蘭亭集勢 (LITB) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2016 LightInTheBox Holding Company Limited earnings conference call.

(Operator Instructions).

Now I would like to hand the conference over to Mr. Christian Arnell.

Please go ahead, sir.

Thank you.

Hello everyone, and welcome to LightInTheBox 's first quarter 2016 earnings conference call.

The Company's results were released earlier today and are available on the Company's IR website, as well as through PR Newswire.

Today you will hear from LightInTheBox's Chairman and CEO, Mr. Alan Guo, who will give you an overview of the Company's strategies and recent developments, followed by Mr. Robin Lu, the Company's Chief Financial Officer who will address financial results in more detail.

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

Today's discussion may contain forward-looking statements made under the Safe Harbor provisions of 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 20-F filed with the Securities and Exchange Commission on April 29, 2016.

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

At this point, I'd like to turn the call over to LightInTheBox's Chairman and CEO, Alan.

Alan, please go ahead.

Thanks, Christian and thank you, everyone, for joining us today.

I'm pleased to report that Q1 revenue came in at $67.3 million, which exceeded our guidance of $65 million to $67 million.

We also made substantial improvement in our bottom line, with our GAAP net loss improving to $2.1 million compared to a loss of $3.5 million last quarter, and $21.6 million during the same quarter last year.

We also recorded our fourth consecutive quarter of non-GAAP profitability.

I believe this result comes from the effective and consistent execution of our strategy over the past few quarters to improve our customer satisfaction, improve operating efficiency, and foster greater innovation.

We made major progress in our marketing efficiency during the quarter.

Marketing as a percentage of revenue dropped to a historical low of 21.1% compared with 23.4% last quarter, and 36.0% during the same period last year.

This was done by optimizing the use of our various acquisition channels including social media marketing.

We reworked our mathematical model for our integrated marketing deployment strategy which led to higher marketing ROI.

We streamlined our customer acquisition channel optimization practice, which helped us identify a number of high-impact improvements on our website platform and mobile apps.

We enhanced our social marketing practice to engage bloggers and other online opinion leaders to increase our brand and product exposure.

We continued to make substantial progress in increasing customer satisfaction which I'm pleased to see take hold on our platform and make us a more attractive choice for our consumers.

With a stronger supply chain, we had a lower order cancel rate, faster order fulfilment time, lower post-sales return and refunds, which all helped increase customer satisfaction and financial performance.

We continued to consolidate and optimize our supply chain during the quarter.

We adopted an improved supply-chain valuation system, which helped us rapidly identify and nurture new high-quality suppliers.

We continued to focus on developing supply-chain networks in geographically strategic cities with concentration of high-quality manufacturers and suppliers.

Our partnership with Zall Development and Aokang have provided us with unique access and insights into these supplier networks across a number of key categories.

All the initiatives also increased our gross margin to 36.8%, from 34% during the same period last year.

We continue to improve our operational efficiency in both our back office and fulfillment centers with enhanced in-house developed IT systems.

We also realigned our business units to make them more financially accountable and effective in their individual execution.

We continue to make progress with LanTingZhiTong, our global cross-border logistic platform, with numbers of business customers and order shipments both increasing.

In a recent development the Board authorized a share repurchase program last Thursday of up to $10 million worth of our outstanding ADS.

The implementation of our share repurchase program reflects our confidence in our strategy, operating fundamentals and the business prospects, as well as our commitment to enhance value for our shareholders.

To conclude, with the improved operational efficiency, our new major long-term shareholder and strategic partner, Zall Development, on board, our strengthened balance sheet with a substantially increased cash position, we believe the Company is well-positioned to capture opportunities in the large global cross-border eCommerce market.

Now, I will turn to Robin, who will take you through our Q1 financials

Thank you, Alan.

We are very pleased to report the continued improvement of our bottom line which we expect to continue in the second quarter of 2016.

We ended the first quarter with a much stronger balance sheet thanks to a substantial increase in our cash position, which provides us with ample financial resources to continue to fund improvements in operational efficiency, technology and customer satisfaction.

Currency volatility, and that of the euro in particular, has stabilized when compared to the same period last year.

The depreciation of RMB has also benefited us from a cost perspective.

As I review our financial results, I need remind you about a few things.

All numbers quoted are in US dollars.

All the percentage changes refer to year over year, unless otherwise noted.

Net revenues were $67.3 million.

Backing out the $2.5 million unfavorable foreign exchange impact, net revenues actually were $69.8 million.

Total orders were 1.7 million and the total number of customers who made a purchase in the quarter were 1.4 million.

Revenues in apparel category were $23.8 million.

As a percentage of total net revenues, apparel revenues were 35.4% compared with 36.2% a year ago.

