Morning, welcome to the Baby Bunting Group Limited first half FY 2023 results presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero, and finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Matt Spencer to begin the conference. Matt, over to you.
Thank you, Paulie, and good morning and thank you for joining me today as we present the Baby Bunting first half financial results for FY 2023. Joining me today is Darin Hoekman, our Chief Financial Officer. Welcome, Darin.
Good morning, Matt.
I'll begin today by acknowledging the traditional custodians throughout Australia and their connection to land, sea, and the community. We pay our respects to the elders, past and present, and extend that respect to all Aboriginal and Torres Strait Islander peoples today. We will allow time at the end of the presentation for questions. Let's turn to slide three. Supporting new and expectant parents through their parenting journey is core to what we do each day. Before I begin, I'd like to acknowledge the hard work by our team throughout the first half of the financial year. Whilst the scorecard from a financial point of view is not where we would like it to be, we have supported many new and expectant parents through this wonderful, but at times, changing period of their lives.
I'm very proud of the Baby Bunting team and thank them for their continued efforts to support our customers. On slide four. Our strategy to grow market share continued through the period, with group sales of AUD 254.9 million, up 6.6% on the prior corresponding period. While top-line sales grew, the challenges we experienced with gross profit margin in the first quarter impacted the overall financial performance for the half. Gross profit margin for the half was 37.2%, which is down 212 basis points against the prior corresponding period. The plans we've put in place to recover margin are starting to really take effect in the second quarter, paving the way for further improvement in GP% for the second half.
The gross profit challenges, combined with a challenging December period of sales, resulted in a pro forma NPAT of AUD 5.1 million for the half, which is behind the prior period when NPAT was 59% stronger. In the inflationary environment and increasing wage costs as a result of the national wage case and our investment to support future growth, including our investment in Marketplace and New Zealand, our results deleveraged for the period. A dividend of AUD 0.027 per share has been declared, which is in line with our dividend policy, which is to pay 70% of pro forma NPAT. Slide five. Throughout the period, we've continued to focus on our strategy to grow market share and invest to support future growth.
We opened five new stores, plus we relocated one of our heritage stores to the Eastland Shopping Center in Melbourne, which enabled us to create a second infill location in our largest catchment in Melbourne. We continue to focus on pro-product differentiation through our private label and exclusive product categories, and private label made up 9% of sales and exclusive national brands 35.4% of sales. These groups of products provide a level of margin protection, and we look forward to growing this group of products in the second half as exciting new ranges arrive in store. One of the most significant changes for the period was the significant growth in our Best Buys product ranges. Best Buys is our products that we price at everyday great value for consumer.
Best Buys product sales for the half were 53% of sales, compared to 34.5% of sales in the first half of FY 2022. During the period, we moved our core carrier range, our cot and furniture range, and the remainder of our prams range to Best Buys. This change has the effect of smoothing out the flow of sales and assists with market share growth. The effect on GP% is minimal, around 20 basis points in the first quarter. Our loyalty program, Baby Bunting Family, continued to positively develop through the period. We've been signing up around 5,000 new members per week, and our engagement is very, very high. The program works on a spend and earn basis, where AUD 10 loyalty rewards are earned for each AUD 200 of accumulated spend.
During the period, we made some alterations to the program as part of our strategy for gross profit remediation. Late in the second quarter, nappies were removed from the program. A minimum spend of AUD 50 for a AUD 10 redemption was introduced. Engaged loyalty customers have continued to spend at historical levels after these changes were implemented. I'll elaborate on this a little later. We opened our first store in New Zealand during the period, which has been well-received by the New Zealand consumer. Frustratingly, both the first store and the store in Christchurch, which is due to open towards the end of the year, have been impacted by COVID and its aftereffects and due to some unexpected delays in local approvals.
Our cost line includes the investment of AUD 700,000 in our Marketplace strategy, which is to build out babybunting.com.au to be the one-stop shop for all things baby online. This project is rapidly taking shape, and we expect to see our first Marketplace product from suppliers online in the fourth quarter. Our transformation program continues as we build the underlying systems and platforms to support a 120-plus store network in Australia and New Zealand. This year, the focus has been on people systems, advanced order management, and building out our business requirements for our ERP and point-of-sale replacement projects. We move to slide six. The baby goods market remains highly fragmented, with no other omni-channel national specialty retailers in Australia.
