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Bubs Australia just delivered a 465% increase in half year sales

The Bubs Australia Ltd (ASX: BUB) share price has dropped almost 2% lower to 58 cents on Thursday following the release of the goat milk infant formula company’s half year results.

Here’s how Bubs performed in the first half compared to the prior corresponding period:

  • Gross sales increased 465% to $21 million.
  • Infant Formula sales jumped 180% to $7.3 million
  • Gross profit up 477% to $3.75 million.
  • Normalised EBITDA down 36% to a loss of $3.5 million.
  • Loss after tax worsened by 127% to $8.8 million.

Bubs Australia’s founder and CEO, Kristy Carr, appeared to be very pleased with the company’s sales performance in the first half.

She said: “Our first half results are characterized by a very strong revenue trajectory, with half-year revenue up nearly six-fold on the prior comparable period and exceeding the full-year FY18. Domestic business has grown five-fold compared with the same period last year.”

The company has had a lot of success with its focus on China’s cross-border ecommerce channel and in mother and baby stores. So much so, sales into China have grown ten-fold over the same period last year.

The company believes these revenue increases validate its focus on investing in its China route-to-market strategy and associated channel capacity.

In addition to this, the development of a corporate daigou channel has catalysed group domestic sales and led to a five-fold increase on the same period last year to $16 million.

However, investment activities led to a $3.5 million normalised operating loss. These investments include the high costs associated with developing products suitable for direct importation into China, provisions to meet China’s regulatory requirements, and establishing an office and cross functional team in Shanghai.

The overall net loss after tax of $8.8 million incorporates expenses incurred outside of the normal operations of the company. These include a $4.5 million expense relating to the fair value movement of contingent consideration of $13.4 million payable to the Nulac Foods vendors for future satisfaction of certain performance targets, $288,000 for share based payments relating to options issued in FY 2018, and $241,000 inventory write-offs for discontinued products.

Should you invest?

I’ve been very impressed at the sales growth that Bubs has achieved, but until it is running profitable operations I won’t be investing.

I’m not convinced Bubs will be profitable for a couple more years, which could mean another capital raising will be due over the next 12 months.

So for now, I would keep Bubs on your watchlist and stick with A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL).

Alternatively, these growth shares have been tipped as potential market beaters in 2019.

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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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