Infant formula manufacturer Bubs Australia [ASX:BUB] was down more than 10% on Monday following the release of its 1Q23.
Bubs reported cash outflows from operating activities of $8 million as customer receipts were not enough to offset operating and corporate costs.
Bubs also saw China channel gross sales fall 21% in the prior corresponding quarter, with adult goat milk powder sales shrinking 94%.
BUB shares are down 15% year to date.
Source: Trading View
Bubs Q123: A mixed quarter with worrying signs from China
Here are the key results from BUB’s 1Q23:
- Gross revenue totalled $23.6 million, up 28% since the same time last year
- Bubs Infant Formula gross revenue up 109%
- In Australia, record market share growth in the goat formula category increased 56%
- US gross revenue of $9.6 million contributed 40% of Q1 group gross revenue
- Bubs’ cash position totals $64.6 million for the quarter
The infant formula company said that it’s also gained 9% of the organic formula category in the first 13 weeks of release in the US, including on Amazon.
Meanwhile, scan sales ranked second out of eight FDA-approved imported brands, compounding at a 12.3% weekly growth rate.
Bubs’ CEO Kristy Carr said the company is ‘enjoying a strong growth trajectory on prior comparative period’, with the BUB footprint increasing across 6,500 US stores, and an expanding online presence through its recent contract with Amazon.
Ms Carr did reveal, however, that adult goat milk and B2B ingredient sales in China were ‘significantly down’ for the quarter, explaining that continuing lockdowns and shipping disruptions have played an unfortunate part.
Yet BUB is finalising agreements with new Chinese partners, Health Technology and Heilongjiang Anjia Dairy:
‘Under the joint venture and supply arrangements, Bubs has applied to secure approval of an existing State Administration for Market Regulation (SAMR) brand slot (subject to SAMR approval) with the intent of rebranding as Bubs® and targeting the launch of a new GB compliant ultra-premium range in the second half of FY23.’
Bubs China troubles
BUB’s China channel was the worst performer, with gross revenue down 21% in the prior corresponding period (pcp).
While infant formula sales were up 4% on pcp, adult goal milk powder sales were down 94% on pcp.
Bubs said the Chinese market is suffering from oversupply and competitive overcrowding:
‘Across the infant formula category, a significant number of brands have oversupplied the market, including local Chinese brands. This has created a significant decline in margin across all distribution partners. In addition, the cost of doing business has also increased on cross-border e-commerce, particularly as it relates to advertising spend. The category issue was exacerbated through a subdued result during the 6.18 shopping festival, and the oversupply by other brands is expected to continue through to the upcoming Double 11 festival, which is likely to cause distributors and participants to look for alternative, quality infant formula brands that can provide stability of margin, and supply with international and established reputation.’
BUB cash position rescued by equity raise
Bubs burned through $27.9 million on manufacturing and operating costs, $4.8 million in admin and corporate, $2.5 million for staffing, and $4.0 million on marketing.
BUB ended the quarter with operating cash burn of $8 million.
Having started the quarter with $16.3 million in cash and cash equivalents, Bubs would have ended the quarter with around $4 million in the bank had it not been for the $60 million raised from issuing shares.
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