From an omni-channel perspective, the discount department stores have the highest concentration of stores and therefore significant volume, but their Nursery Essentials range is limited and is a small component of their overall offer. There are also many specialist baby goods operators who have single stores that have a national reach via their website. We also compete against marketplaces such as Catch and Amazon. Of our top 250 products, which make up a significant portion of sales, more than 75% of these products are not available on these marketplaces. Our online presence and physical store network, combined with our extensive range, personal advice, ancillary services, and a focus on value backed by a price promise to customers, sets us apart from others in the nursery sector.
Slide seven sets out some further details on sales and some of the operating achievements, but I'll skip ahead to slide eight. All stores remained open throughout the pandemic, and as we cycle the tail end of the impacts of the pandemic, we're starting to see the normalization of shopping behaviors and the return to pre-pandemic consumer behavior. From a channel perspective, our in-store sales, which was 80% of sales, continued to grow, up 12.2% versus PCP. This channel has grown 24.3% over a three-year period. Online delivery sales grew 6.5% versus PCP and has grown 94.3% over a three-year period.
Interestingly, as consumers have reverted to pre-pandemic shopping behaviors, touches Click and Collect has fallen significantly in the first half by 30.2% versus PCP, but is still significantly up by around 225% over the three-year period. Across these channels are Nursery Essentials, which is our core range, which makes up 68% of sales, continue to grow strongly, up 12.7% on the prior corresponding period. The core range includes such things as car seats, prams, feeding, cot and furniture, and high chairs. Nursery Essentials has grown 39.4% since the first half FY 2020. The Consumer Staples range, which are products more widely available across general retail and made up around 22% of sale, has experienced a sales decrease of 4.7% versus the prior corresponding period.
Again, it's still significantly up 28% over a three-year period. The Play time category, which is 10% of our sales and includes Play gear, is down 3.6% of sales in the first half. This category of products has grown significantly by 39.7% over three years, boosted significantly by Play gear sales which boomed during lockdowns as infants needed entertainment at home. Play gear in particular has contracted, which has not only affected sales, but it's had a GP % impact, as it's widely available throughout discount department stores and Marketplaces and has been subject to discounting across the market. I'll now elaborate on gross margin book further on slide nine. We continue to focus on value, especially as economic times tighten.
We have a Price Beat Promise of 5% that provides confidence to the consumer that we offer great value every day and every visit. Our Best Buys ranges, which offers low prices every day, supports our value proposition. Our Price Beat Promise remains at around 1% of sales. In the first quarter, we experienced a 230 basis points decline in GDP, a consequence of several factors, including FOB freight, rapidly increasing domestic transport costs, better than expected engagement with the recently launched loyalty program, and the impacts of the play gear department. I've been pleased by our GP recovery program that started to take effect in the second quarter and into January. In the second half, we expect to capture the benefits of further reductions in international shipping from $7,000 - $1,950 per container.
Excited to launch new private label exclusive ranges as we head towards a target of 50% of sales from this selection of products and ranges. Our loyalty enhancements to the program are delivering improvements in GP%. We're managing the fulfillment and distribution of online delivery orders more efficiently as a consequence of order management improvements, which is part of our transformation program. January GP% traded above the prior year as a consequence of our GP recovery plan activated to date. I'll now hand you over to Darin, who will talk about operating costs, transformation, and financial metrics and performance. Thank you, Darin.
Thanks, Matt. I'm on slide 10. Our cost of doing business increased in the prior corresponding period by around AUD 10 million year-over-year. AUD 4 million of that is driven by store network expansion, where we have added nine new stores over the last 18 months. In 1H FY 2022, we added four new stores late in the first half. This year we added three stores at the start of the half and a further two late in the half. Our stores take five years to mature, and at maturity, they deliver strong capital ROIs. From a growth perspective, we have also incurred costs establishing the Baby Bunting Marketplace and costs establishing our presence in New Zealand. These are overhead investments that will deliver earnings accretion in future periods.
