Good morning, everyone. Welcome to Baby Bunting 's FY 2025 results conference call. I'm Mark Teperson, CEO, and joining me today is Darin Hoekman, our CFO. We'll be going through the presentation that was lodged earlier today with the ASX, and there will be time for questions at the end. FY 2025 has been a great year for Baby Bunting . We achieved record sales and record gross margin, and we delivered at the top end of our guidance range. It's been a year where we've executed well on our strategy. Before I speak to the numbers, I wanted to step back and talk about the why that drives us. Time is our most precious resource. Once it's gone, we can never get it back. Children are our greatest investment. The love, care, and attention we give them today grow exponentially, shaping the people they become tomorrow.
When we devote our most precious resource to our most valuable investment, we create the foundation for something truly extraordinary. At Baby Bunting , our vision is simple yet profound – to give every child the best start in life so they can grow into their brightest future. This vision informs every decision from the exclusive products we curate to the way we've designed our new stores. Our mission to support and inspire confident parenting drives our culture and our values. It's our extraordinary team right across the business that turns this purpose into action. Their talent, passion, and relentless commitment bring our vision and mission to life every day, creating exceptional experiences for our customers, innovating in our offer, and finding new ways to support parents. It's this alignment of purpose and performance that delivers results and ensures we are making a meaningful difference for the families we serve.
Turning to slide six, I'm pleased to share that our disciplined execution of strategy delivered a truly standout FY 2025 result. Total sales reached a record $522 million, representing a 4.7% growth on the prior year. On a comparable store sales basis, we achieved growth of 4.2%. This was underpinned by a focus on go-to-market execution, driven by product innovation, elevated marketing, and enhanced in-store execution. In the second half, we refurbished three stores into our new Store of the Future format. Customer response to the new design has been outstanding, and these stores have delivered an average sales uplift of around 28% since reopening. We exceeded our 40% gross margin target with a 340 basis point uplift versus the prior period. In the second half, gross margin was 40.5%, providing great momentum into FY 2026. Our pre-AASB 16 EBITDA increased to $28.2 million to be 5.4% of sales.
We're making meaningful strides towards our medium to long-term goal of being a 10%+ EBITDA margin business. Proforma NPAT was at the top end of our guidance at $12.1 million, up 228% versus the prior period. We have improved returns from our disciplined capital investment, with return on funds employed of 12.1%, up 630 basis points, with net debt closing at $4.6 million. The board has determined not to pay a dividend this year as we continue to reinvest for growth. All in all, a fantastic result, which is a testament to the hard work of our dedicated team over the past 18 months. On slide seven, we highlight the breadth of strategic operational initiatives delivered in FY 2025. We're very proud to say that we delivered a lot this year.
First and foremost, the April launch of our new Store of the Future marked a pivotal inflection point for the brand. The format is delivering world-class experiences that have been driving an outstanding lift, well above our initial 10% growth target. We've also seen immediate margin improvements through range rationalization and mixed shift. We opened two new stores and completed three refurbishments, growing our network to 75 locations across Australia and New Zealand. Elevating our customer experience remains at the heart of our strategy. We invested in our online capability by introducing same-day and next-day delivery via Uber, which now accounts for 8.5% of all online orders, enhancing convenience and driving increased basket size. Also, important to driving both traffic and margins was the traction we achieved on private label and exclusive products and our exclusive brand partnerships.
This includes our long-term exclusivity with Nuna, exclusive partnerships with Bugaboo in New Zealand, and a new five-year Australian exclusivity deal with Edwards and Co. We successfully launched our retail media business this year, and initial campaigns have seen very strong uptake and results for our brand partners. In New Zealand, we now see a clear pathway to profitability in FY 2027. We'll talk more about that later in the presentation. I'll now hand over to Darin to provide additional details on our financials.
Thanks, Mark, and good morning, everybody. We're on slide nine, which provides more detail on the company's sales performance and the most impactful growth drivers this year. Comparable store sales grew 4.2%, accelerating through the year from 2.2% in the first half to 6.2% in the second half. Range innovation and newness fueled good sales momentum across our top seven categories, which were around 80% of our sales, and drove higher transaction counts and basket sizes in the second half. We're delighted with our comp sales performance over the past 12 months, with every consumer channel, bricks and mortar, online delivery, and click and collect recording strong improvement. Our new customer acquisition rose 6.2%, bringing total active customers to 828,000, as our marketing investments and enhanced product ranges continue to expand our reach.
