蘭亭集勢 (LITB) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the quarter one 2014 LightInTheBox Holding Co.

Limited earnings conference call.

(Operator Instructions).

I must advise you that this conference is being recorded today Wednesday, May 21, 2014.

I would now like to hand the conference over to your host today, Ms. Margaret Shi, IR Manager of Lightin TheBox.

Thank you.

Please go ahead.

Thank you, operator.

Hello, everyone, and welcome to LightInTheBox second-quarter 2014 earnings conference call.

The Company's first-quarter earnings results were released earlier today and are available on the Company's IR website as well as our newswire services.

Today you will hear from our Chairman and CEO, Mr. Alan Guo, who will give an overview of the Company's strategy and recent developments followed by our President, Mark Stabingas, who will address financial results in more details.

We are also joined by Jennifer Hu, our Financial Controller and Vice President of Finance.

Before we proceed I would like to remind you of our Safe Harbor statement.

Please note that the discussion today may contain certain forward-looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.

To understand the factors that could cause results to materially differ from those in the forward-looking statements please refer to our Form 20F filed with the Securities and Exchange Commission on April 28, 2014.

We do not assume any obligation to update any forward-looking statements except as required under applicable law.

At this point I would like to turn the call over to LightInTheBox Chairman and CEO, Mr. Alan Guo.

Alan, please go ahead.

Thanks, Margaret.

Welcome everyone to the LightInTheBox first quarter 2014 earnings call.

We are making good progress in executing our operational plans for 2014.

Revenue for the first quarter was $81.5 million which exceeded our guidance range.

Our revenue growth was primarily driven by the recovery in our wedding apparel business, strong sales in ready to wear fashion apparel and from our growing sales through mobile devices.

We also made noticeable improvements enhancing our platform capabilities in our core product categories in the geographic regions which we expect will result in an acceleration of growth rate.

As we have discussed previously, we believe that cross-border e-commerce represents a humongous market opportunity and that we are building one of the leading platforms to enable our global market place.

We think about our business model in terms of a series of platform capabilities that allow us to serve our global consumers in a fashion that is authentic and native to each one of them.

The most significant component including supply chain management service through which we can integrate suppliers and manufacturers and give them access to markets they otherwise may not be able to reach, a fulfillment and logistic management capability through which we can deliver products directly to consumers and the localization capability through which we manage our product catalog and translate the content into 27 languages and offer native speaking customer service in those languages.

Finally, we have built a demand discovery and online marketing platform that enables us to spot local product trends and acquire consumers globally.

Through each of these services, we are intensively data driven and are able to leverage our technological advantages to manage complexity in global e-commerce and identify market opportunities.

Most of this technology is proprietary and has been built by our engineering team to suit our business needs.

We continue to make progress in developing these capabilities on a number of fronts.

Our new fulfillment center in Poland was officially opened.

We have commenced the shipping through a new US warehouse in a partnership with a third-party logistic provider.

The number of orders generated from mobile commerce business increased to approximately 27% of our total number of orders compared to approximately 16% in [the same quarter of last year] (corrected by company after the call).

Over 1000 new suppliers were added offering approximately 209,000 new items to consumers.

We added additional payment providers in South America and now offer approximately 20 payment options to consumers globally.

We began developing an open platform strategy to work with our current suppliers and new brands hoping to expand overseas.

Initially our open platform will be primarily dedicated to fashion clothing.

We continue to aggressively invest in new talent with the addition of James Wang and Todd Li to our retail team as well as Robin Lu as our new CFO who will join us at the end of this month.

We offer consumers factory direct value on a selection of goods often not available in their home markets through a locally native online experience.

We offer brands and manufacturers a new turnkey channel to increase sales by reaching new global consumers with minimal investment and organizational resources.

On that note, I will now turn the call over to our President, Mark Stabingas, who will take you through our 2014 first-quarter financial results.

Thank you, Alan, and thanks everybody for joining.

As I review the financial results I would like to remind you that all percentage changes refer to year-over-year changes unless otherwise noted.

Net revenues increased 11.2% to $81.5 million for the quarter compared to the prior year period.

This quarterly performance which exceeded our guidance is driven by the recovery of our wedding business, continued strong performance from our ready-to-wear fashion apparel as well as the increasing contribution of our mobile commerce business.

Total orders grew 40.9% to $2 million in the first quarter while average order size decreased based primarily on changes in our product mix.

Our total number of customers purchasing in the quarter increased 34.3% to $1.5 million while repeat customer orders accounted for 37.8% of our total revenue compared to 29.6% in the same quarter of 2013.

Please note that our earnings press release issued to the market two hours ago incorrectly states that repeat customer revenue was 33.5% when in fact it was higher.

