Small Caps | 11:00 AM
Baby Bunting’s AGM update largely ticked the financial performance boxes against a challenging consumer environment, but is the stock’s valuation disconnected from its growth outlook?
- Shares in Baby Bunting have been significantly de-rated in 2026
- Year-to-date comparable sales are moderating, but still growing
- Refurbishment strategy continues to boost sales growth
- Gross margins are holding up and remain key to guidance
By Danielle Ecuyer
Australia's small caps remain under pressure
It’s not as if any Australian investor needs reminding about just how challenging small-cap stock performance has been.
Looking through the prism of multiple headwinds, higher interest rates, an ongoing Middle East war driving up energy costs and the multiple impacts of the Federal Budget are but a few of the major factors weighing on consumer sentiment and household wallets.
Yet, Baby Bunting ((BBN)), Australia’s largest specialist provider of baby goods by store count, remains a staunch favourite among analysts.
It is a small, consumer-facing business with a specific market niche that continues to revitalise its in-store footprint and customer experience.
The stock’s valuation has noticeably de-rated over the year past, leaving it with a market capitalisation of around $153m and its share price trading near a 52-week low.
For context, Baby Bunting set about reshaping its stores for the future, with management referring in its May 2025 presentation to a total addressable market of $6.3bn across A&NZ, and growing.
Management expects that by 2030, Gen Z would be its core customer. The existing store fleet (43) at the time was based on a design that was over 17 years old and pre-dated the launch of the smartphone and social media.
The plan was accompanied by a full suite of strategic store format resets to capture the hearts, minds and wallets of consumers.
The retailer opened seven new stores in FY26 and plans three new large-format stores in FY27, along with 10–12 store refurbishments.
AGM trading update
Fast forward to the AGM, where a trading update for the first 14 weeks of FY27 was provided.
For Morgans, the growth in same-store sales (SSS) of 2.2% y/y was as expected and reflected a moderation in growth from 4.3% y/y in the first six weeks of FY27.
The slowdown is attributed to the ramp-up of temporary store closures. Seventeen stores have been refurbished to the Store of the Future format and are putting the proverbial runs on the board.
Average sales growth of 20% has been generated in the first year after reopening, at the upper end of the 15%–20% target range.
As observed by Morgan Stanley, the trend indicated at the AGM aligns with comments from the FY26 results, where the retailer stated, “We expect comparable store sales growth to moderate as we ramp up the first-half refurbishment program”.
Morgan Stanley emphasises that SSS growth, excluding refurbishments, of 2.2% y/y year-to-date cannot be directly benchmarked against FY27 SSS guidance of 3%–5%, which includes the onboarding of upgraded stores. Consensus expectations currently sit at 3.56% y/y SSS growth.
Digging into the store details, six stores were closed for refurbishment and are due to reopen in 1H27, with 10–12 refurbished stores targeted for FY27.
Three new large-format stores are committed for FY27, which will bring the network to 80 stores, with one opening in December and two-plus in late 4Q27.
Ord Minnett details the country sales breakdown, with comparable sales growth of 2% in the first 14 weeks in Australia, down from 5.3% y/y growth in the first six weeks.
In New Zealand, comparable sales growth declined to 8.7% from 15% in the first six weeks.
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