Online sales, including Click & C ollect, grew 10.8% year- on-y ear and now represent 23.1% of total sales. This growth was powered by the introduction of Uber on-demand delivery, improvements to our online checkout flow, and better stock availability. Turning to slide 10, I'm pleased to report a record gross profit result for FY 2025, with margin up 340 basis points on the prior year in what remained a challenging retail environment. As you can see on the gross margin bridge, this improvement was driven by a suite of initiatives. We simplified our pricing architecture, removing spend-and-earn loyalty incentives and price beats on sub-$50 items, and we renegotiated supplier trading terms to capture better cost of goods. Our supply chain programs also delivered, lowering fulfillment costs across both stores and online channels.
FLEX now accounts for 47.1% of our sales, up 110 basis points versus PCP, and soft goods is up 7.7%. This category represents a significant growth opportunity for Baby Bunting in a $3 billion TAM. The merchandising changes we have made in our new Store of the Future will be fundamental to growing our share of this category. These initiatives will continue to drive margin enhancement and underpin our 41% FY 2026 margin target. Turning to the P&L on slide 11. As Mark mentioned, we delivered record total sales and significantly grew gross margin dollars by 14.2% on the back of the margin initiatives I've just spoken to. Our cost of doing business was $181.5 million for the year, up $13.8 million, reflecting the strategic investments underpinning our growth. I'll break these down further on the next slide. Slide 12, cost of doing business.
Store expenses are the biggest contributor to our CODB growth, up $7 million on PCP on the back of $4.3 million in new store costs, plus 3.75% of labor inflation. We did offset nearly half of the CPI increase through store labor productivity initiatives and with further leverage expected on the labor line in FY 2026. Marketing investment increased to 2.2% of sales this year, in line with plan, as we invested in team to support brand engagement, execution speed, and our Store of the Future program. Warehouse costs rose in Australia due to wage inflation, with work now commenced to lowering pick and fulfillment costs in our national DC in FY 2026. In New Zealand, we reduced second half warehouse costs by $200,000 and expect a further $800,000 of savings in the FY 2026 financial year.
Administration costs, our second largest cost investment, increased on the back of reinstating our employee short-term incentive program, noting it hasn't operated for a number of years. We also invested in data and analytics capabilities, critical for driving personalized customer experiences and operational insight. Our focus for FY 2026 is delivering overall CODB leverage through productivity initiatives across store execution, online fulfillment, and the supply chain initiatives in both New Zealand and Australia. Moving to slide 13, our balance sheet reflects disciplined working capital management and an improved net debt position. Inventory remains well managed, closing at $95.6 million, with improved quality and aging of inventory through the period, thanks to disciplined focus and enhanced processes. Our net debt balance stands at $4.6 million, an improvement from $30 million in the prior year. We have covenant headroom and financial flexibility to fund our growth initiatives.
Moving to the cash flow statement on slide 14. Our cash conversion ratio of 81.7% is in line with our historical average and our target. Investment expenditure for the year totaled $12.9 million, which included investment in two new stores, our Store of the Future refurbishment program, and one store relocation. Outside of store investment, key builds included digital assets such as same-day/next-day capability and data platforms. In FY 2026, we expect our CapEx to be around $30 million- $35 million, fully funded from operating cash flows. New Zealand performance. Finally, on slide 15, you can see that we've made excellent progress in New Zealand and see a clear pathway to profitability in FY 2027. For FY 2025, our four-store network delivered a 49% sales increase, noting three of our four New Zealand stores opened late in the first half of last year.
