Why the Bubs Australia Ltd (ASX:BUB) share price zoomed higher today

One of the best performers on the market on Monday has been the Bubs Australia Ltd (ASX: BUB) share price.

In late morning trade the goats milk infant formula company’s shares are up over 5% to 49.5 cents.

At one stage the Bubs share price was as much as 8.5% higher at 51 cents.

Why is the Bubs share price zooming higher?

This morning Bubs released its update for the first quarter of FY 2019 and revealed a strong increase in sales.

According to the release, Bubs saw its revenue increase 416% on the prior corresponding period to $8.98 million.

This was driven largely by the inclusion of the acquired CapriLac business which completed in the second quarter of FY 2018. The business generated approximately 55% of its revenue during the first quarter.

In addition to this, a 90% increase in the sales of its Bubs products due to growing sales in Coles and Woolworths Group Ltd (ASX: WOW) supermarkets and through the daigou and cross border ecommerce channels also supported its growth.

Sales of Infant Formula products rose 82% and Organic Baby Food increased 57% on the prior corresponding period. The difference was made up by Organic Toddler Snacks sales which were launched in the second quarter of last year.

Bubs Australia founder and CEO, Mrs. Kristy Carr, appeared to be pleased with the progress made in the first quarter.

She said: “We remain confident in the strategic direction we have been pursuing. Over the last 12 months Bubs product portfolio has gained significant traction in domestic and international markets, including securing several key new distribution channels and successfully implementing new product launches.”

Before adding that: “We are particularly pleased with the strong growth in our domestic business, with ranging in more than 2,500 Australian retail touchpoints across our full product portfolio, including Coles, Woolworths, Big W, Costco, Aldi, IGA, Chemist Warehouse, and other pharmacy chains. Domestic sales currently account for around 82% of total revenue as we are seeing strong positive momentum in consumer off-take in-store.”

What now?

While this was a strong quarter from Bubs, it is worth remembering that it is from a low base and acquisitions played a major role in its sales growth.

In addition to this, despite the jump in sales, the company still reported an $8.55 million cash outflow from operating activities.

This ultimately reduced its cash and cash equivalents balance from $38.6 million to $31.7 million. Just $6.5 million of this is actual cash, with the remaining $25.2 million a bank overdraft.

Overall, until Bubs is running a profitable operation I’m going to sit this one out and focus on infant formula companies such as A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL)

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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