Specifically, on New Zealand, the breakdown is one-off establishment costs of AUD 400,000 pre-opening, launch marketing at around AUD 500,000, and a further AUD 1 million in overhead, predominantly in relation to DC rent and operating costs in our Auckland facility. This DC will service the rollout of stores and enable fulfillment of the largest online range of baby goods available in the New Zealand market, so a strategic investment we will grow into. Looking at cost inflation, the 4.6% increase in the national wage case increased labor costs by around AUD 1.6 million across our stores and in our distribution center. CPI at the store support center was 3.5% or circa AUD 500,000 to existing headcount costs. We invested around AUD 1.8 million in the scaling cost to support future growth and store rollout.
These investments include expanding our digital teams to support the new headless architecture launched in January 2022, expansion of the buying team as we look to grow our SKU range both online and through marketplace, and higher IT costs as the new operating systems added as part of the transformation rollout. Slide 12. On Slide 12, we have an update on our transformation program, which was defined back in 2018. It comprised a number of large investments to overhaul and modernize the business across systems, branding, and supply chain. We are progressing towards completion of our next two programs of work, being the investment in a time and attendance system for workforce management and an advanced order management system to route orders and fulfillment across our distribution and store networks. Noting we process around 700,000 online orders annually.
We are also progressing planning for the final and most significant pillar of our transformation program, being the swap-out of both our point of sale and enterprise resource planning systems. We are currently working through the solution selection process of this project with progressive implementation planned throughout the second half of FY 2024. I would like to turn our attention now to the financial schedules, starting with slide 13. The P&L on slide 13 reflects progression of our future growth agenda and the temporary contraction in margin that was absorbed through the first half. Our group NPAT of AUD 5.1 million is comprised of AUD 6.8 million Australian NPAT, down 46% year-on-year, and New Zealand loss of AUD 1.7 million for the half as we open up for the first time in that market.
From this half year result, we do expect earnings to substantially recover through the second half. Baby Bunting sales and earnings are skewed to the second half. This earnings skew will be further exacerbated this financial year due to the significant margin improvement in the second half and non-repeating one-off costs incurred for New Zealand and the Australian Marketplace build in the first half. It is worth restating the key drivers for second half margin improvement being changes made to our loyalty program to improve the profitability of redemption transactions. Efficiencies made within our supply chain to defray the higher road freight costs we are experiencing relative to last year. Improving international shipping rates, which have already normalized significantly relative to their peak in 2022. Noting shipping rates are currently down over 70% relative to 2H FY 2022.
Further additions to our private label and exclusive product ranges that will start selling through in April. Looking to the balance sheet on slide 14. The December balance sheet reflects the cyclical nature of Baby Bunting's working capital requirement and further store network expansion of five new stores. Our inventory build of AUD 16 million relative to June reflects the opening of five new stores and inventory for two further openings planned in Q3 2H. Replenishment stock in our New Zealand DC and higher inventory volumes needed for the post-Christmas and February promotional events when imports are limited due to Chinese New Year. The new stores also increase our right of use asset and lease liability provisions.
Continue to retain plenty of headroom in our AUD 70 million borrowing facility. Similar to every year, our net debt will reduce in the second half as we sell through the half year inventory build and profitability increases on the back of higher 2H sales and improved gross margins. Moving to the cash flow statement on slide 16. Looking at the cash flow, the earnings impacts we experienced through the first half played through as a AUD 10 million reduction in operating cash flow for the half year-on-year. Along with the new store and transformation investment, has been a drawdown of AUD 80 million from our debt facility for the half. This will mostly revert back through the second half. I will now hand back to Matt, who will discuss some exciting news around future growth opportunities.
Thank you, Darin. We're on slide 16. We're in the final stages of preparing to launch a Marketplace offering on our website, babybunting.com.au. This is an exciting opportunity as we seek to become the one-stop baby shop online, showcasing and offering a much larger range of products, more niche and upcoming brands, and providing the opportunity for existing suppliers to sell a more comprehensive range, leveraging off the traffic on our website. Baby Bunting Marketplace strategy is another step in the growth journey. Like other significant category killer retailers both in Australia and across the globe, it provides us with a capital efficient way to expand the range and increase market share in the broader addressable market.
