Why Baby Bunting Group Ltd's shares surged higher today

Is Baby Bunting Group Ltd (ASX:BBN) the best retail investment on the ASX? Today's AGM presentation makes me think it might just be.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This morning the shares of Baby Bunting Group Ltd (ASX: BBN) opened over 5% higher at $2.89 following the release of its annual general meeting presentation.

Investors have clearly been impressed with its performance thus far in FY 2017. The presentation revealed Australia's largest baby products retailer has seen comparable store sales increase by 10% for the first four and a half months of FY 2017.

By comparison Myer Holdings Ltd (ASX: MYR) recently reported growth of 1.6%, and RCG Corporation Ltd (ASX: RCG) and Premier Investments Limited (ASX: PMV) each grew same store sales at 3.5% in FY 2016.

Baby Bunting's performance is all the more impressive when you take into account the strong comparable store sales growth last year which it was up against. For the first half of FY 2016 Baby Bunting reported comparable store sales growth of 9.2%.

Moving forward though management does expect comparable store sales growth to moderate and be in line with the historic average of mid-single digit growth.

The strong performance of its stores, together with the addition of four new store openings, led to sales growth of 20.3% at 13 November 2016. With up to four more stores due to open before the end of its fiscal year, the company looks well positioned for another impressive full year result.

But despite the strong start to the year, management has only reaffirmed its full year EBITDA guidance of between $21.5 million and $24.5 million. This equates to year-on-year growth of between 15% and 31%.

With its shares changing hands at 39x full year earnings, I believe the company will need to at least hit the high end of its guidance range to justify the premium.

Thankfully I expect the company will deliver on this and therefore feel it is a great investment option for investors looking for exposure to Australia's retail sector.

With 39 stores operating and management intending to expand to 80 stores, I believe there is still a large runway for growth within the Australian market. After which the company may have to look overseas for growth.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »