Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi Guys, I have tracked Baby Bunting for a few years and it has been impressive to see its evolution. Their recent results reflect a business that is resilient, and I suspect that in an economic slowdown, this business will show its lesser discretionary nature. What is your view on the recent strategy update, and do you think the business is undervalued by the market at the moment? Thanks, Angela
Hi Angela,
This $600mn nursery retailer and one-stop baby shop has performed well since COVID and it fits nicely into our bullish outlook towards retail over the next 6-12 months.
We viewed last weeks profit report as a solid one showing sales growth of +19%, with over 22% of sales now on-line, however it did prompt downgrades to future earnings expectations – i.e. nearly all brokers that cover it have cut target prices by ~10% following incremental reductions in earnings forecasts i.e. growth not living up to the markets expectations.
That creates a short term headwind that we think will ultimately provide a buying opportunity in the low $4 range. Operationally with over 80% of their business transacted by a “loyalty member” and on-line sales growing we do like the companies direction.
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