The ASX retail stock executing on its turnaround plan and primed for a consumer rebound

Baby Bunting (ASX: BBN) is a highly recognised Australian retail brand, with many parents having made the pilgrimage to a Baby Bunting store to purchase their first pram or car seat since the business was established in 1979. However, the retailer struggled in the years post-COVID, with a failure to modernise resulting in margins under pressure and sales growth stalled.

HMC Capital Partners Fund 1 acquired a ~15% stake in Baby Bunting in early 2024 with a view that the strong brand value, turnaround potential and significant addressable market were underappreciated by the market, and have been actively engaging with the Board and management team to support the return to growth.

With a refreshed management team led by Mark Teperson, Baby Bunting is now on a path to strengthen its market position, grow EBITDA and generate meaningful returns on invested capital.

Delivering on the turnaround

Baby Bunting delivered impressive results for FY25, reporting record sales and NPAT at the upper end of guidance. Gross margin improved by 340bps vs the pcp to 40.2%, beating management’s targeted 40%, and the company is targeting further gross margin expansion in FY26 and beyond.

A key accomplishment during the year was the success of Baby Bunting’s “Store of the Future” concept. The refurbished stores delivered a 28% uplift in sales compared to the prior period, significantly outperforming initial expectations of 10%. Management is now targeting post-refurbishment sales growth of between 15% and 25%, with a less than three-year payback.

Significant Growth Opportunity

As the largest specialist baby goods player in a fragmented market, Baby Bunting’s 75-store network meaningfully outpaces its nearest competitors. With a market share of only 3% in soft goods (clothing, bedding etc.) and 23% in hard goods (prams, car seats, furniture etc.) it has a significant opportunity to continue to grow market share in the $6.3bn Australia and New Zealand baby and maternity goods market.

The company has started FY26 with strong momentum and has a significant runway for earnings growth ahead via:

• Rollout of store refurbishments, with 10 – 12 targeted for FY26;
• Growing the store network, with 5 new large format stores planned in FY26 as well as 3 small format pilot stores;
• Enhancing the customer experience through range innovation and a full omnichannel offering, including same day delivery;
• Continued success in securing exclusive brands and expanding private label to grow margin; and
• Leveraging significant customer data to build new media revenue stream.

With execution of the strategy well underway and interest rate easing providing relief to consumers, Baby Bunting is well positioned to deliver improved shareholder returns. While the stock rallied hard on the full year result, up 40.5% on the day, the operating leverage and growth potential of this unique business means HMC Capital Partners sees plenty of further upside from here.

The Baby Bunting case study builds on the increasing turnaround track record of HMC Capital Partners Fund I, where we have played similar proactive roles in the turnaround story of Sigma Healthcare (ASX: SIG), Ingenia Communities (ASX: INA) and now Baby Bunting.

Exposure to a high conviction equities portfolio targeting outsized returns through a highly active management approach

HMC Capital Partners Fund I (Fund), is an Australian-domiciled unlisted fund providing exposure to a high-conviction investment strategy seeking to generate superior risk-adjusted returns. Find out more here.