The Bubs (ASX: BUB) share price is down 5% after announcing its FY20 fourth quarter, a global brand ambassador and a new range of products.
Bubs FY20 fourth quarter
The company announced that its FY20 fourth quarter revenue fell by 5% to $13 million with infant formula sales increasing by 20%.
Bubs said the decline was due to a strong pull-forward of demand from the third quarter drive by pantry stocking in multiple markets and challenging international logistics. Bubs also said that whilst consumer demand remains strong in all markets, the growth momentum has been temporarily impacted by the “changing China channel mix dynamics.”
China direct sales in the fourth quarter increased by 26% and now represents 22% of gross revenue. Other export market, excluding China, sales were up 71% in the fourth quarter – doubling the revenue contribution for the quarter.
This meant the company was able to report the total sales for FY20 increased by 32% to $62 million.
The company finished the quarter and financial year with a cash balance of $26 million at 30 June 2020.
Bubs Founder and CEO Kristy Carr said: “Bubs vertical integration and local sourcing model provided us with supply chain security and manufacturing ability, allowing us to quickly respond to the sudden surge in demand in the third quarter as a result of pantry stocking that occurred in quick succession across all our key markets.
“Importantly, Australian domestic consumer demand is showing signs of returning to normal pre-COVID levels. However, the outbound Daigou Channel remains constrained as a result of the significant reduction in Chinese students and tourists, and the lack of passenger plans resulting in increased logistics costs and longer delivery lead times.”
New product range
Bubs has launched ‘Vita Bubs’. This is vitamin and mineral supplements for children. It will have a national ranging in 400 Chemist Warehouse stores from October 2020.
The company sees an opportunity to tap into Australia’s $2.3 billion vitamin and mineral supplement (VMS) category. Launch partner Chemist Warehouse accounts for over half of VMS retailed in Australia.
Mrs Carr said that the move was consistent with its strategy to evolve into high margin adjacent categories and reach across multiple feeding and health settings for children.
Bubs is expecting this launch to “add materially” to domestic revenue.
Vita Bubs will roll out to multiple export markets across South East Asia in (calendar year) 2020 as well as immediate access to Bubs’ China strategic alliances, including Alibaba.
New global ambassador
Bubs has announced that Jennifer Hawkins will become Bubs’ global brand ambassador. It’s a three-year agreement and works well because Ms Hawkins is a new mother who has influence with her almost 2 million social media followers.
Ms Hawkins revealed that she had been using Bubs’ puree pouches and rusks before being approached by the company.
Summary
The Bubs share price is currently down 5%, which isn’t too surprising considering the last quarter of FY20 showed a revenue fall due to a few key factors. That’s a bit disappointing. However, it could be (very) premature to write off Bubs’ long term potential on just one quarter.
The launch of Vita Bubs sounds promising though it may take a little while for the company to make meaningful revenue from it. I’m still confident about the long term for Bubs, particularly with the growth of the ‘other market’ revenue. But there are also some great growth shares worth considering.
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