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A2 Milk rival Bubs delivers explosive Q3 growth

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The Bubs Australia Ltd (ASX: BUB) share price will be one to watch on Wednesday after the release of its quarterly update.

How did Bubs perform in the third quarter?

Bubs had a very strong quarter despite the coronavirus pandemic. In fact, demand for its infant formula and baby food products increased significantly quarter on quarter.

For the third quarter, Bubs posted record quarterly revenue of $19.7 million. This was a 67% jump on the prior corresponding period and a 36% lift on the second quarter.

Pleasingly, this lift in sales has taken Bubs to a level where it is now generating positive operating cashflow. For the quarter, Bubs recorded positive operating cashflow of $2.3 million. This left it with a cash balance of $36.4 million.

What were the drivers of its growth?

According to the release, the A2 Milk Company Ltd (ASX: A2M) rival experienced a significant increase in demand through all channels.

Australian sales were up 34% on the prior corresponding period. This represents 64% of gross sales during the quarter. In Australia Bubs products are on sale in supermarkets Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW), Big W, Amazon, and Chemist Warehouse.

Sales to China grew at an even quicker rate of 104%. This represents 24% of quarterly gross sales. This was supported by strong growth in its other markets segment. Sales grew 20x on the prior corresponding period and represent 12% of gross sales.

Bubs Founder and Chief Executive Officer, Kristy Carr, commented: “This quarter demonstrated the strength of our business model and agility of our team to continue to meet the needs of our Bubs Family in a challenging operating environment, and I am pleased that we have been able to maintain our sales momentum and deliver on our main objectives.”

Bubs Executive Chairman, Dennis Lin, revealed that demand remains strong and the company is increasing its production.

He explained: “We remain agile and able to quickly respond to this fast-moving situation, with operating flexibility from our vertical supply chain and strong balance sheet position. Our expanded production teams are now running two eight-hour shifts daily to meet domestic demand, as well as committing to volume container shipping of product to Asia to meet increased export demand.”

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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. The Motley Fool Australia has recommended BUBS AUST FPO. 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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