蘭亭集勢 (LITB) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the LightInTheBox First Quarter 2017 Earnings Conference Call.

(Operator Instructions) I must advise that this conference is being recorded today, Thursday, 15th of June 2017.

I'd like now to hand the conference over to your host today, Mr. Christian Arnell.

Thank you.

Please go ahead, sir.

Thank you, Joe.

Hello, everyone, and welcome to LightInTheBox' First Quarter 2017 Earnings Conference Call.

The company's earnings 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' 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.

Please note that the discussion today may contain certain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

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

To understand factors that could cause the results to materially differ from those in the forward-looking statements, please refer to our Form 20-F filed with the U.S. Securities and Exchange Commission on March 30, 2017.

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 Alan.

Alan, please go ahead.

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

I'm pleased to report that our first quarter revenue came in at USD 72.7 million, which represents 8% year-over-year growth and exceeded the high end of our guidance of USD 72 million.

This marks the second consecutive quarter of revenue growth on a year-over-year basis.

Revenue growth has recently further accelerated over the past 2 months, which is highlighted in our strong guidance for Q2 with revenue expected to be between USD 76 million to USD 79 million.

This represents approximately 16% to 20% year-over-year growth.

We believe that our success in regaining revenue growth demonstrates our persistence and the effectiveness of our strategy to improve our business through strengthening the supply chain management, better product quality, greater customer satisfaction, big data enabling the new product merchandising and development of new growth opportunities, including mobile and social channels as well as our logistics platform.

We are committed to fulfill our mission of making good products accessible to global consumers at affordable prices.

To achieve this, our #1 focus during the quarter has been to continuously improve our supply chain.

We further improved our new vendor acquisition practices by incorporating an even stronger focus on product quality.

We also deployed an improved vendor evaluation and incentive system, which segments suppliers according to product defect rates, on-time fulfillment rates and out-of-stock ratios.

This improved evaluation system allows us to retain and nurture good suppliers and disqualify underperforming ones.

Leveraging our proprietary automated data analytics systems, we have built sophisticated statistical models that analyze important data and trends among our supply networks.

As a result, we achieved a significant year-over-year drop in overall post-sales returns and refunds, and in particular, a significant drop in post-sales returns and refunds due to product quality issues.

All this helps support a higher level of customer satisfaction.

We also continue to source directly from factories and factory-direct wholesalers across China, eliminating middlemen who provide low added value in the process.

Meanwhile, we successfully introduced more of our OEM products marketed under LightInTheBox associate private label brands.

All these efforts combined give us better control and leverage over our supply chain.

We continued to make solid progress in nurturing new product categories and seize new product trends through our big data-enabled merchandising systems.

For example, emerging categories, such as sports and hobbies as well as wig and hair extensions, continued to grow at a fast pace.

And we were able to roll out new trending products, such as finger spinner, very early on to fully benefit from their global appeal ahead of our competitors.

We consider ourselves as a great distribution channel for emerging innovative Chinese manufacturers and brands with global ambitions and appeal.

We strategically support and promote these suppliers on our websites and apps in order to make us the go-to place for customers seeking to discover product innovations from China.

We continued to make good progress in increasing our mobile penetration rate and in leveraging social networks, such as Facebook, to promote our brand and products.

We saw increased visits to our mobile websites and mobile apps during the quarter with the percentage of revenue generated from mobile platforms hitting a record high during the quarter.

Our number of social media followers continues to increase as we acquire more traffic from social platforms and create new ways for them to stay engaged with our platforms.

We also made multiple updates to our iOS and Android apps with improved product ranking and recognition systems to increase user stickiness.

Overall, we are happy with the progress we have made on social and mobile platforms during the quarter.

Our logistics and warehousing platform continues to grow.

With warehousing in Europe and the U.S., we have a geographic advantage and are able to provide a good logistics platforms for other cross-border distributors or resellers, online or offline, who do not want to deal with the complexities of global logistics themselves.

We have expanded our logistics options by now offering more routes and shipments from China to Europe over railway, which is faster and more reliable than ocean freight.

The strategic location of our European warehouse along the railway lines contributes to significantly reduced delivery time, which is very important for product categories with dynamic demand or fast product trends.

Since day 1, we have been a company that focuses on global cross-border e-commerce.

We deliver goods to our customers in more than 200 different countries and offer our website and apps in more than 20 different languages.

We are always looking for new opportunities to connect great products with new markets.

In particular, the recent growth of e-commerce and increase of mobile Internet users in India make it an attractive market for us.

Leveraging our deep experience in cross-border e-commerce development, we have established our market presence in India with new localized payment and logistics solutions during the quarter.

We will continue to invest more into India as we believe it will become more important financially and strategically for us in the years to come.

I think we are ideally positioned to use our experience to develop a tailored solution specifically for the India market.

We also began building an inbound wholesale business over the past few quarters as a way to hedge against foreign currency risk and further leverage our global infrastructure and networks.

Overall, I'm pleased with what we accomplished this quarter as we continue to support our revenue growth momentum.

I believe this demonstrates the effectiveness of our strategy and our ability to successfully navigate through a dynamic global market environment.

With our long-term strategy, we are confident that our revenue growth guidance for Q2 and we'll continue making improvements and innovating our business.

I would now turn the call over to Robin to go through the financials for the quarter.

Thank you, Alan.

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

All numbers quoted are in U.S. dollars.

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

So to start, net revenues increased 8% to $72.7 million for the first quarter of 2017.

Net revenues for product sales were $64.8 million compared with $61.9 million in the same quarter of 2016.

Net revenues from service and others was $7.9 million compared with $5.4 million in the same quarter of 2016.