The 3rd-party range we will have on our website will be curated to complement our existing range and will meet the broader needs of parents and parents-to-be. We are proposing to test and learn and start with around 1,000 products, working with key suppliers already experienced in Marketplace operations and execution. Once we have the insights and are able to refine the process and operations, we'll add more Marketplace participants. We expect that we'll be able to service new ranges and identify new products and vendors that may seek an omni-channel relationship in the future. This is really an exciting growth initiative. On slide 17, looking ahead to the priorities for the second half and beyond. We will continue to focus on gross margin recovery without compromising value to the consumer.
Our strategy to grow market share continues through our investment in digital and the opening of new stores.
To drive revenue, we'll continue to focus on our private label and exclusive sales offerings, supported by the strength of our loyalty offer. Working alongside our supplier partners, we will continue to work towards increasing our Best Buys or lower price everyday offer to consumer, which will flatten the sales cycle and drive volume and market share growth. To achieve this, we need to have appropriate systems and infrastructure in place and therefore we need to finalize our transformation program that is already well progressed. Turning our attention to the outlook on slide 18. After a difficult trading period through December and January, where we were cycling the impacts of the pandemic and in particular Omicron, we're seeing the consumer continue to change their shopping preference to in-store or for online delivery.
The reduction in Click and Collect and the opening up of general retail has seen a softening of Consumer Staples as these products are more broadly available through general retail. We've seen some recovery in sales through February. We have plans in place to drive further improvement in sales performance. Year-to-date sales growth is 3.3% with comparable store sales of -2.1%. Gross margin for January is in line with forecasts and up on PCP. In relation to the outlook, we have maintained our guidance for pro forma EBITDA to be in the range of AUD 21.5 million -AUD 24 million, with gross margin to be between 38% and 39% for the full year. The outlook assumes deterioration in economic conditions that affect sales performance.
Before we open up for questions today, we also put out an announcement in relation to succession plans for my role. I've led the company since 2012, and in collaboration with our Chair, Melanie Wilson, we have developed a plan for leadership renewal at Baby Bunting, allowing sufficient time for a smooth transition. It has been incredibly humbling to be part of the Baby Bunting team over the last 17 years. I've loved coming to work each and every day, and people make the difference real, and I believe we've assembled a great team at Baby Bunting. The company is committed to its strategy, and Baby Bunting has a very experienced and well-respected leadership team who are focused on executing on the strategy.
I'd like to thank you, our team members, our board, our investors, our supplier partners and community partners, being Marist La Trobe Foundation and PANDA, for your support during my time as the CEO of such an exciting and purpose-driven organization. In the meantime, I'll be continuing on as CEO and Managing Director, providing leadership and continuity, and I'm committed to ensuring a smooth transition over the coming months. I'd like to thank you for your attendance today. Now I'll open up the line for questions. Reminding you to please state your name and where you're calling from. Thank you.
Thank you, Matt and Darin. At this time, I would like to remind everyone, in order to ask a question, press star, then the one on your telephone keypad. Your first question comes from the line of Alexander Mees from Morgans. Your line is open.
Thanks, operator. Thank you, Matt and Darin. Just firstly, Matt, on the news about your own departure. I'm sure I speak for a lot of people when I say that you will be missed. Just wondering why now is the right time for you to step down, please?
Alex, I've been talking with the chair over a long period of time now about, you know, renewal and succession in our business. You know, I've got a significant work-out period. These things take time, and I think it's appropriate as we enter into the new form of growth or now a layer of growth to, you know, you know, bring in a fresh set of eyes into the role.
Thank you. Just on those new new areas of growth, just wondering, first of all, the investment we should expect in the second half in in those new markets, should be sort of New Zealand and Marketplace. I know it will moderate. Will it be significantly down on the first half?
Yeah. Thanks, Alex. I'll take that one. Marketplace will now, you know, largely be CapEx, you know, a few more AUD 100,000 of OpEx. I mean, that whole investment for the year should close out around AUD 1.5 million . For New Zealand, it will depend on the timing of the build for the next store being Christchurch. We're still sort of finalizing the timing around that. Other than that, you know, all the start-up costs have been established and now it's about building the store network out and driving brand awareness and sales growth.
