Baby Bunting CEO to Depart as Profit Falls

What made the news today?

• Baby Bunting falls with slowing sales growth

• Tech stocks feel the squeeze

• WiseTech announces acquisition

• YouTube CEO to leave position

The ASX200 ended the week lower for the second week running, falling by 0.86% on Friday to close at 7,366.80. The concern seems to be lingering on persistent high inflation and how much longer reserve banks will continue to hike rates. The ASX200 fell by 1.17% for the week.

The Tech and Energy sector felt the brunt of the pain on Friday, falling by 2.29% and 1.78% respectively on the day. Only two sectors saw green today, with Utilities leading the way, climbing 1.04% higher.

Block and New Hope Corporation fell the most on the index today, dropping by 7.76% and 5.80% respectively.

Quick Singles

• Inghams Group Ltd (ASX: ING) share price fell 0.4% to $2.74 after announcing a 55% decline in net earnings and a 44% reduction in its interim dividend.

• Latitude Group Holdings Ltd (ASX: LFS) share price decreased 4.8% to $1.29 after announcing the appointment of a new managing director and chief executive officer.

• WiseTech Global Ltd (ASX: WTC) share price fell 3.6% to $56.54 despite announcing a $600 million acquisition of Blume Global.

• YouTube CEO Susan Wojcick steps down after a nine year tenure in the role. She'll be replaced by Neal Mohan, currently chief product officer

• Whispir Ltd (ASX: WSP) share price fell 8.9% to $0.41 after reporting a 27% year-over-year decline in revenue.

Economic News

The number of Americans applying for unemployment benefits decreased to 194,000 during the week ending February 11th, down from the previous week's figure of 195,000 and below market estimates of 200,000.

Housing starts in the United States decreased by 4.5 percent month-over-month to a seasonally adjusted annualized pace of 1.309 million in January 2023, the lowest level since June 2020 and significantly below market estimates of 1.36 million.

According to a preliminary estimate, building permits in the United States increased 0.1% from the previous month to a seasonally adjusted annual rate of 1.3 million in January 2023, staying near the lowest level since May 2020.

In January 2023, annual producer inflation for final demand in the United States dropped for the seventh consecutive month to 6%, the lowest since March 2021, from an upwardly revised 6.5% in December, but exceeded market expectations of 5.5%.

In the year ending in January, the Producer Price Index grew by 6%.

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Top Story

Baby Bunting Shares Slide after Reporting 6.6% YoY Growth in 1H FY23

Australian baby products retailer, Baby Bunting, has reported a 6.6% year-on-year growth in total sales for the first half of the fiscal year 2023 (FY23), at AUD 254.9m. The company's comparable store sales growth for the half stood at 0.4%, compared to 6.8% in the prior year's corresponding period. Baby Bunting saw its in-store sales making up 80% of sales, up 12.2%, while its online sales were 19.7% of total sales, compared to 23.8% in 1H FY22. The company's statutory net profit after tax stood at AUD 2.7m, down 67% YoY, while its pro forma NPAT was AUD 5.1m, down 59% YoY.

Baby Bunting's gross margin was 37.2%, down 212 basis points from the prior year period. The company's gross profit margin declined due to a range of factors, including supply chain cost increases, better-than-expected engagement with its recently launched loyalty program, and the contraction of the play gear category. The cost of doing business on a pro forma basis was 32.4%, an increase of 222 basis points, reflecting significant wage inflation, investments in new markets, and further investments in platforming the business for future growth.

Despite the decline in profits, the company's CEO, Matt Spencer, said the company was "continuing our strategy of growing market share", with total sales having grown by 6.6% in the period. The company's CEO also noted that "post-COVID, our product segment performance is normalising. Nursery essentials – being a core category – continue to grow strongly and were up 12.7% in the half". Baby Bunting's gross profit percentage for January was up on the prior year and in line with its recovery plans.

Baby Bunting's CEO & Managing Director, Matt Spencer, announced that the company's CEO & Managing Director succession process has begun. The company's strategy remains unchanged, focusing on growing market share from its core business, investing in digital, expanding to new markets, and improving profit margins. The company has opened five new stores in the half, and a sixth in Brisbane is expected to open on 11 February, with the next store opening in Orange in April. The company's new Baby Bunting Marketplace, which presents a significant revenue opportunity, is also set to launch.

Movers and Shakers

✅Biggest Winners

QBE Insurance Group's (ASX: QBE) share price increased by 7.4% to $14.39. QBE reported cash earnings of $842 million and a net profit after taxes of $847 million, which significantly exceeded forecasts.

Australian Unity Office Fund (ASX: AOF) share price increased 5.2% to $1.72. This came after an announcement that a contract to sell 5 Eden Park Drive in Macquarie Park for $80.75 million had been exchanged. The sale price is around 1% higher than the $80.0 million independent value as of 30 June 2022. March 2023 is the anticipated settlement date.

❌ Biggest Losers 

Power Holdings (ASX:PWH) saw its share price drop by 13.8% to $10.55, after reporting that its NPAT improved by 3.8% to $7.8m in the first half of the year which fell short of investors' expectations.

Integral Diagnostics (ASX: IDX) share price dropped by about 15% to $2.67. The company's operating profit fell by 36.4% to $7.8 million in an update to the market on Friday. Significant cost pressures, particularly increasing labour prices brought on by inflation and labour market supply limits, were the key drivers of this drop.

Crypto Corner

Tether claims that USDT has been overcollatered

Tether Holdings, the issuer of Tether, a stablecoin that tracks the price of the US dollar, now claims that each USDT in circulation is backed by "more than 81% cash and cash equivalents" with no exposure to commercial paper. In a blog post published on February 16, Tether Holdings reaffirms the reliability of its stablecoin at a time when United States officials appear to be cracking down on crypto projects, particularly stablecoin issuers.

Tether Holding believes that every USDT in circulation is overcollaterized. Tether Holdings has invested $39 billion of its cash reserves in United States Treasuries. The remainder consists of money market funds, reverse repo agreements, cash, and bank deposits that are easily convertible into cash on demand. By maintaining their reserves in treasuries and other liquid collateral, Tether Holdings was ensuring the community that they are very liquid, as they can accommodate any size of redemption demand. The USDT issuer redeemed about $22 billion in 2022 alone.

In addition, the issuer notes that despite the crisis of 2022, they earned net profits of nearly $700 million, bringing their excess reserves to $982 million. USDT dominates the market for stablecoins.