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Baby Bunting share price could race higher after reporting strong profit growth

James Mickleboro

The Baby Bunting Group Ltd (ASX: BBN) share price surged higher on Thursday despite the market sell off.

The baby products retailer’s shares finished the day over 6.5% higher despite there being no news out of it.

I suspect that some investors were scrambling to buy shares in anticipation of a strong full year result today.

Did Baby Bunting live up to expectations?

The good news for recent buyers of its shares is that Baby Bunting appears to have ticked a lot of boxes with its FY 2019 result.

According to the release, on a statutory basis, the company reported a 21% increase in total sales to $368 million, a 37.4% lift in EBITDA to $24.1 million, and a 43.3% jump in net profit after tax to $12.4 million.

As this statutory result included a 53rd week, the retailer also released pro forma figures which were a better reflection of its underlying performance in comparison to FY 2018. These excluded the impact of week 53, equity expenses, and one-off project expenses.

On a pro forma basis, Baby Bunting recorded a 19% increase in total sales to $362.3 million, above guidance EBITDA growth of 45.9% to $27.1 million, and net profit after tax growth of 58.2% to $15.1 million.

This strong performance was driven by comparable store sales growth of 8.7% and a 190-basis point increase in its gross margin to 35%. The former was driven by market share gains due to competitor closures and the latter was the result of new product range improvements and improved importation arrangements with its supplier partners.

In light of this strong performance, the Baby Bunting board declared a final dividend of 5.1 cents per share. This brought its full year dividend to 8.4 cents fully franked, which was a 58.5% increase on FY 2018’s 5.3 cents per share dividend.

Pleasingly for shareholders, management appears confident that its solid performance can continue in FY 2020. It has provided pro forma net profit after tax guidance of $20 million to $22 million. This represents year on year growth of 32% to 46%.

Overall, I was very impressed with this report and continue to rate Baby Bunting as a retail share to buy along with Accent Group Ltd (ASX: AX1) and Super Retail Group Ltd (ASX: SUL).

As well as Baby Bunting, I think these top growth shares are attractively priced and could provide strong returns over the coming years.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Accent Group. 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 Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019