables customers want to touch before buying with consumables that bring them back.

Two levers drive the strategy. The first is mix: exclusive and private label ranges reached 48.6% of sales in the December half, up 250 basis points, and carry higher margins than third-party brands. The second is the fleet. Store of the Future is a full refurbishment format; nine converted stores were trading at the half, averaging 25% sales growth since reopening against a 15% to 25% target.

Digital is the quieter third leg, at 24.8% of sales in the December half from 22.4% and growing about 16% across the year. A small-format concept, Baby Bunting Junior, is in pilot at three sites, one on plan and two below expectation.

Financial and Operational Position

The December 2025 half is the most recent reported window. Sales of $271.4 million rose 6.7%, comparable store sales grew 4.7% and gross margin expanded 124 basis points to 41.0%. Pro forma NPAT was $5.0 million, up 4.1%, while statutory NPAT fell to $1.8 million from $3.9 million after significant items.

The balance sheet is absorbing the refurbishment program. Net debt was $21.1 million at the half against $9.1 million a year earlier and $4.6 million at 30 June 2025, and is guided to about $20 million at year end. Inventory rose to $107.0 million from $95.6 million at the FY25 close. FY26 capital expenditure guidance was lifted to $41 million to $43 million excluding landlord contributions, well above the $30 million to $35 million indicated in August 2025.

Refurbishment cost is the number to watch. Average spend per converted store was $1.7 million in the December half; management targets $1.0 million to $1.4 million for metropolitan sites and $0.8 million to $1.0 million regional by FY27, while holding payback under three years. No dividend has been declared since the 1.8 cent interim paid in March 2024. New Zealand, far from being exited, is the fastest-growing region: comparable sales rose 16.5% in the half, gross margin improved 140 basis points to 38.4%, and breakeven is targeted for FY27.

Why the Development Matters

The downgrade is unusual in composition. Profit guidance fell while sales guidance held and second-half gross margin was upgraded to about 41.5%. That points to a demand problem in higher-ticket categories rather than a margin problem, and shows how little flex the cost base has when comparable sales slow from 4.7% to roughly 3%.

It also complicates the refurbishment arithmetic. A sub-three-year payback assumes a durable uplift on top of an underlying network trend. If the base grows at 3% rather than 6%, the return on a $1.7 million conversion is thinner than on the reduced cost management targets. With 75 refurbished stores planned by FY28 and 10 to 15 conversions a year from FY27, that gap compounds.

The structural backdrop neither rescues nor sinks the thesis. Australian Bureau of Statistics figures released on 15 October 2025 recorded 292,318 registered births in 2024, up 1.9%, with the total fertility rate at 1.481 births per woman, below replacement since 1976. Part of that rise reflected Victoria clearing a registration backlog. The birth cohort is effectively flat, so growth must come from share, basket size and margin.

Risks and Challenges

Execution risk is concentrated and largely self-inflicted. Refurbishing a store means closing it, and management has flagged the drag from lost trading days and diverted sales. Running 10 to 15 conversions a year with capital expenditure above $40 million leaves little room for another sales disappointment before net debt becomes a constraint, with inventory already $11 million above the FY25 close.

The consumer backdrop is the second risk. Three rate rises in six months removed the tailwind retailers enjoyed through 2025, and exposure to big-ticket items such as prams makes the business sensitive to deferral. Competition from Amazon, department stores and direct-to-consumer brands persists in the categories where the company earns its margin.

The register has been shifting too. HMC Capital's voting power fell to 13.15% on 18 June 2026 from 16.81% after in-specie distributions to unitholders, while Pinnacle Investment Management became a substantial holder at 5.00% in May 2026. The company also disclosed in November 2025 that Mr Teperson had been diagnosed with a low-risk form of myelofibrosis, the board saying it expected no impact on his ability to perform the role. Key-person exposure to a strategy this closely identified with one executive remains material.

What Investors Should Watch Next

The 14 August result is the first hard test. The most informative disclosures will be average capital cost per refurbishment, the uplift for stores trading in the new format for more than a year, and closing inventory.

Whether comparable sales in the opening weeks of FY27 hold above the 3% second-half exit rate.

Closing FY26 inventory against the $107.0 million recorded at the December half.

Any FY27 guidance for profit, comparable sales and capital expenditure, and whether the board restores a dividend after more than two years.

Conclusion

Baby Bunting is doing the difficult part reasonably well. Gross margin has climbed from a low base through FY25 and FY26 without discount-led volume, New Zealand has turned from a drag into the fastest-growing region, and refurbished stores are delivering uplifts at the top of the targeted band. The turnaround is real on those measures.

What June exposed is how little slack sits between that progress and the profit line. One soft quarter removed roughly $2 million from full-year guidance at a business earning $16 million to $17 million pro forma on $554 million of sales. Until refurbishment cost per store falls and the sales base grows faster than a flat birth cohort, the program will keep consuming capital ahead of the earnings it generates.