Bubs reaffirms guidance despite US sales dip for infant formula

Infant formula company Bubs Australia (ASX: BUB) has reaffirmed its full-year revenue guidance despite a sharp dip in quarterly sales in the US at the start of 2025, while output has risen at the group's Deloraine manufacturing facility in Victoria.

Bubs reports a 52.6 per cent year-on-year increase in net revenue to $23.3 million for the March quarter, although this represents a 19 per cent quarterly decline for the Melbourne-based company.

The quarterly drop is more pronounced in its leading market - the US - where net revenue fell 37 per cent to $10.8 million, compared to a 26.9 per cent drop to $4.6 million in Australia, and a 19.7 per cent decrease to $5.7 million in China.

Bubs chief executive officer and managing director Reg Weine explains the quarterly decline is broadly in line with internal forecasts, claiming there is a seasonality profile for sales, particularly in the US where retailers often increase their inventories in the lead-up to the festive period.

He says the port strike in the US in October also led to an increase in sales volumes as US consumers stockpiled critical products like infant milk formula, while in China sales were lifted by the market's major annual promotion of 11/11 or Singles' Day which boost sales in the December quarter each year.

As such, the company has stood by its guidance to investors that it will break even in FY25 with its full-year net revenue forecast of $102 million unchanged, alongside a margin estimate of more than 40 per cent.

Whilst the March quarter figures are not as strong as in the tail end of 2024, year-on-year growth levels are strong overseas with the US up 48 per cent and China up 185 per cent. In contrast, the increase for Australia over the same prior corresponding period is just 2 per cent.

The group reports an EBITDA loss of approximately $200,000 for the period, but operating cash flow was positive.

"Pleasingly, our focus on growth in multiple markets, working capital discipline, cost-out initiatives, and a reduction in one-off expenses, has resulted in Bubs achieving positive operating cash flow for the second consecutive quarter of $0.5 million in Q3 FY25," says Weine.

"We continue to make steady progress against all our strategic pillars, and our improved financial performance in Q3 was also aided by a strong US dollar."

Weine says US sales have been steadily building on Amazon since the start of the year, with the last week in March delivering its "best ever week" on the platform with 17,000 units sold.

"Sales via our bricks and mortar channel continue to grow and we have seen a strong uptick in April sales with a number of our key competitors experiencing supply shortages," he says.

"The total IMF (infant milk formula) category in the US is growing 4.8 per cent versus LY (last year) while the premium IMF segment is growing 49 per cent versus LY and the Goat IMF segment is growing 154 per cent versus LY and is now valued at $88 million."

The company says it continues to follow the US Food and Drug Administration's (FDA) guidelines and "make meaningful progress" on its USA clinical trial with Bubs' last patient completing the Growth Monitoring Study in April 2025.

Bubs intends to provide its Growth Monitoring Study submission to the FDA in late June 2025 with the FDA approval decision expected in October 2025.

Weine adds that in China the company has continued to successfully penetrate the online-to-offline (O2O) Mother & Baby store channel where it now has distribution in 23 provinces and 79 cities across China, particularly in the growing tier 2-4 cities.

"With over 229 new O2O stores added in the quarter, this brings the total O2O stores selling Bubs’ products to over 1200," he says.

"Our China go-to-market channel strategy focused on CBEC (cross-border e-commerce) and O2O continues to deliver strong, profitable growth with significant scope to grow our distribution footprint and branded sales in the coming years."

Weine notes that Bubs continues to be the dominant player in the domestic goat infant milk formula (IMF) market in Australia with a 54 per cent market share, and 5.5 per cent of the total IMF segment.

Rest of the world sales were down slightly quarter-on-quarter at $2.1 million, although up 50 per cent year-on-year with Bubs highlighting strong growth in Vietnam and Japan.

He says the company is "comfortably meeting the global demand" for Bubs’ products with a two-shift operation at the Deloraine facility, and can easily transition to a third shift if required. The operation is now at 87 per cent capacity, compared to 84 per cent three months ago and usage of just 31 per cent in mid-2023 when the group was undergoing leadership turmoil.