The Bubs Australia Ltd (ASX: BUB) share price is surging notably higher on Thursday.
At the time of writing, the infant formula company’s shares are up 10% to 67 cents.
Why is the Bubs share price surging higher?
The Bubs share price is on the move today following the release of its second quarter update.
For the three months ended 31 December, Bubs reported a 12% decline in gross revenue to $12.8 million. This was despite the company reporting a 34% increase in China cross border ecommerce (CBEC) sales and strong sales growth in Australian supermarkets compared to the same period last year.
In respect to supermarket sales, management notes that Bubs is the fastest growing infant formula manufacturer across Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW). Though, it is worth remembering that Bubs is working from a much smaller base compared to the market leaders such as a2 Milk Company (ASX: A2M), Aptamil, and Bellamy’s. So, its stronger growth isn’t overly surprising, especially given the recent expansion of its ranging.
The corporate daigou channel remains challenged but has improved since the first quarter. Bubs more than doubled its sales in the channel quarter on quarter.
What about costs?
Bubs was burning through its cash again during the second quarter. It spent $13.6 million on product manufacturing and operating costs over the three months, which was more than it generated in revenue.
This led to a net operating cash outflow of ~$5.7 million. This was offset slightly by a $3.8 million share purchase plan, leaving the company with a cash balance of $40.2 million.
It notes that this is sufficient to fund its operating activities for eight quarters based on its second quarter.
Bubs Founder and Chief Executive Officer, Kristy Carr, appears optimistic that the worst is behind the company now. This may explain why the Bubs share price is charging higher today.
She commented: “Whilst the impact of COVID-19 continues to cause channel disruption and market conditions remain challenging, we are pleased to report sales growth is returning across all product groups, channels and regions, with quarter-on-quarter growth revenue increasing 36 percent.”
“While this is still some 12 percent below the prior comparable period due to the contraction of the Daigou channel, we are particularly pleased by the strong rebound in domestic sales which are up 31 percent quarter-on-quarter. Total export sales revenue was also up 45 percent on previous quarter, and up 55% on prior year, validating our global expansion strategy is taking hold.”
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More reading
- Here’s why the Bubs (ASX:BUB) share price crashed 40% lower in 2020
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk and BUBS AUST FPO. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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