Baby Bunting’s footprint could double over long run

The Perpetual Pure Microcap Fund participated in the Baby Bunting IPO. Baby Bunting is Australia’s largest speciality baby goods retailer with a network of 31 stores, forecast to expand to 36 by the end of the financial year. The company is set to continue the rollout consistently over the medium term with a long-run target of 70 stores more than doubling the current footprint. Given the pace of rollout in recent years, almost half of Baby Bunting’s stores can be considered immature with annual sales of $4.5m against established stores generating closer to $7m. The maturation of the network will help to underpin like for like growth and drive continued double digit top line momentum, noting sales have compounded at 24% per annum since 2009. We believe the growth in the business will also offer Baby Bunting incremental margin opportunities, with some improvement to gross margin from enhanced buying power and a modest uplift in private label sales. We also anticipate cost of doing business gains as the business leverages central overheads and utilises additional capacity at its distribution centre.