We will correct this error to our Q1 earnings release shortly and be filing our 6-K with the correct data point.

Revenue in our apparel category grew 8.5% year-over-year to $24.5 million in the quarter representing two consecutive quarters of year-over-year growth since we first started to implement changes within this category.

More specifically we enjoyed continued momentum in our ready-to-wear apparel business while the recovery of our wedding business remained on track.

As of today we offer over 130,000 apparel products compared to just over 90,000 a year ago.

As a percentage of total revenues, apparel revenue was 30.0% in the first quarter of 2014 compared to 30.8% in the same quarter a year ago.

Revenues from electronics and other general merchandise increased by 12.4% to $57 million in the first quarter of 2014.

Geographically Europe remained our largest market with revenues of $54.2 million representing an increase of 14.2%.

As a percent of total revenues, revenues in Europe were 66.4% up from 64.7% in the same quarter of 2013.

North American revenues were $16.4 million up 13% year-over-year which represented 20.1% of total revenue in the quarter and revenues in South America remained at $5.1 million and constituted 6.3% of total revenues in the quarter.

Gross profit in the first quarter was $33.7 million, up 1.2% from $33.3 million in the same quarter of the prior year.

Gross margin decreased to 41.3% of revenues from 45.4% in the same quarter of 2013 due in large part to the change in product mix within apparel and pricing adjustments in our wedding business.

Nevertheless, gross margins improved on a sequential basis from 39.1% in the fourth quarter of 2013 due to the increasing contribution from our wedding business which enjoys higher than average gross margin.

Fulfillment expenses increased 33.1% to $5 million from $3.7 million in the first quarter of 2013 primarily reflecting the increasing sales volume and the number of orders fulfilled.

As a percentage of total net revenues, fulfillment expenses increased to 6.1% from 5.1% in the same quarter a year ago and that increase was the result of increased headcount and expansion of our filament facilities in China.

And as a reminder, fulfillment expenses also include our payment processing fees.

Selling and marketing expenses increased 41.4% to $25.9 million from $18.3 million in the first quarter of 2013 reflecting the Company's efforts to grow our customer base.

Investments in marketing and related infrastructure helped increase the number of customers served by the Company in the quarter by 34.3% and the total number of orders by 40.9% respectively over the same period of the prior year.

As a percent of total net revenue, selling and marketing was 31.8% which was up from 25.0% in the same quarter of the prior year due principally to a fall in average order size as our products mix shifted.

General and administrative expenses increased 42.5% to $11.4 million from $8 million in the first quarter of last year reflecting the growth in our overall business operations as well as $0.9 million in accelerated share-based compensation expense.

As a percentage of total net revenues, G&A expenses were 14% which was up from 7.9% in the same quarter of the prior year.

In total, operating expenses increased 40.7% to $42.3 million as compared to the same quarter of 2013.

Loss from operations in the first quarter of 2014 increased to $8.6 million compared to an operating profit of $3.2 million in the same quarter last year.

Net loss was $9.2 million in the quarter compared to a net profit of $2.6 million in the same quarter prior year.

Net loss per ADS was $0.19 compared to net income per ADS of $0.05 in the first quarter of 2013.

As a reminder, each ADS represents 2 ordinary shares.

On a non-GAAP basis, adjusted net loss which excludes the impact of approximately $1.4 million in share-based compensation expense was $7.8 million compared to an adjusted net income of $3 million in the first quarter of last year.

Cash flow from operations was negative $3.3 million as operating losses were somewhat offset by cash generated from working capital in particular a $4.4 million increase in advances from customers which was attributable primarily to growth in our wedding business.

As of March 31, 2014, the Company had cash, term deposit and restricted cash of $99.7 million which is equivalent to roughly $2.00 per ADS.

This compares to $105.1 million at December 31, 2013 and also reflects the $1.3 million exchange loss due to a term deposit which is denominated in RMB.

For the second quarter of 2014, the Company expects its net revenues to be between $84 million and $86 million representing a year-over-year growth rate of approximately 16% to 19% and although the Company does not issue guidance on profitability, it does expect a quarterly unadjusted loss from operations to improve in the second quarter compared to the first quarter and of course, these forecasts reflect the Company's current and preliminary view on the market and operational conditions which are subject to change.

This concludes our prepared remarks and at this point we are ready to take some questions.

Hi everyone.

It is Margaret, IR Manager at LightInTheBox.

I just want to give everyone an update on the mobile order metrics.

I misread the metric there so the number of orders generated by mobile commerce business increased to approximately 27% of our total number of orders compared to approximately 16% in the same quarter last year.

