China overshadows Bubs’ booming US and Aussie business, shares dive 14pc

A downbeat China outlook has sent Bubs shares down 14 per cent – a five month low – despite the company reporting strong quarterly gains in the US and Australia.

A weaker outlook in China has overshadowed upbeat quarterly earnings from Bubs, with subdued growth in the Asian powerhouse sending the company’s shares diving nearly 14 per cent.

Despite revenues surging 28 per cent to $23.6m in the three months to September 30 – and sales of its infant formula more than doubling – a weaker outlook dampened investors’ enthusiasm.

Sales in China – which accounted for 33 per centin the quarter – slumped 21 per cent. In a statement to the ASX, the company said it expected China revenue to remain “constrained”.

“Across the infant formula category, a significant number of brands have oversupplied the market, including local Chinese brands. This has created a significant decline in margin across all distribution partners,” Bubs said.

“The cost of doing business has also increased on cross-border e-commerce, particularly as it relates to advertising spend.

“The category issue was exacerbated through a subdued result during the 6.18 shopping festival, and the oversupply by other brands is expected to continue through to the upcoming Double 11 festival, which is likely to cause distributors and participants to look for alternative, quality infant formula brands that can provide stability of margin, and supply with international and established reputation.”

Bubs shares fell 13.8 per cent to 38c – a five month low – on Monday. This compared with a 1.2 per cent gain across the sharemarket.

The company said it expected momentum in China to return after the lunar new year in February as its manufacturer-to-customer distribution model gained traction. “In the short term, we expect China sell-in revenue to be constrained throughout the second quarter due to the phasing of the recruitment channel transitioning to the new M2C model but remain optimistic on positive momentum returning post Chinese New Year,” it said.

Pallets of Bubs baby formula are loaded into a cargo plane bound for the US at Melbourne Airport. Picture: Asanka Ratnayake/Getty Images

The result in China overshadowed a strong performance across its fledgling US business, which generated $9.6m in sales – or 40 per cent of overall group quarterly revenue.

The company was one of the few the Food and Drug Administration granted temporary import approval to help ease America’s chronic infant formula shortage.

Bubs chief executive Kristy Carr said the company was “committed to fully complying with applicable requirements for a permanent regulatory authorisation by October 2025”.

“Nearly one million tins of Bubs infant formula have been dispatched to the US since all three product ranges were approved under the FDA’s Enforcement Discretion,” Ms Carr said.

“Of the eight international manufacturers that have received FDA exemption, Bubs ranks second and represents around one third of the international brands’ retail scan sales value over the past 13 weeks, accounting for 0.4 per cent share of the total US infant formula market and 9 per cent of the organic/health subsegment, across all bricks-and-mortar retail stores.

Across Australian operations, quarterly revenues jumped 29 per cent with the company reporting “new share peaks in Coles, Woolworths, and Chemist Warehouse”. “(Bubs) remains the fastest growing infant formula manufacturer in Australia with over 30 per cent increase in scan sales, and outgrowing the market eight-fold on a moving annual total basis,” the company said.