Baby Bunting's Turnaround Runs Into a Rate-Driven Valuation Reset

Fund managers say the operational turnaround is intact even as macro fears drove the stock to a fraction of its historical multiple

31 May 2026 · 5 min read

A refurbishment program that lifted individual store sales by close to 30 per cent turned Baby Bunting into one of 2025's standout retail turnarounds, before rate-driven consumer weakness dragged the stock down to a fraction of its historical valuation multiple in 2026.

A new CEO resets a category leader's execution

SG Hiscock & Company's August 2025 update described years of watching from the sidelines as Baby Bunting, the largest player in the baby products retail category, failed to live up to its potential as a category-killer franchise. That changed with the arrival of CEO Mark Teperson roughly two years earlier, whose clear plan to improve the customer proposition and profitability convinced SG Hiscock to invest. HMC Capital's own account showed the scale of the eventual payoff: an investment made in mid-2024, when the business was reporting declining sales and narrowing margins, delivered an unrealised return of more than 80 per cent within 18 months.

Refurbished stores deliver outsized sales uplifts

Firetrail Investments' August 2025 update highlighted the concrete evidence behind the re-rating: refurbished stores performing 28 per cent above the prior year, with gross margins expanding 3.4 percentage points, supporting expectations of more than 30 per cent returns on store refurbishment capital over five years. Pendal Group reported shares up 50.2 per cent that month as FY26 guidance came in well ahead of market expectations, shifting the market's view of Baby Bunting from a mature retailer to a category leader with a genuine growth pathway through further store rollouts, new formats and expansion into New Zealand.

Its FY25 earnings came in at the top end of guidance and ahead of consensus. However the key point was that FY26 guidance was well ahead of market expectations, driven by improvements in both sales and margin expectations, which has seen the market shift in viewing the company as a mature retailer to a category leader with a growth pathway.

— Pendal Group, Monthly Report, August 2025

Momentum builds through the AGM season

HMC Capital's October 2025 update reported comparable sales growth of 5.6 per cent year to date, gross margin lifting to around 40.6 per cent from 40.2 per cent, and refurbished stores delivering roughly 30 per cent sales uplifts, with two small-format Junior store pilots now live. Despite an October share price pullback, HMC noted the stock remained up 63 per cent for calendar 2025, seeing further upside from continued refurbishments, network expansion, small-format pilots, operating leverage, a growing retail media business and an eventual positive earnings contribution from New Zealand in FY27.

Rate fears trigger a steep de-rate

The turnaround met a harsh macro reversal in 2026. HMC Capital's March 2026 update reported a 45.3 per cent share price retracement over the quarter driven by external macro factors, even as the underlying business kept executing: gross margin expanded to 41.0 per cent in the first half, refurbished stores delivered around 25 per cent sales uplifts, and five new stores opened in the half. Ellerston Capital was blunter about the disconnect, describing the sell-off as disproportionate to any change in the company's underlying trajectory, since the first-half result had come in broadly in line with expectations even as comparable sales growth accelerated to 6.7 per cent early in the second half.

The severity of the de-rating, therefore, had little to do with the reported numbers and far more to do with the market's unwillingness to pay for discretionary retail earnings in a deteriorating consumer environment, with investor sentiment toward the sector souring materially through the quarter. BBN's structural self-help levers including store refurbishments, network expansion, and an improving New Zealand business were largely disregarded.

— Ellerston Capital, Monthly Report, March 2026

A valuation gap opens against the company's own history

HMC Capital's April 2026 update quantified the scale of the disconnect: Baby Bunting was trading at around 4.5 times next-twelve-month consensus EBITDA, versus a long-term average since its 2015 IPO closer to 11 times, even as gross margin had improved from 37.2 per cent at HMC's initial investment to 41.4 per cent by the second quarter of FY26, with a 42 per cent target for FY27. HMC continued to see Baby Bunting as better placed than independent competitors to withstand a consumer slowdown, given its scale, exclusive brand partnerships and private label offering. By May 2026, HMC and SG Hiscock both reported a partial recovery as household cost pressures eased and capital rotated back into discounted retail names.