Bubs Shares Soar 10% on Walmart Supply Deal

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Infant formula stock Bubs Australia [ASX:BUB] shares climbed on Thursday after a supply agreement with large US retailer Walmart.

Bubs announced that it has now entered into a supplier agreement with US multibillion-dollar conglomerate Walmart.

Shares for the infant foods manufacturer were up 10% on Thursday afternoon.

Thanks to the boost from US emergency orders, the BUB share price is up 70% in the past month alone and up 30% year to date.

asx:bub stock chart

Source: Tradingview.com

Bubs announces Walmart to join supplier ranks

This morning, Bubs announced another supply deal as it continues to engage with the US as the country battles an infant formula shortage.

Last month, Bubs signed an emergency supply deal with the US to help American families get access to infant formula products.

1.25 million tins of Bubs baby formula have been contracted to be shipped out so far.

Today, Bubs has announced that the second batch of its Bubs Infant Formula — 85,000 tins worth — will be flown to the US this afternoon from Melbourne’s Tullamarine airport to Ohio.

On the side of the shipment, new supply partner Walmart is anticipating filling its shelves with Bubs formula across 800 of its stores in 20 US states.

Walmart has purchased the entirety of the cargo, which will be arriving on aircraft commissioned by the US Government’s Department of Defense.

This is the second supply deal Bubs has secured in the US.

Kroger and Albertsons were announced as new major supply partners last week — having taken the first shipment of Bubs formula, which will now be hitting 4,800 stores across 35 states in the US.

Bubs CEO Kristy Carr commented:

We are tremendously excited to be forging a relationship with Walmart, with all of Bubs® Infant Formula and Toddler Formula products going on shelf in approximately 800 stores across America’s Central and Mid-West regions. This store distribution builds on our existing Walmart.com sales channel.

More broadly, the addition of Walmart will increase our bricks and mortar exposure in the United States over the coming days and weeks to around 4,800 stores across 35 States.’

BUB outlook

It hasn’t only been BUB’s stock benefiting from the US’s infant formula shortage.

Bubs management has also profited.

BUB announced that its chairman, Dennis Lin, will see his salary double, from $150,000 to $350,000 as of 1 July. In addition, Lin’s director fees will rise 70% to $170,000. CEO Kristy Carr will see her annual salary rise from $450,000 to $660,000 as of 1 July.

While Bubs is clearly in a strong position right now, the market doesn’t linger on the present long.

How does its emergency supply deal position itself for the long term? Does it have a positive effect on sales or on its competitive market share in the US?

Bubs thinks its new supply arrangements could strengthen its relationship with key US retailers — but how do you quantify that?

In the recent slew of supply updates, Bubs is yet to divulge any hard numbers.

What is the expected sales boost from these supply deals? And is it reasonable to assume US consumers and retailers will take a bigger liking to BUB products than before?

What happens when the local American brands return to full production capacity? Who will American consumers be loyal to then?

It will be interesting to see how the rest of the year unfolds.

Now, while Bubs has enjoyed a boost on the back of its emergency US order, many other stocks on the ASX aren’t faring as well.

For example, the ASX 200 is down 12% year to date. And the ASX Small Ordinaries is down 25% year to date, which means the small caps sector is technically in a bear market.

Increasing interest rates, persistent supply chain snarls, and recession fears have soured investor sentiment.

But, as we can see with Bubs, opportunities are out there.

Where do you find them?

Well, our small-cap expert Callum Newman has a strategy for picking out those ‘left-for-dead’ stocks that are most likely to bounce back.

You can find out how he does it, ‘grave-dancer’ style, here.

Regards,

Kiryll Prakapenka,
For Money Morning

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

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