Bubs share price sinks 7% despite quarter of ‘exceptional growth’

Bubs shares are down despite revealing growth in its latest quarter.

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Key points

  • The Bubs share price is down 7% after the company released its quarterly update
  • Bubs says it achieved “exceptional growth” domestically
  • However, the company warned of possible ongoing COVID impacts

The Bubs Australia Ltd (ASX: BUB) share price is down 7.14% after the infant formula company announced its quarterly update for the three months to 31 March 2022.

The business announced the third consecutive quarter of year-on-year growth, pointing to “positive growth momentum” across each of its business pillars. These are its domestic, China, and international markets. In particular, Bubs reported “exceptional growth” in its domestic retail business.

Bubs FY22 third-quarter update

Here are some of the main highlights from the Bubs update today:

  • Third-quarter gross revenue of $17.6 million, up 49%
  • Domestic retail infant formula growth of 108%
  • Bubs’ Australian market share reached 4.2%, which is a company record
  • Number one status in the goat infant formula brand, with a market share of 42.1%
  • Deloraine Dairy Solutions revenue jumped 560%, contributing 30% of quarterly sales
  • Total Chinese (daigou and cross-border e-commerce) sales increased by 8%
  • International gross revenue grew 153%, with Bubs-branded products revenue growth of 63%
  • USA retail footprint expands in 254 Smart & Final stores, and 130 Buy Buy Baby stores

Other highlights

Bubs has been busy in the last few months with strategic moves.

The company has launched a new product which it calls Bubs Supreme. This is A2 beta-casein protein infant formula. Bubs calls this product its most ambitious innovation project to date. The company says it enables it to address a much larger share of the infant formula market. It will be on the shelf of 500 Coles Group Ltd (ASX: COL) supermarkets from May 2022.

Bubs’ lead corporate daigou distributor Willis Trading has committed to an opening purchase order valued at $32.9 million. The first containers are already shipped and being sold in China from April.

Willis Trading has been Bubs’ largest single customer in FY21 and FY22. It has also been the lead distributor for both Bubs and CapriLac brands in the corporate daigou channel.

During the quarter, Bubs entered into an equity-linked strategic alliance with Willis Trading. The agreement is conditional on product purchase milestones of at least $50 million in FY22 and $80 million to $120 million in FY23.

Outlook and Chinese lockdowns

Bubs said it’s working with its partners to ensure that Chinese consumers are still able to access its products. Further, it said its “unique restructure” of supply chain and logistics over the last two years has enabled the business to maintain and accelerate growth momentum.

In terms of the outlook, the company expects to deliver modest half-on-half growth in the second half of FY22. Accelerated revenue expected from the rollout of Bubs Supreme is set to be realised in the fourth quarter.

The company acknowledged that continuing macroeconomic uncertainties and ongoing COVID-related supply chain disruption could result in “transitory variability”.

Bubs share price snapshot

The Bubs share price is down 4.21% in 2022 so far but up more than 7% over the past year.

The company has a market capitalisation of $278 million based on its current share price.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended COLESGROUP DEF SET. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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