Baby Bunting Group Limited (ASX:BBN) has reached the awkward stage of a turnaround: the strategy is showing signs of life, but the consumer is not playing along neatly.
The baby goods retailer now expects FY26 pro forma NPAT of about A$16.0 million to A$17.0 million, below its previous full-year guidance of A$17.5 million to A$19.5 million. That is still expected to be 32% to 40% above FY25, but the downgrade matters because it arrived late in the year, after fourth-quarter trading softened.
The story is not a clean disappointment. It is more interesting than that. Baby Bunting is still expanding gross margin, still growing online, still getting a strong uplift from refurbished stores, and still building momentum in New Zealand. The problem is that the untouched parts of the store network are now showing exactly where the pressure sits.
The Fourth Quarter Broke the Smooth Recovery Story
The latest trading update says Baby Bunting expects total FY26 sales of about A$553 million to A$555 million, up around 6.0% on the prior corresponding period. Comparable store sales are expected to rise about 3.5% for the year. On the surface, that is not a broken business.
The issue is the deceleration. Baby Bunting said comparable sales growth in the second half is now expected to be about 3%, compared with the 6% to 8% assumed in its previous guidance. The gap between those two numbers is where the market will focus.
Management pointed to softer trading through the fourth quarter, with pressure in prams and car safety lowering average transaction values. CEO Mark Teperson also cited three RBA cash rate rises in the second half and higher fuel prices, which weighed on consumer spending and added to distribution costs.
That is the uncomfortable part of the update. Baby Bunting can refresh stores, sharpen the range and lift margins. It cannot fully control how young families respond when household budgets tighten again.
The Refurbished Stores Are Carrying More of the Argument
The cleanest number in the update was not the profit guidance. It was the Store of the Future performance.
Baby Bunting said refurbished stores are expected to deliver about 18% sales growth for FY26, including about 16% growth in the second half. That matters because the refurbishment program is the centrepiece of the retailer’s reset. If those stores keep outperforming, the strategy has something real underneath it.
The half-year result already gave investors a clue. At 1H FY26, Baby Bunting said nine refurbished stores had delivered an average 25% sales uplift since reopening, at the top end of its 15% to 25% target range.
This is the tension: the new store format appears to be working, but the broader network is still exposed to weak category demand. A store reset can improve the offer. It does not make prams cheaper for stretched households.
Margin Is Doing More Work Than Sales
Baby Bunting’s margin story is still intact. The company expects gross margin to be above 41% for FY26, compared with 40.2% in FY25, and around 41.5% in the second half.
That follows a first half in which gross margin reached 41.0%, up 124 basis points on the prior corresponding period. Baby Bunting said the improvement reflected supplier trading terms and growth in private label and exclusive product ranges.
The private-label point deserves attention. At the half year, exclusive and private-label brands accounted for 48.6% of total sales, up 250 basis points. That gives Baby Bunting more control over range, pricing and margin than a pure third-party retail model.
The catch is that margin cannot carry the whole story forever. If sales growth slows too far, fixed costs and refurbishment spending become harder to absorb. Baby Bunting’s FY26 net debt is expected to finish at about A$20 million, while net debt was A$21.1 million at the half year and the board declared no dividend to support the growth strategy.
Online and New Zealand Are the Quieter Proof Points
Two smaller pieces of the update stop the downgrade from reading as a simple stumble.
Online sales are expected to grow about 16% in FY26. Baby Bunting also said New Zealand sales growth in the second half is above 15%.
Those details matter because they show the recovery is not only about store refurbishments. The retailer is trying to build a broader model: better stores, more exclusive product, stronger digital sales, and a New Zealand business that can move closer to profitability.
At the half year, Baby Bunting said its online fulfilment had scaled to 100% from stores, while BabyBuntingMedia had launched and was tracking at about 1% of sales. It also announced a three-year exclusive brand partnership with Stokke in Australia.
None of that removes the fourth-quarter weakness. It does suggest the company has more than one lever.
The August Result Has to Separate the Story From the Slogan
Baby Bunting will release its full-year result on 14 August 2026. That result now has a sharper job than it did a month ago.
Investors will be looking for whether the fourth-quarter softness was a temporary consumer hit or a sign that demand in key categories is weaker than the strategy assumed. They will also be watching whether the refurbished stores keep outperforming once the easiest sites have already been completed.
The company’s own update leaves the debate open. Margin is improving. Online is growing. New Zealand is moving. The refurbishment program still has proof behind it.
But the wider store network just reminded investors that retail turnarounds rarely move in a straight line. The August result has to show whether Baby Bunting’s reset is strong enough to carry through a tougher consumer tape.
