Bubs share price higher after more than tripling Q4 sales

The Bubs Australia Ltd (ASX: BUB) share price is on the move on Wednesday.

In morning trade, the infant formula company’s shares are up almost 4% to 55.5 cents following the release of its quarterly and full year update.

Bubs share price higher amid strong Q4 sales growth

For the three months ended 30 June, Bubs delivered a 278% increase in gross revenue over the prior corresponding period to $48.1 million.

This led to Bubs’ second half gross revenue growing 168% to $65.7 million and its full year gross revenue increasing 123% to $104.2 million for FY 2022.

Management advised that this was driven by gross across all key product segments and all key markets.

A key driver was the company’s US business which was given an almighty boost from the U.S. Government’s Operation Fly Formula.

In order to help with supply issues, Bubs’ infant formula products are now sold in over 5,400 stores across 34 US states. This includes the four largest retailers of infant formula: Walmart, Kroger, Albertsons/Safeway and Target.

In China, the company’s interesting decision to reward a key daigou seller with shares in exchange for sales appears to be working with corporate daigou sales up 1,201% during the fourth quarter.

However, taking some of the shine off the strong top line result was the company’s cash flow. Despite its sales growth, Bubs recorded an operating cash outflow of $6.7 million for the quarter and $10.2 million for the year.

Management commentary

Bubs’s CEO Kristy Carr was very pleased with the final quarter. She commented:

The last quarter has seen the business reach critical mass following exceptional growth across Australia, China, and rapid expansion in the USA with our involvement in the Biden-Harris Administrations’ Operation Fly Formula initiative aimed at helping to mitigate the ongoing infant formula shortage crisis. This business diversification and increased scale of our most profitable products and channels has flowed through to our operating margins, delivering profitability for the full year (excluding non-cash equity compensation expenses).

Carr also appears confident that the company’s US operations aren’t just benefiting from a one-time sugar hit due to supply issues.

We are confident of the long-term growth prospects for the USA now that the Food and Drug Administration has committed to a framework for suppliers like Bubs, who have already been approved to import infant formula products, to remain on shelf beyond November 2022. As a result, we envisage the USA will become a lead export market opportunity on par with China in the future.

Outlook

Bubs continues to expect to report underlying EBITDA of greater than $2.4 million. Though, this excludes non-cash equity compensation expenses such as share based payments and equity linked transactions.

Looking further ahead, Bubs’ executive chair, Dennis Lin, was optimistic on the company’s growth outlook. He said:

Now that we have achieved scale with over $100 million in gross revenue, we expect margin accretive growth to continue, and anticipate FY23 revenue and margin contribution will be largely attributed to growth in China and the USA, and across our portfolio segments, with infant formula forming a significantly higher proportion of revenue than the current 60 per cent.

The USA represents the most dynamic opportunity and long-term growth prospect for the business. The team will be singularly focused on delivering earnings accretive growth in FY23 and beyond for our existing and new shareholders.

The post Bubs share price higher after more than tripling Q4 sales appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro 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 has recommended BUBS AUST FPO. 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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