Just on New Zealand, you've got a target out there for 10 stores in NZ in due course. What are you planning for FY 2024 once you've got Christchurch open?
We've already got a couple of leases locked up, so that's it at this stage. We are certainly, you know, in other discussions, it'll depend on where the commercials land really. You know, the process at Baby Bunting has always been very steady and considered, making sure all the key operational requirements remain intact for our new store build and the commercials are right as well. You know, we've got our eyes on a number of sites and we are having conversations. You know, at this stage it's two, but that may build.
Excellent. Just finally on the current trading, thank you for the granularity you've provided. Just wondering if there's a significant difference between Nursery Essentials and Consumer Staples in the like for likes in January and February, or whether the performance of the two starts to close up.
I mean, in January, our Nursery Essentials were positive again. At the Consumer Staples, we basically saw an unwind of the growth that we saw in the prior year. It's always challenging to look at sales periods in a small window, January essentially last year featured very strong online growth of +30%. The country was in Omicron. You may not have, you may have forgotten about that. That quickly normalized through February, but it meant that we saw a high peak of sales through January, which then flattened out in February.
If you sort of look in the trading update, you can see that although there's been an unwind through January, and then we're moderately down year-on-year, I mean, the broader trend for us has been that online has contracted year-on-year, and we've seen fallout through Nursery Staples, and in particular, the online contraction has been Click and Collect. I don't think we're alone in seeing those trends through our business.
Great. Thank you very much.
Your next question comes from the line of Sam Teeger from Citi. Your line is open.
Hi, Matt. Hi, Darin. Matt, personally, congratulations on your tenure of over a decade. It's a great achievement.
Thanks, Sam.
I appreciate the comment that gross profit margin for January is in line with forecasts from PCP, but can you comment as to how sales and gross profit dollars are coming in versus your forecasts for January and February to date?
We've given an update on the January numbers, Sam. The comp of - 6% or -7%. You'd never aim to have negative growth in a business, but, you know, that's the way it was. We, I think that if we sort of look more broadly across the eight months of trade to date, we can see, you know, consistent trends, and that is contraction in Click and Collect, contraction in, and, decline in Consumer Staples, where this products more broadly available in the market, growth in the engine room of the business, which is in our stores and in Nursery Essentials. If I look ahead to the rest of the year, you know, we'll be, you know, we need to cycle over a 3% comp.
You know, that gives me a great deal of comfort in our ability to ensure that, you know, our sales hold up and we and the and the outlook is delivered.
Okay. Can you talk to the timing and quantum of price rises you put through over the year to date? I guess when you incorporate price rises into the mix, what do you see as the most significant contributor to the anticipated second half margin improvement?
Look, just the contributor, because there's a long lot of questions there. I think, you know, we see a very big thing around loyalty, the change we've made in loyalty and the change we've made through our Price Beat policy as being a big driver as you cycle into the second half. You know, as you know, we've got a, as I said in the notes before, you've got a minimum spend of AUD 10 for every AUD 50, redemption of AUD 10 for every AUD 50 spend. That's a big change over the prior year. I just wanna go pick up on your pricing comments there.
I think, you know, pricing is a very strategic thing that we do in our business, and we could probably break it up into a number of aspects. One is just reminding everybody there's around 6,000 SKUs in every store. Therefore, you know, you have to take a bit of a scientific approach, a wholesale strategic approach to how we price goods. You know, what we've got is we've got a set of items that we call key value items, that are pretty well understood across the sector in terms of these are the design products, you know, the number one selling pram, the number one selling car seats, et cetera. We always aim to set those prices at the best possible in the market.
Those KVIs are quite a large cross-section of all our SKU range. There's also our approach to pricing at entry level, and that is where we look towards the volume end of our competitive sectors, the discount department stores, you know, Kmart, Target, Big W. Where we primarily wanna make sure that we have every value every day of every visit. We select products and we select items relative to the pricing in those DDSs, and make sure that we have a competitive offer at all of the entry price points. Essentially we use a private label, our 4baby range as the price fighter, and we put that in there, and we're quite scientific about about that.