Revenues generated from other general merchandise were $43.5 million.

Looking at our business geographically, revenues from North America were $21.3 million and accounted for 31.6% of total net revenues.

Revenues from Europe were $39.7 million, representing 59% of the total net revenues; while revenues from other countries were $6.3 million, representing 9.4% of total net revenues.

Gross profit was $24.8 million and the gross margin was 36.8% compared with 34% in the same quarter of 2015.

Excluding the unfavorable changes in foreign exchange rates, non-GAAP gross margin would have been 39.1%.

Fulfillment expenses, which include payment processing fees, decreased to $4.5 million from $6.9 million.

Selling and marketing expenses were $14.2 million or 21.1% of total revenue, substantially lower than $31.5 million or 36% of total net revenue last year, hitting a historical low as a percentage of total revenue.

G&A expenses were $8.3 million of 12.3% of total net revenues, down from $12.8 million or 14.6% of total net revenues.

G&A expenses include $3.5 million in technology investments compared with $5.1 million during the same period last year.

Our bottom line continued to improve.

GAAP net loss was $2.1 million compared with GAAP net loss of $21.6 million a year ago and we expect this will continue during the second quarter of 2016.

Non-GAAP net income was $0.9 million compared with non-GAAP net loss of $8.7 million in the same quarter of 2015.

With this, we have delivered four consecutive quarters of non-GAAP profitability.

GAAP net loss per ADS was $0.04 compared with GAAP net loss per ADS of $0.45 in the same quarter of last year.

Our balance sheet and cash position improved substantially during the quarter, with new strategic investor coming on board, or the strategic partner.

As of March 31, 2016, we had cash and cash equivalents and restricted cash of $104.3 million.

For the second quarter of 2016, based on our current estimates, we expect net revenue to be in the range of $62 million to $65 million.

This forecast reflects the Company's current and preliminary views on the market and operational conditions, all which are subject to change.

This concludes our prepared remarks.

At this point, we are ready to take some questions.

Ladies and gentlemen, we will now begin the question and answer session.

(Operator Instructions).

George Askew, Stifel.

I have three questions.

First question is, regarding share count, can you tell us what's the share count today?

And what do you think it'll be, if you can project, at the end of June, reflecting the investment -- the new equity investment?

Hi, George, it's Robin.

So your question is, what does share count about -- I mean the share numbers in the end of June.

Is that correct?

Yes, is it as simple as taking end of March and adding 21,250,000?

Or are there other nuances that would affect the share count for the quarter, in lieu of the current share count as well?

Yes, for the common shares in the end of June, our count is about 133 million shares.

These are ordinary shares.

So if you calculate the ADS, just divide it by two.

Right, okay good.

You've obviously cut expenses dramatically and more aggressively than I expected really.

Your operating expenses, from my review, look like they're the lowest since 2012.

How high would revenue climb on a quarterly basis before you need to materially or meaningfully increase operating expenses?

Are you at a level of efficiency where you can support $80 million of revenue on the current expense rate?

George, this is Alan.

So the way we look at it is, we have a variable cost and fixed cost in our operating expenses.

The big items of variable costs are from the fulfilment centers and customer services.

Those will certainly go up when the order number and revenue go up.

And the fixed costs will be the marketing personnel, the supply chain personnel and R&D.

Those will stay fixed while the revenue goes up.

So we do think we will -- when the revenue regains growth, we will actually gain more leverage on our fixed part of the operational cost.

We don't give a very precise breakdown but -- in the sense that we think -- because we disclose how much we're spending in R&D each quarter, so those are the -- certainly are the fixed costs.

So we do think if we regain growth in the revenue in the future, we will actually see better leverage in the fixed costs in operational expenses.

Okay, good.

And then, Alan, what are the -- the world's changed during the last year or two, what are the three financial metrics that you guys are watching most closely from here going forward at the Company?

(inaudible)

Right, so I think at the different stage of the progress of the Company, we certainly have slightly a shift in our focus.

For the past couple of quarters, the major focus of the Company was to reduce the loss and back to a path of profitability.

So we were extremely focused on gross margin.

We were very focused on marketing, as a percentage of revenue.

We are also very focused on marketing dollar per order, which is the marketing dollar divided by the number of orders.

We are also very much focused on our net operational margin as well.

So those are the metrics we have been very focused on.

But I think when we're getting more and more close to profitability, we will certainly be gradually shifting our focus in revenue, regaining revenue growth as well.

But we think at this moment of time, we are certainly focused on both the cost side of the equation and also start to focus on the revenue side of the equation.

Okay great, thank you very much.

Huiping Sun, Guangfa Securities.

Can you give us more color about the impact of RMB depreciation on your business?

