Baby Bunting Group (ASX:BBN) reported record sales and record gross margin for the first half of FY 2026, with management pointing to accelerating comparable store sales, early benefits from its “Store of the Future” refurbishment program, and continued growth in online and New Zealand.
Record sales and margin as comparable growth accelerates
CEO Mark Teperson said total sales rose 6.7% year-over-year, driven by comparable store sales growth of 4.7%, which exceeded the company’s guidance for the half. CFO Darin Hoekman added that comparable sales improved through the half, rising 3.7% in Q1 and 5.6% in Q2, and said the improving trend had continued into the second half.
Store of the Future delivering uplift; network optimization continues
Teperson highlighted early validation from the Store of the Future program. During the half, Baby Bunting refurbished six more locations, bringing the cohort to nine trading stores. Since reopening, the refurbished stores delivered an average sales uplift of 25%, at the top end of the company’s 15%–25% target range.
In Q&A, Teperson said the company is tracking customer behavior metrics—including new and returning customer rates, purchase frequency, average transaction value, average selling price, and basket size—to identify variability across locations and pinpoint levers to improve performance. He also said the company is learning how demand shifts after refurbishments and has identified opportunities to improve on-shelf availability through stock replenishment tuning.
On the timing of uplift, Teperson said the company’s 15%–25% expectation reflects cumulative performance in the first year post-refurbishment, with performance moderating over time.
Operationally, Baby Bunting also opened two new large format stores and continued “actively optimizing” the network. Teperson said the company exited its only loss-making large format store and relocated another to a stronger retail precinct within the same catchment.
Profit outcome, costs, and margin drivers
Gross margin reached a record 41%, up 124 basis points year-over-year. Management said margin expansion reflected initiatives including the annualization of supplier trading terms renegotiated over the past 18 months and increasing penetration of exclusive brand partners.
Hoekman noted “Flex” reached 48.6% of sales and said soft goods sales increased 14.2% for the period, which he attributed to product innovation and merchandising changes in the Store of the Future format. In New Zealand, gross margin expanded 140 basis points alongside comparable sales growth of 16.5% in the first half.
Pro forma NPAT was AUD 5.0 million, at the midpoint of Baby Bunting’s guidance range of AUD 4.5 million to AUD 5.5 million. Excluding significant items related to store closures and refurbishments, management said underlying NPAT was AUD 7.2 million, up 44% year-over-year, with underlying EBITDA at 6% of sales.
Hoekman said the first-half guidance had included network optimization costs and store refurbishment expenses, including accelerated depreciation and relaunch costs. He also said the company incurred additional Q2 costs above those assumed in first-half guidance, including higher “make-good” costs at site exits and compliance costs tied to mandatory standards changes and tax compliance.
Cost of doing business (CODB) increased due to deliberate investment in growth and capability. Hoekman said AUD 2.6 million of CODB increases related to store network expansion, and he outlined increased investment in the retail media team, merchandise capability, data and analytics, and marketing.
Marketing investment rose AUD 1.8 million to 2.7% of sales. The company said spending supported Store of the Future launch campaigns and broader brand and social advertising, and management expects marketing to stabilize relative to sales beyond the period.
Asked about second-half CODB, Teperson said the company anticipated CODB leverage through the second half and beyond, while noting higher second-half depreciation due to increased first-half CapEx investment.
Online growth, retail media, and small-format pilots
Online sales growth remained a bright spot. Hoekman said online sales, including click and collect, grew 18% year-over-year and represented 24.8% of total sales, driven by same-day and next-day delivery and scaling fulfillment across the store network. Teperson said online fulfillment is now 100% from stores, which he said supports faster delivery and optimizes delivery costs while leveraging store labor more efficiently.
The company’s retail media program also grew, with Teperson saying supplier campaigns had strong uptake and the business was tracking to plan at 1% of sales. Management reiterated its target of an AUD 2 million to AUD 3 million incremental gross margin contribution from retail media in FY 2026.
Baby Bunting launched three “junior” small-format pilot stores in the half. Teperson said the smaller format is designed to extend the brand into higher-density catchments with lower capital intensity, targeting AUD 2.5 million in annual revenue and a 50% return on invested capital. Early indicators were described as encouraging, with all three stores achieving gross margin targets and “strong” in-store conversion.
However, Teperson said one store was trading to plan while two were below initial sales expectations, though improving. He said a key issue was converting passing shopping-center traffic into store visits, and that in-store conversion and category performance were consistent across the three. Teperson and Hoekman said competitive intensity was not meaningfully different across the three locations.
Balance sheet, CapEx, New Zealand progress, and outlook
Hoekman said the balance sheet remained healthy after a period of elevated investment. Inventory ended at AUD 107 million, up AUD 9 million from the prior half year, which management tied to five new stores and increased safety stock in prams and car seats supporting exclusive product growth. Net debt was AUD 21.1 million, and the company said it had covenant headroom and financial flexibility.
Cash conversion was 70.9%, in line with historical averages and the company’s targeted range. First-half investment expenditure totaled AUD 25.9 million as the company accelerated from pilot to a broader refurbishment program. For the full year, Baby Bunting now expects CapEx of AUD 41 million to AUD 43 million, excluding AUD 2 million of rent-free landlord contributions (AUD 1 million received in the first half and a further AUD 1 million confirmed for the second half). Second-half CapEx is expected to be approximately AUD 15 million to AUD 17 million.
Teperson said first-half refurbishments averaged AUD 1.7 million per store, above original estimates as the company prioritized speed to market, including higher build costs such as air freight. He said the business case remains based on sub-three-year paybacks, and the company expects average refurbishment investment to decline to about AUD 1.5 million per store in the second half as efficiencies are implemented.
In New Zealand, management said the business delivered 16.5% sales growth in the first half and sees a pathway to profitability from FY 2027. Teperson said unaided brand awareness rose 600 basis points nationally and 800 basis points in Auckland following a brand awareness campaign, and noted the first Store of the Future in Auckland opened in December with strong initial sales performance. New Zealand comparable sales growth was up 17.8% in the first seven weeks of the second half.
Baby Bunting also announced a new three-year exclusive partnership with Stokke, which management said would begin in April with plans to launch in the final quarter and build momentum into FY 2027.
For trading and guidance, Teperson said comparable store sales growth was 6.7% in the first seven weeks of the second half, with New Zealand up 17.8%. The company plans to refurbish six stores in the second half, open two new large format stores, and continue refining the small-format pilots. Baby Bunting reaffirmed second-half pro forma NPAT guidance of AUD 12.5 million to AUD 14.5 million and said full-year pro forma NPAT is expected to be AUD 17.5 million to AUD 19.5 million. In Q&A, Hoekman said FY 2026 depreciation and amortization is expected to be around AUD 44 million.
About Baby Bunting Group (ASX:BBN)
Baby Bunting Group Limited, together with its subsidiaries, operates as specialty retailer of maternity and baby goods in Australia. The company's principal product categories include prams, cots and nursery furniture, car safety, toys, babywear, feeding, nappies, and Manchester and associated accessories. Its products primarily cater to parents with children from newborn to three years of age, and parents-to-be. The company operates various stores in Australia and New Zealand, as well as sells products through babybunting.com.au, an online store.
-limited-logo-1200x675.jpg?v=20221202155455&h=45&w=95&zc=2){kind=logo}
