Negative sales growth, even with higher discounting

The share price ran up after the last announcement, which confused me

Sales went from being -20% in the first 2 weeks of the stocktake sale to -9% in the next 3 weeks of the sale. So sales were better, but NPAT still only hit their guided range of $13.5-15.0m. Why? They increased the discounts to drive more sales in late June, but nothing additional fell to the bottom line as it was at lower GM%

July update was also -9% sales - not a good start to FY24

Prior to the announcement, brokers had 1H24 sales at approx -2% (and at a higher GM%). So we will need to see a big improvement in sales and less discounting for the balance of the 1H24 for BBN to hit their numbers

The cost out was a positive. But if sales are down in FY24 and at a lower GM% (like it has been in the past few months), an optimistic scenario is that the cost out offsets the drop in GM$, ie NPAT in FY24 is flat on FY23 at c.$14-15m. That's about what they made in FY19 pre-COVID

And this would mean BBN is trading at a 18x FY24 PE multiple! Way above all other AU bricks and mortar retailers - and BBN doesn't have a growth advantage over them

Interesting sales per store comparison shows that their most recent trading isn't that weak, and therefore could still get weaker in an economic downturn >> in the 2H23 they did about $3.7m per store, still higher than the $3.6m they did in 2H19

The structural challenge for BBN is the increasing price competition from online players who are also getting access to big brands or similar products, as well as elevated competition from discount department stores. The big convenience draw card of being a one stop shop for parents is being challenged by the savings on offer by shopping around. And now with BBN price match guarantee, that will hit GM% hard

There's plenty of price competition out there right now. BBN has been on a very big and broad sale for the past week or two, which is not normal only weeks after their big stocktake sale >> bet the GM% is getting eaten up and there's room for it to fall further (currently 37-38% vs FY19 of 35%)