Yes, as you know, we have a moderate depreciation in the whole Q1.

From a cost perspective, we have a big part of our cost paying by RMB.

With the depreciation of RMB, we get a benefit.

Of course, we don't expect further depreciation or appreciation of RMB.

You may see some forecasts in some third-party institutions.

And definitely we will benefit from the further depreciation of RMB if it will be, if.

Okay, thank you.

Yanxin Chen, Guotai.

I have two questions for you.

Firstly, congratulations on your great improvement in the bottom line number.

What do you think are the major contributions to this leap?

This is Alan.

So when I look at Q1, I think, first of all, it's a continued execution of our strategy of improve our operational efficiency.

That was the main driver behind the numbers.

And secondly, I think that a couple of key metrics improvements really contribute to the bottom line.

The first one is the gross margin expansion.

The margin expanded from 34% to 36.8%.

Secondly, was also a major breakthrough in the marketing percentage drop.

The marketing spending dropped to 21%, which was a historic low.

That certainly helped significantly on the costs side.

There was also improvements of supply chain and customer satisfaction, which led to a higher conversion rate, a lower returned refund.

All these combined was a major contributor to our bottom-line improvements in the first quarter.

Okay, thank you.

And we also noticed that the growth of the China export was decreasing for the recent years.

What do you think is the trend for the global online retail industry for the next two years?

We think that, the way we look at is we think there are a couple of things are very important.

The first one is the users continue to migrate from PC to mobile so that's why we have been focusing on our mobile platform development, both on the website and also on the mobile app.

We have built a mobile R&D center in Chengdu, which is more cost effective, with high quality software developers.

And secondly, is we did notice that the consumers more and more focus on product quality so that's why we invested significantly on building our supply chain.

That's why we brought in two major partnerships from Zall and Aokang, which helped us in supply network development.

We think in the longer term the competition among eCommerce players really focus on the supply chain side of the equation.

And thirdly, we also think the capability of logistics and fulfillment are going to be a differentiator, so that's why we have been focused on building our own fulfillment facilities in China, in Europe, in US and also adapted the LanTingZhiTong as our cross-border logistic platform.

Okay, thank you, Alan.

Rick Shea, Vardon Capital.

Congratulations on your progress.

Alan, on the past two operating progress, do you think the bigger contribution is more likely to be from a larger customer base or from a larger product offering?

And maybe you could give a little color if it's some combination of both of those, in terms of where those customers come from, how they become aware and what types of products you might be offering.

Thank you.

Yes.

We do think on our past profitability, we need to have a balanced focus of -- deeply calculate a number of -- small number of selected categories which will provide us long-term defensible supply chain advantages, like we traditionally focused on wedding.

We recently also developed a number of new categories such as home decor.

But we also think horizontally expanding in category is also a very natural way of gaining repeat customer purchase from the same customer group who purchased from us in the past.

I think we -- in the early days, we certainly suffered from the category such as wedding increasing at a lower repeat rate.

That's why we added ready-to-wear fashion category.

We added home decor category, etc.

We think there's still huge room for us to grow in that regard.

We recently had some successes in hobbies and toys.

We had a number of success in sports.

We had a number of early attractions in the wig and hair, a number of those things.

But again, I think our continuous progress in the category expansion is still underway so I don't want to provide -- I don't want to be very focused on how much is going to come from the category expansion versus how much in the future is going to come in the category, vertical integration.

That would be the way I look at it.

Okay.

So just from a customer base standpoint, is it deeper penetration in existing markets?

Do you think there are markets that you haven't tapped particularly well or where should we see the expansion of the customer base coming from?

I think in the past two years the major geographic customer penetration change was primarily driven by the ForEx exchange rate fluctuation.

That's why we see more percentage of revenue coming from North America, particularly US, and fewer new customers come from the emerging countries like Brazil or Russia where their currencies undergo a major revaluation.

I think that was the big backdrop in the past 18 months.

Certainly, Europe was also suffering partially, particularly the eurozone was more suffered from the ForEx, while in comparison, UK, because they were not eurozone, so they were performing better than the eurozone of Europe.

We think this big backdrop will probably continue in the next couple of quarters but very -- so we will continue to focus on the markets where the currencies are strong, such as the US dollar markets, such as the UK market, etc.

Thank you.

Thank you, Rick.

(Operator Instructions).

There are no further questions at this time.

I would like to hand the conference back to Mr. Christian.

Please go ahead, sir.

Thank you.

This concludes the earnings conference call.

Thank you for your participation and ongoing support of LightInTheBox.

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

Have a good day and a good night.

Thank you.

Thank you, Christian.

Ladies and gentlemen, that does conclude our conference for today.

Thank you all for participating.

You may all disconnect the lines now.