The second half was a true like-for-like comparison, and it was great to see these stores deliver comp growth of 22% in the second half. Gross margin expanded by 520 basis points, with a 2H exit rate of 39.5%, up 600 basis points year- on- year. The brand awareness campaign we invested in had a strong impact in market. It has increased unaided brand awareness, rising from 19%- 25% over three months. Looking to FY 2026, we are running at sales growth in the first six weeks of 13.9%. We will further enhance labor productivity, target a gross margin above 40%, and open our Westgate store in the new format towards the end of the half. We expect these combined levers to materially progress our aim of achieving profitability in FY 2027. I'll now hand over to Mark to provide an update on our strategy progress this year.
Thanks, Darin. We're now on slide 17. As a reminder, our growth strategy is focused on three key pillars: driving growth in our market share, our EBITDA margins, and our return on invested capital. Slide 18 illustrates how our strategy drives a powerful multiplier of shareholder value through four interconnected growth engines. First, gross margin, where our target is to get to 42%, a lift of 500 basis points from the FY 2024 base. In FY 2025, we have delivered 340 basis points of expansion, and we're targeting a further 80 basis points of improvement in FY 2026. Second, through refurbished store sales growth, our Store of the Future pilots have delivered on average a 28% uplift in sales. We've now upgraded our sales targets for refurbished stores to be between 15% and 25% growth.
With plans for 10- 12 refurbishments this year, this program will be a key engine of growth into the future. Third is network growth. We have a disciplined plan to add up to another 80 stores over the medium to long term. That's 40 large format stores and the possibility of a further 20- 40 small format stores, subject to the performance of the small format pilot. The fourth engine to grow shareholder value is operating leverage. We will achieve this through network growth and productivity initiatives to capture 200 basis points of leverage. Together, these four elements create a self-funding, high growth, high return model that accelerates us back to a 10% + EBITDA margin business. The next few slides unpack our store economics, including our store refurbishment program.
On slide 20, you can see how our large format stores continue to be a powerful driver for cash generation and returns. Our mature store cohort is demonstrating strong momentum and delivering CODB leverage. Looking ahead, our large format rollout over the next five years targets 24 new metro and 15 regional stores in Australia. Additionally, we are planning a further six large format stores in New Zealand. Moving to slide 21, one of the most transformative strategic initiatives is our Store of the Future, a true game changer in revitalizing our network and driving sales and profit growth. Our three revamped stores have been incredibly well received by parents, with average store sales up 28% and new customer acquisition up 21%. Overall, these stores are delivering 40 basis points more in gross margin than their peer cohort. The Store of the Future is the physical manifestation of our strategy.
Experience hubs where parents can engage, learn, and shop seamlessly, fulfillment powerhouses driving omnichannel convenience, and brand showcases where our partners can launch innovation and inspire families. Alongside this physical refurbishment, we're reinventing our internal service model, moving from a category-led layout to an activity-based design. This store is now organized around key parenting activities – travel, feeding, sleep, play and learn, and wellbeing. By designing around these parenting activities, we'll highlight more of our range and meet more of our customers' needs. This is an exciting opportunity to reimagine the customer journey and set new industry benchmarks. On slide 22, we provided further detail on the capital program and volume of work underway. This year, our Store of the Future prototypes cost $1.5 million each.
Our original build cost assumptions were predicated on a key business case objective of a sub-three-year payback, along with a reasonable sales uplift of 10%, which in my experience is highly achievable. I'm delighted that these pilots are outperforming sales expectations by around three times. This strongly validates the concept and gives us the confidence to scale. As we roll out this format more broadly, we will drive down per store CapEx investment through cost and operating model efficiencies. In FY 2026, we plan to refurbish and relaunch 10- 12 flagship metro stores, each requiring an average capital investment of $1.4 million. Post-refurbishment, we forecast a 15%- 25% sales uplift, driven by new customer acquisition and larger basket sizes, as we've seen with our pilot stores. FY 2026 will include accelerated depreciation of around $1.5 million and one-off defit and launch costs.
Taken over the life of the program, the average estimated investment per refurbishment will be around $1.1 million and generate much stronger returns than our original plan. On slide 23, we've set out our focus areas for FY 2026. We've touched on a number of these in our earlier comments. These are all deliverables that tie back to our growth objectives and overall strategy. I'll briefly speak to two of them: our small format stores and our retail media business. We are now on slide 25. Our rationale for small formats is clear. They grow customer lifetime value through providing greater convenience and accessibility for busy parents. They should allow us to extend Baby Bunting into high-density inner-city catchments with better economics.
