From AFR : Infantformula company Bubs’ China sales deteriorated...

From AFR :

Infantformula company Bubs’ China sales deteriorated further over the past quarter asexcess stock and an ongoing dispute with its biggest daigou partner, AZ Global,dented demand.

BubsAustralia’s full-year revenue slid 29 per cent to $73.7 million.

It earnedjust $13.6 million in revenue from China, scraping into the lower end of itsguidance for between $13.5 million and $13.8 million, and down sharply from$53.6 million in the 2022 financial year.

Last week,the Bubs board led by Katrina Rathie survived a spill motion

Bubs issuing two entities associated with AZ Global, Willis Trading and Alice Trading,over alleged debts of $5.65 million. Meanwhile, its Chinese distributor isseeking to claw back more than $20 million from the troubled formula company inrefunds for ageing stock sitting unsold in its warehouses.

Since Bubs outlined the dispute onJune 30, it has axed its relationship with AZ Global.

“As a consequence of the excess stock-in-trade and the ongoingdispute with Willis and Alice, sales into China remain subdued. China Q4 grossrevenue of $1.4 million was down 96 per cent on prior corresponding period anddown 55 per cent on Q3,” Bubs said in a statement.

Bubs is seeing “some modest growth and sell-through in[cross-border e-commerce] for Caprilac and Bubs sales volumes have stabilised(in China). With new trade partners and distributors on board we expect to seeour China sales and volumes build steadily in the coming year.”

But it will not be easy, with the falling birth rate in Chinastill a problem for the infant formula sector, including much larger rival Thea2 Milk Company.

Barrenjoey head of consumer research Tom Kierath noted thatChina’s March quarter wedding data was only in line with the priorcorresponding period.

“We think the challenging macroeconomic environment contributesto ongoing weakness in China’s birth rate,” he said.

“We continue to believe China will see an uptick in its birthrate as COVID moves to the rear window but given macro challenges and softwedding data we now see the birth rate picking up in ’24.”

At home, Bubs’ fourth quarter revenue reached $5.1 million, up 7per cent from a year ago, after it added Big W and Baby Bunting as newstockists. However, sales were down 3 per cent quarter-on-quarter.

In the US, Bubs achieved its first $1 million in sales in May onthe Amazon platform and sales increased again in June. Full-year revenue beatguidance at $23.8 million, up 95 per cent on a year ago.

Bubs’ fourth quarter operating expenses surged 110 per cent. Thecompany said expenses have been reduced by about $10 million, and it expectedmonthly cash outflow would be more than halved from $5 million to $2 millionfrom the second quarter of 2024 (excluding the cost of the shareholder vote andlegal expenses).

“Bubs’ current growth plans are fully funded, and plans are inplace to liquidate excess inventory. Bubs will continue to support its growthmarkets and core brands, maintaining its marketing investment at 15 per cent ofnet sales,” it said.

It had $26.1 million in cash at June 30, or $34 millionincluding the benefit of finance.

The stock fell 2.5 per cent to 20¢ on Monday. Over the pastyear, Bubs shares have tanked 65 per cent.