Then we've obviously got a table of products where, you know, some of them are available more generally in the market, some of them are available just to us because they're exclusive. You know, with our exclusive, we have to keep them in a, I guess, a range architecture so that, you know, you can't suddenly just put up a price relative to another product just because it's exclusive. There's comparative products in the market. Effectively what we do is, we price those appropriately relative to market, and if we are out of kilter with the market, then we have a Price Beat Gaurantee that, you know, we'll beat a product if it's stocked and it's identical by 5% and the consumer can avail themselves in that.
What we are seeing in that space is that, you know, it's very consistent in terms of our price beat. In fact, it's come down of late. You know, for the half it was around 1% of sales. You know, what I see is that we've got some, you know, we wanna make sure we keep the value at every level. We certainly focus on those key value items, but we do have a lot of items in store. Looking ahead, there are some exciting new products that are entering the market, and, you know, some of them, I can't disclose all now, but they're coming very, very soon. That's quite exciting to see. That will also play into the second half.
Does that help you, Sam?
Yeah. That color is really helpful. Thanks. I guess what I'm trying to understand with these questions is to what extent are recent price rises driving an improved gross margin % outlook, but maybe having an impact on the top line more than expected? That's what I'm trying to understand.
Look, clearly we have to, like others in the market, have to recover input cost increases. You know, there's a certain point that you just need to move. Yeah. There has been some of that. As I said, we've put prices down as much as, you know, as well during this period. If you look at, you know, as recently as last week, you know, our core range of car seats come down, you know, at the entry level pricing level. You know, the number one car seat in the market has come down as well. We're, you know, we're actively managing that all the time.
Okay. And then just lastly, can you talk about what you're expecting to spend on the transformation program for the rest of this year and next, what's the split between CapEx and OpEx, if there's been any, you know, inflation or cost increases from what you previously talked about? I think you said AUD 4 million -AUD 5 million this year and then AUD 5 million -AUD 7 million next year.
Yeah, thanks, Sam. It's gonna be relatively consistent with the first half. Not a lot of CapEx incurred in this year, so I think we're around, so that should sort of see us up at around AUD 4.5 million-AUD 5 million for the year. Next year, I mean, there's been no change to our outlook, relative to what we talked about at the full year. The unknown for us is where we land with ERP and point of sale. That will be a project that can range between AUD 6 million -AUD 1 0 million. We're already incurring costs. We'll incur costs of around AUD 1 million of that for this year.
That's really, you know, where it's sort of walking at this stage. In terms of the split between OpEx and CapEx, until you actually negotiate a deal, because these are, these will be, you know, cloud software products, until you actually negotiate the deal and understand, you know, what are the customizations and where they sit in terms of the digital infrastructure, whether it's in yours or whether it's in the vendors, that changes, the treatment of those, costs. You know, that's to be determined. I think that's one we can give, further clarity on when we get to August.
Okay, great. Thanks, Darin.
Your next question comes from the line of Rachael Harwood from Macquarie. Your line is open.
Yeah, good morning. Thanks for taking my questions. Just one from me. Just at a category level, have you fully normalized the COVID comps now? Do you expect this mix to, I guess, further normalize?
Rachael, can you just repeat the question? It didn't come through clearly. Rachael?
Yeah, sorry. just at a category level, have you fully normalized for COVID comps now, or do you expect this mix to further normalize just in terms of the nursing category and those other categories?
Yeah, I think the. Yeah, the from a COVID perspective, that pretty much normalizes it. There was a relative consistency in our growth in the second half of last year. Where we may, where we think the fallout will continue will be through click and collect and consumer staples, you know, within that. Also, you know, the there is contraction in the play gear category that will continue for through the second half also.
Yeah. Understood. I guess just to follow up on that, do you expect any margin impact just from those further normalizing?
Not specifically. I mean, the thing that's coming down the pipeline is as we trade through our current inventory position, that will be replaced with lower cost inventory that's got, that's being shipped into the country on a significantly reduced freight cost relative to the prior year. You know, that will become a feature of our margin through quarter four.
Understood. Thanks very much.
Again, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from the line of James Casey from Ord Minnett. Your line is open.
Hi, good morning, gentlemen. Just with regards to your comp store sales in the first half, obviously your volumes are declining. Why do you think your volumes are declining?