With lower capital requirements and faster payback, each store targets $2.5 million in annual revenue and a 50% return on invested capital by focusing on higher margin consumables and core baby essentials. Lower staffing needs and optimized rent per square meter further enhance returns. With a curated range across babywear, consumables, and selected nursery essentials for growing children, we will capture further opportunities and look to drive lifetime value and basket size with our customers. To deploy our test and learn approach, we have three pilots underway in carefully selected metro suburbs that are close to existing established large format stores. This will give us the most comprehensive test case to assess their performance and plan for network expansion. Should these pilots be successful, we see potential to expand the small format network to 20- 40 stores over the medium to long term.
We look forward to providing an update on these in due course. On slide 28, we showcase how we are realizing a new revenue stream through monetizing our existing assets. We think our retail media income has the potential to grow to be around 1%- 2% of total sales. Our platform gives brands access to Australia's largest baby and toddler audience. Over the past year, we have leveraged the power of our platform, combining our more than 800,000 active customers, our rich CRM data, our high-traffic store network, and digital assets to create our retail media offering. This enables us to drive incremental revenue and deepen engagement with existing and new brand partners and increase our relevance to customers.
Media contribution to profit was flat in FY 2025 and looking ahead, we expect this business to contribute an incremental $2 million- $3 million in FY 2026 as we scale our platform, enhance our analytics offering, and introduce new ad formats. Our Store of the Future format will provide a strong platform for this opportunity. To wrap up, let's now move to the trading update and outlook on slide 31. I'm pleased to report that momentum has continued into the first six weeks of FY 2026, with total sales growth of 4.8% and comparable store sales growth of 4%. Pleasingly, New Zealand has continued to outperform, up 13.9% for the year to date. Our plans are to refurbish 10- 12 stores in FY 2026, with five to six to be completed in the first half. Each of these stores should be closed for around 10- 12 weeks during the refurbishment period.
We also plan to open five new large format stores, with three committed for the first half and two targeted in the second half. In terms of our new small formats, the three pilot stores are planned to open in the first half of FY 2026, with a further two- three planned for Q4, subject to the success of those pilots. Now looking to the performance for this year, we expect the Store of the Future refurbishment program to result in some unusual comp sales patterns through the year, as well as some impacts to our CODB profile.
Guidance for FY 2026 is for proforma NPAT to be in the range of $17 million- $20 million, assuming the following – our full-year comparable store sales growth of 4%- 6%, with first half comps of 1.5%- 3%, driven by refurbishment closures, and 6%- 8% in the second half, with post-refurbishment sales growth targeted to be between 15%- 25%. We are targeting gross margin to be at 41% for the year and retail store cost of doing business investment of around $7 million for new and annualizing stores and $2.5 million of refurbishment-related costs. Targeting CODB leverage of around 30 basis points on a post-AASB 16 basis points and capital expenditure of $30- $35 million, fully funded through operating cash flow. To close, I wanted to thank you for joining us today.
I'm very pleased by the early success of our Store of the Future program, and we're excited to be rolling it out across the network. I'd now like to open the line up to questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question today comes from James Casey with Ord Minnett. Please go ahead.
Good morning, gentlemen. With regards to the sales growth, you called out the second half, 2025 comp at around 6%. That implies quite a strong growth rate through May and June, probably double-digit comp. First six weeks is back to a more consistent 4% comp. I just wonder if you could just explain kind of the volatility in that comp store growth rate.
Thanks for the question, James. I might characterize it a little bit differently. I think in a tough consumer market, we still see customers gravitate very strongly towards key promotional times of the year. We did execute a very strong stock take campaign, which certainly helped to contribute to an acceleration through the tail end of the second half. The way that I read the numbers is that I think a 4% comp leading into the first six weeks of FY 2026 is a very strong result following a very strong promotional period. It is certainly above the expected comp for the full half of H1 FY 2026 at 4%, but we're very pleased with the result.
