Baby formula and food company Bubs Australia (ASX: BUB) spent a large part of FY23 undertaking reputation management as its dirty laundry was hung for the world to see. Boardroom disputes, miffed shareholders, lawsuits, and a CEO ousting—the Company had to work in overdrive to maintain shareholder confidence. The impact of its decisions can be seen in its Q1 FY24 report.
In the quarter, the Company’s gross revenue stood at $24.3 million, up 21.7% on Q4 FY23 and up 3.4% on the prior corresponding period (pcp). Its USA gross revenue of $11.6 million represented a 24.1% uptick on PCP, with the country now comprising 48% of group gross revenue. Bubs Infant Formula’s gross revenue was $17.5 million, up 41% on PCP, and its adult goat formula revenue stood at $3.4 million, up from Q1 FY23’s $350k. These growths are in line with its strategic review.
Bubs Chief Executive Officer and Managing Director, Reg Weine, commented, “Q1 was a successful period for Bubs as the Company narrowed its focus on executing the strategic priorities of our 5-point plan announced to the market in July 2023.”
The five-point plan included securing FDA permanent access to the US market (and growing the USA market at large); focusing on goat infant milk formula (IMF) and goat adult milk powder in China; optimising its portfolio and repositioning bovine IMF products; reviewing underutilised factories, and reducing monthly cash burn.
In its July strategic review, the Company had mentioned that its monthly cash burn will be more than halved from approximately $5 million to $2 million from Q2 FY24 (excluding EGM and legal expenses).
The legal expenses are associated with the Company’s embroilment in a legal dispute with its China distributor, Alpha Group, involving Alice Trading Limited and Willis Trading Limited. What’s worse, it involved the participation of ousted Bubs board members Dennis Lin (the former Executive Chairman) and Kristy Carr (the former Chief Executive Officer and Founder). This dispute followed a particularly gruesome financial year for the Company.
Weine added, “This was a very strong quarter overall, led by the USA which was up 24.1% on the PCP and despite China sales being down 51% for the quarter. Bubs also captured further market share domestically, with value growth of 11.6% versus the total category value growth at 3.8%. In line with our strategic plan to optimise the Bubs portfolio, we saw positive signs in the Caprilac adult formula product range (goat powder) with growth of 8x on the PCP, albeit off a low base. Overall, Bubs is on track to deliver its strategic plan and remains focused on responsibly managing capital to grow and maximise shareholder value.”
In Australia, its gross revenue of $6.4 million was up 36% on the PCP, contributing 26% of quarterly sales, up from Q1 FY23’s 21%. In the USA, Amazon sales grew 3% week-on-week. Bubs products were also the fourth and eighth best-selling baby formula brands on the Amazon platform during September.
USA General Manager, Chris Lotsaris, said “The USA remains our growth engine, with sales revenue in the USA growing rapidly. E-commerce now represents more than 60% of our US revenue and is complemented by the increased ranging and sales velocity we are seeing in brick-and-mortar stores since the new planograms have been rolled out. With our momentum building each week, we expect our US sales to grow by more than 100% in FY24 over FY23.”
The Company is still facing issues in China, with much of its stock still held by its former distributor which is now suing Bubs. If that wasn’t enough, Bubs had developed Bubs Supreme exclusively to be distributed by Willis and Alice in China and now, the distributors owe the Company $5.7 million for the finished goods which remain outstanding. Both parties are currently chasing each other for debts.
The next big step for Bubs is securing the US FDA stamp of approval for its infant formula. The deadline for submission for permanent access to the US market is October 2024. Bubs has already spent about $3 million on this process and expects to spend more, but remains optimistic about the addressable market size and its growth potential.
As of September 30, 2023, Bubs held $21.6 million in cash reserves.
Alinda is a Business Reporter for The Sentiment
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