The Bubs Australia Ltd (ASX: BUB) share price is up 3% after releasing its FY21 half-year result.
Bubs is an infant formula business that sells a variety of products, predominately made with goat milk.
Bubs HY21 result
The company reported that its revenue declined by 33% to $18.3 million.
Bubs reported a gross margin (sometimes called gross profit) loss of $1.5 million. This came about from an inventory provision of $3.1 million and the need to sell excess bulk powder inventory at a loss due to COVID-19 softening demand and prioritisation decision to conserve cash.
Short term changes to the channel mix also had an adverse impact on the gross margin. However, the Bubs goat infant formula product margin was 34% for the first half of FY21, which was consistent with FY20. The group gross margin excluding the inventory provision and bulk powder sales was 16%.
The statutory EBITDA (EBITDA explained) worsened by 174% to $14.4 million. This fell due to the gross margin fall and an increase in admin costs because of bad debt provisions and increased costs for IP protection in new international markets.
Operational updates
Bubs said that based on data from Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW) and Chemist Warehouse combined, its scan sales were up 23.7% year on year and its market share increased to 28.6% of the goat infant formula segment, with Bubs infant formula gross revenue rising 5% year on year.
Its total market share tripled compared to the prior corresponding period, up to 3.5% of the total infant formula category.
Bubs’ direct sales to China increased significantly (up 36%) during the half, though there was a much larger decline from the corporate daigou channel (down 57%).
International sales outside of China made up 16% of total sales, up from 8% in the prior corresponding period.
The company is going to work on a number of initiatives to increase its gross margin in the short term and long term with more infant formula sales (with a naturally higher margin), a focus on cost efficiencies and effective investing in marketing.
Summary thoughts
Bubs says that it has strong foundations, a growing market share and strong balance sheet to support growth. It said that market conditions are likely to remain challenging for the rest of FY21, though it’s expecting modest half on half revenue growth in the second half and aggressive growth in FY21.
It’s a volatile business and COVID-19 has certainly knocked it backwards over the last year.
However, the last quarterly update showed a number of promising trends and this result shows management have several growth plans. The daigou channel sales may be recovering.
I still believe Bubs is one to watch for the long-term, though shorter term performance could still be volatile. And short-term success still relies heavily on Chinese consumers.
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