Thank you.

We are ready for questions.

(Operator Instructions).

George Askew, Stifel.

Yes.

Thank you very much.

Obviously there is a lot going on in your P&L and in the business overall.

Could you share with us what you expect your margin model to look like over the longer term?

Clearly gross margins are being impacted by the mix shift in the products sold.

Sales and marketing also being impacted by that.

You have added talent which has changed the G&A line a bit.

What does the longer-term margin model look like for the Company?

George, it is Mark.

I think so first of all, we haven't necessarily communicated longer-term guidance in terms of margins but I think what we could say is -- and what we did say last quarter is that we expect our gross margin trends to be trading into more of a range going forward as opposed to significant year-over-year changes that we have seen more recently.

We do expect fulfillment expenses to show a small amount of leverage.

As we open up regional fulfillment centers, we will be trading fixed costs in fulfillment for variable costs in shipping.

Obviously we had increases in SG&A which reflects some of the increases in talent that we are making and also the Ador acquisition but marketing obviously is the big one.

That is 31% of revenues as was the case previously if you look at marketing on a marketing dollars on a per order basis, those numbers are much more consistent over the last four quarters.

We continue to invest in building our customer base and we do expect to achieve leverage as a percent of revenue from marketing as we are able to build a customer base, drive more repeat customer revenue and also diversify our customer acquisition channels away from paid search marketing which remains the biggest channel today.

Okay, good.

Thanks for that.

Just a question on the repeat customers.

Can you kind of characterize what the path of a repeat customer is?

Is she coming in through the apparel category and then coming back for an order in the future in the gadgets or small electronics or something like that?

What are you seeing as far as how repeat customers are sort of being -- why they are coming back to LightInTheBox?

So in the past, the majority of consumers who came back for the second quarter was primarily either within their first orders category or in an adjacent category.

I mean there will be a case of for example the first order is ready-to-wear apparel and the second order is also ready apparel.

There will also be a case where the first order is wedding and the second order is ready-to-wear apparel and we definitely see a different level of synergy or a different level of cross-sell among different categories.

Typically you will see apparel will be more close to -- our ready-to-wear apparel is more close to weddings and small gadgets and accessories will be more close to your electronics.

So it is really kind of the repeat pattern is centered by different demographics of consumers and there will be a different level of synergies across different categories.

And that is also something that we deliberately want to take advantage of while we are introducing new categories.

Got it.

Okay, thank you very much for that.

Joyce Zhou, Barclays.

Thank you very much for taking my question.

My first question is about the new categories on your website.

Actually which one do you see that has a bigger potential to become a significant category within your product range and maybe drive the topline growth going forward?

As we said in our release, we felt very good about our progress in ready-to-wear fashion apparel.

We have been seeing significant increase of our fashion apparels in the past couple of quarters and we think that will continue to be a growth momentum driver for our revenue.

And we also are working very dedicatedly on our home decor which is reported in other merchandise.

We think this is also a category that fits our model, fits our supply chain strength and also fits our demographic of our user group.

Thank you very much.

Can you give me some sense about the -- for the different product categories?

You talk about the product mix change actually affect the gross margin level and what kind of difference for the gross margin compared to the wedding versus the ready-to-wear or the home decor categories?

Of course we haven't given out detailed category level breakdowns on gross margins.

What we did comment on in the release was the fact that the wedding category has higher than average gross margin and the recovery in the wedding business in Q1 was in part the driver behind the improvement sequentially in gross margin.

But obviously we are in multiple categories across the board and I think we have communicated historically that the bulk of the changes that we have seen in gross margin were mix driven and I expect that to be the case going forward.

But as we have often said, gross margin will probably trade in a tighter range than it has for the last few quarters.

Okay.

Thank you very much.

My last question is about your flash sales business.

Is there any number that you can disclose about a percentage of your total orders or revenue or margin level compared to the Company average?

That would be helpful.

This is Alan.

So flash sales business is primarily focuses on apparel business as of today.

Certainly I think that contributes to the growth of our ready-to-wear fashion category significantly but we don't have plans to disclose the breakdowns in how much of that is generated from the flash sale channel.

Okay.

How about the margin level should be below the Company average, right?

Again we haven't disclosed category level gross margins so I think we will continue with that position.

Okay.

Thank you very much.

That is all of my questions.

(Operator Instructions).

(inaudible)

Thank you for taking my questions.

Three questions.

The first is over what timeframe would you expect to see the return on sales and marketing expenses?

Is there a tail return there or is that relatively immediate in terms of how you expect to see that?

Second, the release mentions offering brands and manufacturers a turnkey opportunity.

