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Bubs share price sinks lower on Q4 update and new product launch announcement

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The Bubs Australia Ltd (ASX: BUB) share price is sinking lower on Monday after the release its quarterly update.

At the time of writing the infant formula and baby food company’s shares are down almost 8% to 94 cents.

What did Bubs announce?

During the fourth quarter of FY 2020, Bub reported gross revenue of $13 million. This was a 5% decline on the prior corresponding period.

Management advised that this reduction was due to its strong sales in the third quarter during the height of the pandemic. This was driven by pantry stocking and pulled forward sales from the fourth quarter.

Nevertheless, infant nutrition sales grew 14% on the prior corresponding period during the quarter. These sales now represent 75% of gross sales and were largely driven by demand in China. Direct sales in this key market increased 26% on the same period last year.

This offset a 31% decline in Adult Goat Dairy segment sales, which now make up 24% of total sales. The remaining 1% of sales is attributable to its contract manufacturing business.

This ultimately led to Bubs reporting a 32% increase in FY 2020 gross revenue to $62 million.

What about its cash flow?

Unfortunately, the company wasn’t able to make it two consecutive quarters of positive operating cash flow.

Bubs reported an operating cash outflow of $6.9 million for the quarter which, combined with other costs, led to the company burning through $10.3 million of cash. This leaves Bubs with a cash balance of $26 million.

I suspect it is this cash burn that is weighing heavily on the Bubs share price today.

Vita Bubs launch.

In addition to its quarterly update, the company announced that it would be challenging Blackmores Limited (ASX: BKL) in the vitamin and mineral supplements market.

It is launching a range of children’s vitamin and mineral supplements that will be ranged in 400 Chemist Warehouse stores across Australia from October.

Bubs Founder and CEO, Kristy Carr, explained: “The Vitamin and Mineral Supplements category provides Bubs with the opportunity to leverage our unique positioning as a Children’s Nutrition and Australian Goat Dairy specialist with the launch of a complementary brand extension into this material $2.3 billion category.”

Supporting this launch will be its new global brand ambassador, Jennifer Hawkins.

The CEO commented: “Jen is a much loved Australian icon with her work as a popular TV presenter, international model, and successful entrepreneur. As a new mum she is the perfect role model to represent the Bubs brand to new parents everywhere, including among her legion of nearly two million social media followers.”

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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 and has recommended Blackmores Limited and 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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