Yeah. James, I mean, we've covered it through the narrative today and in the trading update. Consumer Staples first half. Yeah, for the first half, same story.
Okay.
What we're seeing is a continuation of this trend, which is Click and Collect has contracted. We saw extraordinary growth through online. By and large, we've held on to that. Through the first half, Click and Collect was down around 30%. Within that, you know, we've seen contraction in Consumer Staples. Consumer Staples are products that are more broadly available and don't feature as predominantly in the specialty nursery goods retailers. I mean, retail has been, you know, largely sort of closed up, shopping centers and the like. We're seeing a normalization of consumer behaviors, and Consumer Staples are products that aren't necessarily foot traffic drivers for us. You know, things like nappies, even babywear. They'll pick it up if they're in the store, but not necessarily come to the store to buy those items.
That's really where we're seeing the contraction in those kind of items.
Okay. Then with regards to pricing, most companies increase their prices in the first half and continue to put price rises through. You actually increased the amount of products onto your Best Buys program from 34.5% up to 53% of sales. Do you think with hindsight, you've been too conservative on your pricing, particularly in a period of high input cost inflation?
I think we know that value is the primary driver to purchase in our category. You know, the idea to give the consumer great prices every day, every visit is very, very important. Therefore, giving confidence in our pricing is very, very important in that as well. You know, I think, you know, at times we sort of, we certainly, you know, we offered a lot more value for an extended period of time. That's all part of the strategy to make sure that we are seen as a value retailer in the market.
You know, as you said, I mean, you know, more broadly, the retailers across the market have moved prices as input costs have increased. We've quarantined some of those, and we're sort of moving away from, you know, this high-low, you know, this high-low promotional aspect as in by increasing our Best Buys ranges and that giving that offer every day of the visit. I think it's probably for others to judge as to whether or not we've been too conservative, but I think over time, you know, we need to, you know, ensure that we're growing market share, keeping our customers engaged. Remember, we're talking about, you know, young families that have not necessarily got, you know, they're not at peak earning potential at that time.
You know, it's absolutely essential that we're offering great value every day. There is some, you know, some costs that everybody's had to absorb very quickly. Things are normalizing through the other side and stabilizing. You know, I think the outlook is still looking very positive from Baby Bunting's perspective. You know, our new stores, we're very happy with how they're performing. You know, margin's looking good for the second half and into next FY 2024 as well. We've got some exciting growth projects.
Okay. Thanks, James.
Your next question comes from the line of James Bales from Morgan Stanley. Your line is open.
Hi, guys. Firstly, on inventory, you've called out that you expect that to improve. Is there an absolute dollar value or an inventory to sales that you're targeting to exit on?
Inventory, you know, will, you know, land around or below AUD 100 million. It also depends somewhat on sort of timing of new stores, but it'll be around that level.
Okay, got it. Then, I also wanted to sort of understand your thinking on guidance. In the first half, a couple of things changed with domestic freight and the mix of products that the consumer was buying, and that meant a recalibration of earnings expectations. I guess, what's to stop something happening again in the second half that could alter the expectations for gross margins and ultimately your NPAT guidance? What levers have you got to sort of to counteract this?
Yeah. I mean, in establishing a guidance range, James Casey, you know, we need to deal with known data points. We've seen positive trends in, you know, key elements of our sales, and I think we've had a long enough look at the change around Click and Collect and categories within that to sort of understand what those sales trends look like also. Our sales are always skewed to the second half because we've got more promotional weeks in the second half. June's a big month for us, this year we've also got, you know, our new store revenue will skew to the second half also. Our cost of doing business is relatively flat, first half, second half, noting that we did have some one-off costs that we incurred in the second half.
We're not gonna see anything of that like, in the second half. We, we've got a great sort of deal of consistency and confidence around cost of new business management. GP, we've got a very good handle on that, and we've called out that we think it'll land between 38.5%-40.5%. The variable within that is really, you know, sales mix to a degree and the sell-through of, you know, product that's, you know, coming in on those lower shipping rates and also the continued uptake in loyalty.
