Can the new Bubs Australia Ltd (ASX:BUB) CEO triple its revenue?

Sales growth will be a key focus area for the new CEO at Bubs Australia Ltd (ASX:BUB)

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Bubs Australia Ltd (ASX: BUB) co-founder and managing director Mrs Kristy Carr is ready to take over the reigns as CEO after the company confirmed market speculation that current CEO Nicholas Simms was stepping down from the role at the end of October.

The company's ASX announcement said that the appointment of Mrs Carr, "signalled that the business had entered into the next phase of development" while Mrs Carr said the company was, "poised for rapid expansion". The goat's milk infant formula company is seeking further growth from its China focused strategy.

Focus on sales growth

Should sales continue to grow at a rapid pace, the incoming CEO could be in for a big pay day. Her new employment agreement entitles her to 4.7 million CEO options with an exercise price of 10 cents per option (the current Bubs share price is 69 cents) should the company achieve the following milestones:

  • $30 million in gross sales and $2 million in EBIT for the first tranche of 2.38 million options
  • $50 million in gross sales and $4 million in EBIT for the second tranche of 2.38 million options

Bubs achieved FY 2018 gross sales of $18.4 million and a normalised loss before interest and tax of $6.76 million.

To earn the second tranche, the new CEO would need to triple gross revenue from current levels and operate at an 8% EBIT margin. I think that is achievable in time if the company can continue expanding its distribution channels with retailers such as Woolworths Group Ltd (ASX: WOW), Wesfarmers Ltd (ASX: WES) and Metcash Limited (ASX: MTS) whilst also strengthening its strategic partnerships in China.

The Bubs share price was up 3% following the announcement.

Foolish takeaway

I think placing a motivated co-founder as CEO of Bubs Australia is a step in the right direction as the company hopes to follow in the footsteps of A2 Milk Company Ltd (ASX: A2M) and Bellamy's Australia Ltd (ASX: BAL). Whilst the reliance on China can lead to significant volatility, this is certainly a share to keep an eye on over the next year.

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned. You can find Kevin on Twitter @KevinGandiya. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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