Bubs Australia, a beleaguered infant-formula maker, recently experienced a significant decrease in its share price due to troubling figures from its China business in the food and beverage industry.
In a statement, the company acknowledged that ex-factory sales in the Chinese market have consistently fallen short of expectations, resulting in a surplus of approximately five years’ worth of stock from their Bubs Supreme range stored in multiple warehouses.
This overstock issue is projected to result in a non-cash impairment of inventory amounting to A$20m-A$25m ($13.25m-$16.55m), and Bubs China expects its net revenue for FY2023 to be at the lower end of the estimated range of A$13.5m-A$13.8m, compared to A$53.6m in FY22.
These disappointing results have contributed to the decline of Bubs Australia’s share price, which dropped from a high of A$0.18 to A$0.16 in Australia today.
The company’s statement explains, “Ex-factory sales under Bubs exclusive China distribution arrangements… are below expectations and continue to disappoint. As previously reported, there remains a significant amount of inventory held in trade, predominantly Bubs Supreme.”
Bubs Australia attributes its inventory issues to the failure of its manufacturer-to-consumer model and Daigou channel sales. Additionally, promised online-to-offline sales to China have not materialized, causing a substantial surplus of finished goods inventory in the market and bulk raw material inventory issues for Bubs Australia’s Deloraine manufacturing facility.
Furthermore, Bubs revealed that its subsidiary Infant Food Co. is owed A$5.65m in goods sales from Chinese distributors Willis and Alice. Alice also accepted less stock than contracted, resulting in excess supplies in Bubs’ own warehouses. The company expressed its determination to recover the outstanding debt of A$5.65m.
Bubs Australia’s share price has witnessed an almost 8% decline in the last five days, following the appointment of strategy advisor Kidder Williams to help guide its future direction.
Previously, in a trading update released at the beginning of the month, the company disclosed a significant drop in its China revenue. This announcement comes after a period of turmoil, including the resignation of executive chair Dennis Lin in April due to a decline in financial performance.
A strategic review was initiated by Bubs Australia in April, shortly after announcing a new chair, with subsequent changes including the immediate termination of CEO Kristy Carr. Shareholders, including Carr and Lin, requested an AGM in response to Carr’s departure.
The company reported a 10% decline in gross revenue during the third quarter of the financial year, with China experiencing a substantial 56% decrease. Bubs Australia attributes this decline to the significant surplus of finished goods inventory present in the market.
To address these challenges and explore opportunities in China, Bubs Australia has appointed Jackie Lin, an executive from private-equity firm C2 Capital, to oversee its business operations in the country and conduct a review of potential options.