Okay, thanks, Mark. I mean, the gross profit margin improvement for 26, 80 basis points, is the supplier renegotiation for terms and rebates, etc., is that now complete?
James, we completed the substantial part of that program in FY 2025. The benefits of those negotiations have been flowing through at different cadences depending on how those terms negotiations were structured. The long-tail benefit being, if we received COGS reductions, you'd appreciate that the weighted cost of inventory moving through the business over several months, given our average stock holding, takes a bit of time to move through the system. That's what we saw in Australia, and that's also been the experience now that we've seen in the second half in New Zealand, where you can see very strong margin performance in the second half.
Okay. Just one final one, maybe a bit difficult to answer, but just in terms of the dividend, given the improvement in the result and the stronger financial position the company's in, what would be the trigger to resume the dividend payments for the company?
James, as you know, dividend policy is determined by the board. I think reflecting on where we are for the year, I think it's a testament to the strategy and the turnaround that in FY 2026 we're going to be able to fund between $30 million and $35 million worth of CapEx from within operating cash flows. The returns that we're generating on these stores are outstanding, and the board will continue to monitor this against our strategy execution on an ongoing basis.
Okay, thanks, Mark.
Your next question comes from James Bales with Morgan Stanley. Please go ahead.
Hi guys. Firstly, on comps, we understand how strong the new stores have been, but it seems like the rest of the network has improved as well. Can you explain what's going on there? Excluding all of the closures, etc., how much of that is sustainable into 2026 and 2027?
Yeah, thanks for the question. The comp performance overall has been strong, as we indicated in the release across all channels. We've seen improvements in bricks and mortar comp sales, our click and collect, and online delivery. I think that points to the overall health and return of the business's performance. We've spoken at several points during the cycle over the last 12 months since we released our new strategy, and this sustained improvement in our go-to-market performance is really resonating with consumers. We saw growth in volume and growth in ASP over the course of the 12 months, and when you combine that with a view across all of our channels, seeing good, strong, positive momentum, that pattern has been sustained now for a prolonged period of time. We're feeling really good about the business's overall performance as we head into FY 2026 and give guidance again this year.
Got it. Maybe just on your comments on retail media, the 1%- 2% of total sales being an incremental revenue opportunity for you, can you maybe outline what sort of CapEx and OpEx is required to achieve that?
We haven't disclosed specifically incremental CapEx and OpEx, but as part of the new Store of the Future build, where we have brought to life new merchandising display units for brands to be able to showcase their stories and digital panels in the store, that's all included as part of the CapEx guidance that we've provided for new Store of the Future. Beyond that, James, what we're really doing is making available the assets that we already own and providing them to our brand partners as part of our retail media network. Effectively, what we are doing, we are flexing existing assets and capability that we have brought together to deliver this opportunity.
Okay, that makes sense. One last one, 28% sales uplift on the refurbs. Totally amazing result, and totally understand why you wouldn't want to extrapolate that. I just wanted to understand whether there's a reason why you've set the expectations for the sales uplift on the next refurbs to be 15%- 20%.
James, having been at this for quite a long time, the results that we are generating are certainly beyond what our expectation was initially. 28% is a very strong number, but we're still mindful of the fact that these stores are reasonably early in their lifecycle. Maribyrnong, which has been open for the longest period of time now, has just been open for 16 weeks, with the other two stores at around 8- 10 weeks. We still see a settling of sales, but that has been a very predictable trend line. Beyond that, when we think about extrapolating that over the diversity of our catchments and store network, we are expecting some moderation in some store results, and that's why we've provided a range of 15%- 25%.
Perfect. Thanks, guys, and congrats.
Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Sam Teeger with Citi. Please go ahead.
Hi, Mark. Hi, Darin. What a great turnaround here. Congratulations. Just wanted to ask about the CapEx of the $30 million- $35 million guidance. What proportion is ERP and POS, and what will you still need to spend in 2027 on this, and just how would you think about returns from this spend? Thanks.
ERP and POS is a program. I'll take that question, Sam. Thanks. ERP and POS is a program that we'll be initiating this year and will have a low investment this year. It's a minimal proportion of the numbers that we've quoted there. The majority of that investment is around the new store refurbishments and the new store rollout. The second part of your question, in terms of a horizon of investment, that'll be a horizon of, you know, forward of two to two and a half years beyond initiation, which we think is most likely to commence towards the end of this FY 2026 period and then extend two to two and a half years beyond that.
