Baby Bunting Group Limited (ASX: BBN)

Baby Bunting Group’s Stock soared 10.7% on May 10, 2018 with emanating positive sentiments and it further appears that some bargain investors may be leveraging the recent price dip with some short sellers also buying into BBN.

The nursery retailer serves as a one stop baby shop which deals in offering various products ranging from prams to food and formula products, and thus sometimes gets associated with the product category.

While the stock has been up lately, BBN had earlier cited that two of its competitors have recently entered external administration and were the third largest (Baby Bounce) and equal fourth largest (Baby Savings) specialty baby goods retailers. Owing to this development, BBN’s sales and gross margin performance has been adversely affected. The comparable store sales growth of 4.7% in Q3 could not be sustained and the group’s comparable store sales in the first 6 weeks of Q4 were reported to be negative 2.5%, driven by a higher level of market discounting and reduced transactional volumes as competitors liquidate stock. The group also highlighted that FY2018 EBITDA (excluding employee equity incentive expenses) will be in the range of $18 to $20 million, unless there is a material change to market conditions.
On the other hand, group’s year to date total sales have grown 9.6% with transactional growth of 13.1%; while comparable store sales have been flat with comparable store transaction growth of 2.7% year to date. While the fate of the competitors might favour Baby Bunting Group, investors can wait for further catalysts in view of the fact that the group lowered the guidance. Meanwhile, AustralianSuper Pty Ltd has increased its stake to 10.47% from 9.39%. We believe that the stock can be watched out for growth drivers, while it looks “Expensive” at the current price.

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