Could you walk us through how brands and manufacturers become aware of that offering?

And then third on a mix basis based on the products offered currently, how many would be considered nationally recognized brands versus private label or unbranded and how do you see that changing?

So this is Alan.

So for the first question I think different channels have different payback times.

Just qualitatively I think we are very much focused on performance marketing so in general we feel the payback time of our marketing program is relatively short but there is still a difference.

Search marketing was certainly on the quick payback side.

Display ads was certainly longer and app installation will be even longer.

So in the past, we have been very much focused on search marketing but we have been making very good progress in diversifying our marketing channels to affiliates, to other platforms and to app installations as well.

For your second question, can you repeat your second question?

Sure.

The release mentions the turnkey opportunity for brands and manufacturers to get access to your global customer base.

I am just curious how would a brand or a manufacturer become aware of that offering in the channel that you have?

First of all, I think traditionally LightInTheBox has been very strong in developing private label and white-label product to introduce those to global consumers for the product offering that otherwise is not available for them.

But as you can see while we are entering more of the ready-to-wear apparel business we certainly will start to engage more with branded products starting from Chinese branded products.

So for all those brands that we have our (inaudible) offerings where we can't engage with a retail model which we have (inaudible) and then with the flash sale model which help to clean their inventory, excites the inventories to our market -- to a market that we are not cannibalize their home markets and also we recently mentioned that we have launched an open platform for third parties so that we can be on our platform and determine the price and promotion strategy some sales themselves so they will have more flexibility in driving the channel growth.

So I think with that kind of a tiered offering of different level of services in the platforms, we certainly become a very attractive channel for the brands and in particular for Chinese brands who want to go accessing global markets.

And in addition to that, I think our fulfillment capability and our customer service capability are supporting 27 different languages and being able to help them translate their product to other languages as well will also be a very attractive added service for them so that they don't have to equip those capabilities themselves.

Richard, to your question also in terms of how people become aware.

We have a pretty robust outreach team that is focused on identifying and reaching out to key brands and manufacturers and educating them on our platform, the value proposition and we referenced in our release that we added 1000 new suppliers in Q1 and that is sort of an output of that effort.

Great.

Last question, how many brands have taken advantage of the open source open platform?

The open platform is still in the early stage of development.

We just kicked off our vendor acquisition process but we have had a number of brands that worked with us in the past with a retail model and with the flash sale model so there will be also transfer of the brands from those two models to the open platform.

At this moment we still feel it is too early to disclose the number of brands but we feel confident that based on our foundations in our apparel business, we will be able to very quickly acquire a number of competitive brands that will be very attractive to the consumers.

Thank you.

Cheng Cheng, Pacific Crest Securities.

Thank you.

I just had some questions on the open platform.

Just wondering in terms of a monetization for you guys in terms of commission rates or anything like that, what does that look like and how revenue from that open platform will run through your financial statements or your P&L?

Thank you.

In terms of the accounting treatment obviously we haven't disclosed anything because it is not material at this point.

We are going to be adhering to US GAAP when it comes to recording revenue recognition which will vary depending on all the different tests that are applied under GAAP.

Then in terms of our overall commission rate, those are rates which will vary based on the number of services that a given business partner is interested in using and so there is not necessarily a single rate but certainly expected to be competitive with other options they have to develop new channels.

Okay, thank you.

[John Harrell], [Harrell & Associates].

I am curious as to what level you guys see the cash level dropping to before the Company achieves profitability?

Again we haven't forecasted profitability necessarily.

Of course you can tell from our balance sheet we have nearly $100 million in cash and we are very comfortable relative to the level of operating losses that we have seen historically and going forward that that is a pretty robust cash cushion and certainly in the near term not something that we are overly concerned about.

Obviously we are trying to be prudent and so forth.

But our number one objective at this point is to reignite topline growth and we expect that as we do that the Company will push towards breakeven and profitability.

And with your cash position being rather comfortable, do you foresee any possible attractive acquisitions to help your growth model?

We are continually evaluating acquisitions and I think under the right circumstances, we would certainly entertain pulling the trigger on something but we don't necessarily view acquisitions as a sort of precondition to us achieving our goals and building a valuable company.

So we try to be opportunistic and smart but it is not a precondition of our strategy for sure.

Okay.

Thank you.

There are no further questions.

At this time allow me to hand the conference back to the management for any closing remarks.

This concludes our first-quarter 2014 earnings conference call.

Thank you for your participation and ongoing support of LightInTheBox.

We look forward to providing you with updates of business in the coming weeks and months ahead.

Thank you.

Ladies and gentlemen, that concludes our conference for today.

Thank you for your participation.

You may now disconnect the lines.