Baby Bunting's Turnaround Rally Unwinds on Rates and Trading Down

A genuine store refurbishment turnaround drove a strong rally, before fears about its rate-sensitive customer base and a demand downgrade erased the gains.

31 Jul 2026 · 4 min read

Baby Bunting Group delivered one of the ASX's most dramatic reversals of 2025-26, rallying nearly 70 percent after a strong FY25 turnaround result before collapsing more than 60 percent as rising interest rate expectations, macro-driven fears about its rate-sensitive customer base, and a demand downgrade for younger families trading down erased the gains.

A genuine turnaround story takes hold

1851 Capital rated the stock a buy, crediting CEO Mark Teperson, two years into the role, with doing some really great things, having refurbished three stores already with a further 10 to 12 planned for the financial year. Pendal Group said the stock rose 14.8 percent following a well-received FY25 result, with earnings at the top of guidance and ahead of consensus, and FY26 guidance well ahead of market expectations, shifting how the market viewed the company. HMC Capital said Baby Bunting was a strong contributor, up around 68 percent, following the release of FY25 results reinforcing the turnaround strategy, with gross margin reaching 40.2 percent, ahead of a 40 percent target, and the refurbishment program particularly strong. Elston Asset Management said the turnaround seemed well underway, with improvements from newly refurbished stores exceeding expectations. Oracle Advisory Group said Baby Bunting delivered an exceptional performance following FY2025 results, with record sales of $521.9 million, up 4.7 percent year on year, and pro forma net profit after tax skyrocketing 228 percent to $12.1 million.

Baby Bunting was a strong contributor to portfolio performance during the quarter, up ~68% following the release of its FY25 results in August. The results continue to reinforce the turnaround strategy we have supported, with gross margin reaching 40.2%, ahead of the 40% target.

— HMC Capital, Quarterly Report, September 2025

Continued momentum through the AGM update

HMC Capital said an AGM trading update reaffirmed FY26 net profit guidance of $17 million to $20 million, with comparable sales growth, adjusting for stores closed for refurbishment, continuing to show strength, up 5.6 percent year to date, gross margin lifting to around 40.6 percent, and refurbished Store of the Future sites delivering around 30 percent sales uplifts. Tyndall Asset Management, initiating a position, described a specialist retailer that had struggled in recent years as its customer cohort proved particularly susceptible to interest rate hikes, compounded by execution mishaps, now embarking on a store refurbishment turnaround under a new CEO, streamlining promotional activity and refocusing on basic retail fundamentals.

Baby Bunting is a specialist retailer who, in the past couple of years, struggled as their cohort of customers were particularly susceptible to interest rate hikes. Under its new CEO, the company is embarking on a store refurbishment turnaround.

— Tyndall Asset Management, Monthly Report, October 2025

Macro fears trigger a dramatic reversal

HMC Capital said the stock fell 45.3 percent for the quarter, driven by external macro and market factors rather than execution, with Baby Bunting continuing to execute its turnaround strategy and the stock closing up 8.6 percent on the day of its first-half FY26 results, showing continued progress with gross margin expanding to 41.0 percent. Ellerston Capital confirmed the same 45.3 percent fall as its largest detractor for the quarter, despite a first-half result broadly in line with expectations, with management narrowing full-year net profit guidance to $17.5 million to $19.5 million, implying a material second-half skew, while early second-half trading showed continued comparable sales acceleration. Oracle Advisory Group said Baby Bunting's key customer tends to suffer most when interest rates increase, and with RBA rates expected to rise at least one or two more times in 2026, decided to exit the holding entirely.

Their key customer tends to be the one who suffers the most when interest rates increase. With RBA rates expected to rise at least another 1 or 2 times in 2026, we have decided to exit the holding.

— Oracle Advisory Group, Quarterly Report, March 2026

A demand downgrade confirms the fear

Pendal Group said the stock fell after management downgraded second-half FY26 expectations on softer sales in recent weeks, with overall volumes remaining high but younger families flagged as trading down to lower-priced items in categories such as prams and car seats, prompting consensus to cut FY27 sales forecasts by 2 to 3 percent.

What fund managers say they are watching next is whether the store refurbishment and margin expansion turnaround continues delivering despite the demand downgrade, whether younger families keep trading down to lower-priced items, resolution of the macro-driven rate sensitivity concerns, and delivery on the narrowed FY26 net profit guidance range of $17.5 million to $19.5 million.