As a percentage of net revenues, service and others accounted for 10.9% in the quarter.

Total orders of product sales were 1.6 million and total number of product sales customers in the quarter were 1.2 million.

Product sales in the apparel category was $21.2 million compared with $21.9 million in the same quarter of 2016.

As a percentage of product sales, apparel revenues accounted for 32.8% compared with 35.4% in the same quarter of 2016.

Product sales from other general merchandise were $43.6 million for the first quarter of 2017.

Looking at our business geographically.

Product sales from Europe was $33.5 million for the first quarter of 2017 compared with $36.5 million in the same quarter of 2016, representing 51.7% of the total product sales for the first quarter of 2017.

Product sales from North America was $17.4 million compared with $19.6 million in the same quarter of 2016, representing 26.8% of total product sales for the first quarter of 2017, while product sales from other countries were $13.9 million, representing 21.5% of total product sales for the same quarter.

Total cost of revenues was $48.5 million, an increase from $42.5 million in the same period last year.

Cost of product sales were $41 million compared with $37.6 million during the same period last year.

And the cost of service and others was $7.5 million compared with $4.9 million during the same quarter of 2016.

Gross profit was $24.2 million and the gross margin was 33.3% compared with 36.8% in the same quarter of 2016.

Fulfillment expenses, which include payment processing fees, decreased to $3.8 million from $4.5 million in the same quarter of 2016.

Selling and marketing expenses were $15.2 million compared with $14.2 million in the same quarter of 2016.

G&A expenses were $7.8 million, a decrease from $8.3 million in the same quarter of 2016.

G&A expenses include $2.5 million in technology investments compared with $3.5 million during the same quarter of 2016.

Net loss was $2.4 million compared with net loss of $2.1 million a year ago.

Non-GAAP net loss was $0.8 million compared with non-GAAP net income of $0.9 million in the same quarter of 2016.

Net loss per ADS was $0.03 compared with net loss per ADS of $0.04 in the same quarter of last year.

As of March 31, 2017, we had cash and cash equivalents and restricted cash of USD 85.1 million.

For the second quarter of 2017, based on our current estimate and the business seasonality, we expect net revenue to be in the range of $76 million to $79 million, representing an increase of 15.8% to 20.3% year-over-year.

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

Lastly, the company's Board of Directors has authorized the extension of the company's existing share repurchasing plan for an additional 12-month period through June 14, 2018.

The company is authorized to repurchase up to the remaining balance of USD 10 million of its ADS.

As of March 31, 2017, the company has repurchased a total of USD 1 million of its ADS.

This concludes our prepared remarks.

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

Operator?

(Operator Instructions) There's no further question at this time.

I'd like to hand the conference back over to our presenters.

Please continue.

Well, thank you, everyone, for joining us today.

And if you have any questions or comments -- it looks like we do have one question, actually.

Operator, can we take it, please?

We have a question coming from the line of YANG XIN ZHEN from Guotai Junan Securities.

This is YANG XIN ZHEN from Guotai Junan Securities.

And I've got one question.

That is we look back in the quarter of Q4 in 2016 and Q1 in 2017, we can see the growth.

And you expect the revenue to regain double-digit growth in quarter 2 in 2017.

Can you give us more background?

Sure.

Thanks for the question.

I think Q1 was the second consecutive quarter of growth.

The driver of the growth came from a couple of different angles.

The first is we have some fast-growing categories, such as sports and hobbies as well as wigs and hair extensions.

Secondly, geographically, we're gaining growth in some emerging markets, including India, Brazil.

We also gained growth in our new initiatives, including logistic platforms as well as the new inbound business.

We also gained some -- quite some momentum from the mobile platform, both mobile web and mobile app installation, the daily active users as well as our social networks of followings and our social ads.

So all those things actually contribute to continued growth, and all these trends, as a recent development, we saw actually carry down in Q2.

That's why we saw accelerated growth in Q2, which led us to provide stronger guidance in terms of revenue growth.

(Operator Instructions) There's no question at this time.

Sorry, we have a next question coming from the line of Rick Shea of Vardon Capital.

Alan, I was just wondering if you could maybe explain what has to happen for the company to go net income-positive?

And do you think that's more likely to happen in the product division or the services?

I think while we're -- well, there are a couple things.

While we are regaining growth, we certainly care very much about our bottom line.

We pay a lot of attention to it.

We don't want to have the widened gap while we accelerated the growth.

That's number one.

So we take it very seriously.

And secondly, we believe there is a natural releveraging of our fixed cost once we regain faster growth in our top line.

That's the -- so I think our improved bottom line will come along with the regaining growth.

That's secondly.

And thirdly, when we're expanding into new product categories, we are very careful about which categories we choose.

For example, the categories we mentioned, like the sport and hobbies and the wigs and hair extensions, all have very healthy margins.

So that's the third one.

And the fourth one is we have worked very hard to increase the customer satisfaction, which we hope will lead to higher long-term value, which means we will have more revenue generated from nonpaid traffic acquisition channels, such as the CRM through e-mail and also the daily app users, which will come organically.

I think those actually will contribute -- if those increase significantly, that will also significantly improve our bottom line.

So we definitely feel the product business will continue to be a main driver of our gross margin.

And we believe the growth of our top line will also improve us -- will also help us improve the bottom line if we provide the right leverage and focus.

(Operator Instructions) There's no question at this time.

I'd like to hand the conference back to our presenters.

Please continue.

All right.

Well, thank you very much for joining us, everyone, today.

Please let us know if you have any comments or questions, contact myself.

And if not, please let us know.

Have a good evening, and good night.

Thank you for joining.

Bye-bye.

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

Thank you for participating.

You may all disconnect.