Bubs executes $12 million turnaround with diversification strategy

Remember when busloads of Chinese tourists would rock up at your local supermarket and clear out the shelves of baby formulae which they then sent back to China and sold at a premium? It turns out those guys were pretty important to Australia’s milk powder industry which tanked when international border restrictions stopped them from coming on dairy product holidays. Ultimately, it forced Australia’s biggest milk powder manufacturers to revolutionise their business models and Bubs Australia (ASX: BUB) has come out the other side thriving, having expanded it’s eCommerce distribution and identified a lucrative new market in North America. 

For the half year ended 31 December 2021, Bubs has reported $38.5 million in revenue which represented a 73% increase on the previous corresponding period which was severely impacted by international travel restrictions. With the surge in revenue, Bubs returned to be underlying EBITDA positive with $1.2m profit. 

This delivered a $12 million improvement to the bottom line where the Company incurred a $0.7m net loss after tax which was a monster turnaround from the previous $12.9m loss. 

Agile in their response to the changing environment, Bubs effectively overhauled their distribution strategy with outstanding results. 

“The fact we have been able to return to a growth trajectory speaks to our corporate DNA and our ability to navigate ways forward in a volatile environment,” said Bubs Founder and CEO, Kristy Carr. 

“We see potential upside in Australia’s borders reopening with the return of Chinese students, although continuing challenging market conditions are expected to remain for some time.”

“As a brand-led business, we have maintained a continuous innovation pipeline. During the first half, as part of our strategy to widen points of engagement with our target consumers, we have successfully launched sixteen new products across three product segments in eight markets.” 

Horizontal expansion during the period saw Bubs increase its product portfolio with the launch of 16 new products which commenced distribution into 8 different markets, including their existing channels through Woolworths, Coles, and Chemist Warehouse. 

These increased sales contributed to Bubs maintaining its position as the fastest growing infant formula manufacturer in Australia with domestic customs showing a particular affinity with Bubs’ organic grass-fed range, which grew 93% in domestic gross revenues. 

While the Australian market will always be the most reliable for Bubs, the Company has diversified its reliance on the China market by exploring further international markets where North America has emerged as the biggest growth opportunity. 

During the half year, Bubs launched their new Aussie Bubs brand in the United States across the market’s two largest eCommerce platforms – Walmart and Amazon. In addition to the online presence, Bubs also secured in-store distribution through Ralphs and its 177 supermarkets. Bigger distribution may still be to come however, with Southern California centred Ralphs being a subsidiary of Kroger which operates more than 2,700 grocery stores nationwide.