Despite Baby Bunting Group (ASX: BBN) reporting a 14.6% increase in FY22 net profit after tax to $19.5m, the nursery retailer was down -4.12% heading into lunch today.
At face value, the market should have been similarly impressed with the mid-cap exceeding the $500m in sales milestone ($507.3m), 8.3% higher than that of the previous period.
Equally appealing, a final dividend of 9 cents per share (cps) will be paid 9 September, taking full year payout to 15.6 cps, up 10.6% on FY21.
But what presumably spooked investors today was management’s unwillingness to provide any earnings guidance.
While management alluded to a bright future for the kids products business, citing economic uncertainty, inflation, and other global challenges - as the reason not to guide to FY23 numbers - may have been seen as an underling lack of confidence.
Whether management is consciously taking a ‘let’s under-promise and over-deliver’ stance remains to be seen.
What may have also unnerved investors this morning were management’s revelations that the long tail of covid-induced sales growth is no longer wagging.
“We expect comparable store sales growth to moderate as we cycle periods affected by lockdowns throughout Australia,” management noted.
While up 5% for the full year, comparable store sales as at 10 August were 15.3% year-to-date - cycling -6.4% in the previous period - while total sales growth has been 19.3%.
On a pro forma basis, NPAT was $29.6m, up 13.6% on the previous period
Pro forma earnings (EBITDA) was $50.5m, up 16.1%.
Australian NPAT climbed up 20% to $31.1m.
On a two-year basis, sales have grown by 25.% or $102.1m.
Earnings (EBITDA) up 16.1% to $50.5m
Online sales grew 24.2% to $112.7m and represent 22.2% of all sales
$1.5m in one-off costs associated with enter the NZ market
Through growth of online sales and an increase in certain category ranges beyond 0-3 years, the group plans to expand its addressable market opportunity from $2.5bn to $3.5bn.
The store network in Australia is expected to grow to over 110 stores, up from 100 stores currently, while 10 more stores are earmarked for NZ.
The group expects to open at least six new stores in Australia in FY23.
Baby Bunting Group share price: A 12 month snapshot.
The group’s share price is down -22% over the last year, and -8% year-to-date.
Consensus is Strong Buy.
Based on Morningstar’s fair value of $5.47 the stock appears to be undervalued.
Based on the five brokers that cover the group (as reported on by FN Arena) the stock is trading with 29% upside to the target price of $5.97.
While Citi awaits greater clarity on the cost outlook, the broker retains a Buy rating $6.22 target and notes an increase in the long-term rollout [in Australia] and a lift in the total addressable market.
Macquarie doesn’t expect potential expansion into lower revenue regions to overly dilute profitability, and retains an Outperform rating with the target falling to $6.05 from $6.21.
Expect broker revisions later this week.
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