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Why the Bubs share price is down 11% this week

Phil Harpur
A2 Baby formula shares

This morning, Bubs Australia Ltd (ASX: BUB) released an investor presentation providing more detail to the quarterly report provided on Friday last week. The Bubs share price has fallen 0.69% today at the time of writing and is down 11% so far this week. Going back further, Bubs shares have fallen around 24% over the past week since last Tuesday.

Continued focus on high margin products

Bubs reported record gross revenue in 1H FY20, up 37% on the previous corresponding period (pcp). Bubs Goat Infant Formula remains the key driver, more than doubling sales quarter-on-quarter to be up 118% on the pcp. Stronger forecast demand for infant formula is expected by Bubs in 2H FY20 across all distribution channels, with new markets and new product launches planned.

The company noted that 1H FY20 growth was predominantly driven by sales of Bubs Infant Formula products. Infant Formula was up 77% on the pcp while Baby Food increased by 23%.

Goat Milk Powder delivered healthy revenue growth in 1H FY20, although the entire Adult Dairy portfolio growth profile was impeded by the loss-making deletion of yoghurt products and disposal of Coach House Dairy brand assets. Adult Goat Milk Powder was up 30% on the pcp, while Fresh Milk/Yoghurt was down 49%.

Bubs portfolio product mix strategy has an increased focus on investing in growth of high margin products, primarily infant formula. There was a deliberate reduction in fresh dairy product lines during the period due to poor profitability.

Regional Market Mix

Domestic sales in 1H FY20 increased by 30% on the pcp, driven by strong penetration in Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW), and the launch into Chemist Warehouse.

The corporate Daigou channel continues to grow month-on-month, with 1H FY20 sales up 52% on the pcp.

Direct sales to China in 1H FY20 increased by 19% on the pcp, with Infant Formula almost doubling in sales revenue to be up 99%. According to the company, this demonstrates strong traction with Chinese consumers following the establishment of new partnerships with Alibaba Tmall and Beingmate, and deployment of increased marketing resources. However, direct sales to China phased down 32% in Q2 FY20 due to the transition of Adult Goat Dairy to new distribution arrangements and a pending relaunch with new packaging and products.

New distribution partnerships for Bubs products in Vietnam and Hong Kong are expected to contribute further growth from Southeast Asian markets in 2H FY20.

Potential impact of Coronavirus

Bubs management noted it is closely monitoring the emergence of coronavirus and working in conjunction with key partners to ascertain its impact on business operations and distribution channels. The company stated that although there have been no interruptions to its supply chain or change to outlook to date, it expects disruption to outbound logistics given the cancellation of many flights between Australia and China.

The post Why the Bubs share price is down 11% this week appeared first on Motley Fool Australia.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020