What are you budgeting for the whole program?
We're still working through that process at the moment. We previously guided to between $10 million- $15 million as something over the lifetime of the program, but it's still something that we're working through.
Okay. Darin, while I've got you, can you help us think about the effective tax rate for 2026? I'm just wondering, how come in 2025 it might have been a bit lower than expected? Did something unusual happen there that won't happen again?
No, it should be consistent on a full-year basis. First and second half should be consistent with the result where we finished at in FY 2026.
Okay. Last question. Yeah, sorry, Darin.
No, that's okay.
Okay. All right. Just last question. The new stores really look great and the results are very strong, but I just wanted to explore the staffing side in a bit more detail. Number one, are you confident you can source enough staff for the eight new stores you'll open this year? More broadly on staffing, based on current service levels in the network, on a scale of 1- 10, where do you think staffing and service is at and what's the plans to take that to the next level?
Sure. I'll take that one, Sam. On your first question, we are already well advanced with recruitment for stores that are planning to open in the near-term horizon. We've got, over many years, developed great systems and processes in incubating store teams in existing surrounding stores, in addition to complementing that with new hires and induction programs. In regards to our service levels, I'd certainly reference a very strong and consistent pattern of NPS performance over many years. We saw NPS improve over this last 12-month period again. In our Store of the Future, the NPS results have actually increased since launch against the baseline profile of how those stores performed previously.
We certainly acknowledge in our Store of the Future that as a result of seeing better-than-expected performance, we are adjusting service levels to be able to ensure that we can continue to elevate service and drive outstanding customer experiences through the store network. That ranges through a whole bunch of different initiatives. As I addressed in one of the previous questions, we still see some upside opportunity, perhaps in some performance of categories, as a result of making changes to supply chain and fulfillment frequency, in addition to the service model that we have introduced into this new store. Overall, we're really delighted with the progress and continue to see these changes adding to its success over the next 12 months.
Great. Thanks, Mark.
Your next question comes from Wei- Weng Chen with RBC Capital Markets. Please go ahead.
Hey guys, congrats on the results. Just on your 10% EBITDA margin target that you kind of referred to, I guess 2% of that comes from gross profit, gross margin expansion to 42%. Where does the other 3% come from? Is that just more cost of doing business leverage?
If you go back to the original model, the way that we framed this up off the FY 2024 base was to get to 10% EBITDA margin, we needed 500 basis points of margin expansion and 200 basis points of cost of doing business leverage.
Yeah, okay, cool. Thanks. I guess with the new store, do they have a different level of staffing intensity relative to kind of your older stores?
We are getting better labor productivity out of those stores, but we have invested in additional team members to support the elevated sales levels. There are some categories which are being shopped a lot more frequently, and we've seen tremendous growth that the new service models that we have introduced have materially contributed to that performance. We continue to tune and invest in team members, and as one of the initiatives that we launched in FY 2025, we've also rolled out a new online training platform, a learning and development platform, which is gaining momentum as we've rolled it out towards the end of FY 2025. Consumer experience and elevating staff training continues to be a material focus for the business as we roll out Store of the Future.
Yeah, cool. Just the last one, apologies if it's been addressed already, but the uplift that you're seeing in your Store of the Future, is the uplift kind of broad-based, or is there kind of an interesting sort of mix shift that you're seeing in terms of what's selling and when you research the stores?
It's a combination of factors. We certainly have seen mix shift, and as we outlined in the presentation, some fantastic growth in soft goods categories, which is a key strategic objective for the business over the next five years. In addition to that, where we have shrunk the floor space of categories to better optimize for what the customer demands are, we are still seeing strong sales growth where we have removed floor space from categories across the business. By being more curated and focused and delivering an enhanced customer experience, we've actually been able to drive growth across all of our categories in new Store of the Future, which is a fantastic outcome given how we've reset some of these categories to perform.
Okay, cool. Thanks for that.
Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.