Why is this ASX retail stock rocketing 17% during today's market selloff?

This retailer has reported a big improvement in its performance.

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The market may be sinking today, but the same cannot be said for one ASX retail stock.

That stock is Baby Bunting Group Ltd (ASX: BBN).

In morning trade, the baby products retailer's shares are up 17% to $1.45.

This compares very favourably to a 1.5% decline by the All Ordinaries index.

Why is this ASX retail stock rocketing?

Investors have been fighting to get hold of the company's shares today following the release of a trading update ahead of its investor day event.

According to the release, Baby Bunting's performance has improved markedly since its last update.

Total sales from 1 May 2024 to 24 June 2024 were up 1% compared to the prior corresponding period.

And while comparable store sales for the period were still down 0.7% versus the same period last year, this is a significant improvement on what was recorded during January to April. During that period, sales were down 7.7% year on year.

Management notes this improvement reflects the benefits of recently introduced new product assortments, a renewed focus on new customer acquisition, the introduction of a refreshed promotional engagement, and a proactive branding and go-to-market campaign.

In light of this, the ASX retail stock has reaffirmed its FY 2024 pro forma net profit after tax guidance range of $2 million and $4 million.

Management hopes to build on this in FY 2025 and beyond. Its investor day presentation details a five-year strategy that is designed to stabilise and optimise its existing business and provide the blueprint for delivering future growth and over 10% EBITDA margin.

It aims to achieve this by lowering variable costs, leveraging its systems investment, and simplifying its operating structure.

Debt facilities update

Baby Bunting also revealed that its existing National Australia Bank (ASX: NAB) debt facility of $70 million has been rolled over on the same pricing terms.

It was due to expire in March 2025 but has now been extended for a further three years and will mature in September 2027 instead. Management believes this renewed three-year deal provides Baby Bunting with the headroom to support its growth strategy and demonstrates NAB's continued support of the business.

The ASX retail stock's CEO, Mark Teperson, was pleased with the company's performance. He said:

While it is still early days it is pleasing to see the impact of some of our strategic initiatives on our comparable sales performance over the past eight weeks.

We have today in a separate announcement to the ASX released details of our five-year strategy which is designed to stabilise and optimise our existing business and provide the blueprint for delivering future growth and over 10% EBITDA margin.

We are making good progress in implementing the first phase of our strategic initiatives including the introduction of a program of work to simplify our pricing strategy, renegotiating supplier trading terms, and enabling online fulfilment through all stores which is strengthening our operating leverage and inventory utilisation. We've also been focused on expanding our newly established New Zealand team to drive growth in that market.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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