We made the minimum spend change to loyalty in December. It's really around whether or not we retain the same redemption levels on loyalty rewards through the second half despite that change, which will be a great boon for sales. It'll be at a, you know, at a moderately lower margin. That talks to that margin range. What are the market elements that or the macro elements, you know, for consideration? Births is pretty stable at around 300,000 a year. Obviously there's been big hits to interest rates. Really, you know, the impacts of those kind of things, we're yet to, you know, see any sort of variation in terms of our product mix from that perspective.
That may or may not change in the second half.
Okay, got it. No, thank you.
Your next question comes from the line of Reece Frith from APSEC Funds Management. Your line is open.
Hey, gents. Just wanna talk about New Zealand just briefly. Has there been any impact of the weather on the Auckland store, firstly?
Reece, thanks for the question. I'm pleased to report that all our teams are safe and well, and there's no issues with our store or our DC. Thanks for asking.
Oh, that's good to hear. Just on the Auckland store, can you just talk through how that performance has been to your expectations in the half?
Thanks, Reece. Look, I think the trading performance of the New Zealand store reflects, you know, our brand awareness in that market. The store in Albany is in the northern suburbs of Auckland. You know, what we need to do is, you know, build out our store network to, you know, drive brand awareness. We also went into that market with a an everyday low pricing approach, and what we're seeing as we add, you know, events and promotions into that, then we see positive uplifts. So, you know, we see some real opportunities through the second half to drive our sales growth and get transactions into the store. We've also seen a good uptake in loyalty within the store.
You know, it's not gonna be, you know... It's a, it's a slow burn, but we're certainly, we've taken on a lot of learnings and we'll be implementing some activation in the second half that will see continued growth through the second half. I think also to complement that, I think we're seeing our brand awareness online growing quite significantly, and, you know, sales online going well. You know, those are the, you know, the investments we're making around online, digital marketing, et cetera, certainly are playing through. What we do bring to that market is the broadest range by a long, long way, and with great customer service, and we're seeing that come through in our NPS scores, which are very strong also.
You know, we've brought some new things to market. Cotton furniture range is going really, really strongly, and we're sort of, we've got some opportunities also in car seats from what we're seeing in the first half.
Okay, thanks for that. Can you just walk me through the rationale in opening the distribution center before the physical store? I understand from sort of a stocking point of view, but just more of as you touch on the brand awareness, obviously there wouldn't be as much brand awareness online before the physical store. Can you just walk me around your thinking with that?
Absolutely. I think that's a very fair question. Our preference was to open a 3PL or to go with a 3PL offering in New Zealand. Unfortunately, capacity to... We wanted to also have a very strong presence online and have our full SKU range available online in that market. There was the opportunity to do that through a 3PL arrangement was not available in New Zealand. On the back of that, we elected for strategic purposes to go with a 5,000 square meter distribution center that we'll grow into. We also, you know, at that point, you know, it's meant that, you know, we're carrying higher costs than we would have otherwise preferred, but it also gives us the opportunity to present our full range online.
Grows of our presence online and that we know that that actually feeds in store sales as well. Yeah, just a reminder, we were selling online into New Zealand before that, but we were limited by what range we could have, what we could ship, you know, et cetera. So we already had some sales going through the market. We could see what was needed. And as you quite rightly point out, Darin, we needed to have our full range there and available in market, and that was the only way we could really get to market with it, which is great.
Okay. Thanks for that, guys.
There are no further questions at this time. I would like to hand the call back over to Matt for closing remarks.
Look, just once again, thank you very much for your support. Thanks very much for joining us today. We'll see you soon. Thanks very much. Darin,
I might also like to add that just on behalf of the entire Baby Bunting business, that Matt's been an incredible leader for us all for the last 11 years. He's been an absolute pleasure to work with. Thanks. Got incredible values, brings an enormous amount of passion to the business, and he leaves it in very good shape, but it's been an absolute, you know, pleasure to work with you for the last eight years. On behalf of everybody at Baby Bunting, you know, he's a much loved leader, and I'd like to say farewell and wish you all the best from us.
Thanks, Daz, but you've still got to put up with me for a fair few months. Much appreciated. Very kind words. Thank you.
This concludes today's conference call.
Thanks, everyone.
You may now disconnect.