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Edited Transcript of LITB earnings conference call or presentation 20-Sep-18 12:00pm GMT

Q2 2018 LightInTheBox Holding Co Ltd Earnings Call

Beijing Sep 21, 2018 (Thomson StreetEvents) -- Edited Transcript of LightInTheBox Holding Co Ltd earnings conference call or presentation Thursday, September 20, 2018 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bin Lu

LightInTheBox Holding Co., Ltd. - CFO

* Christian Arnell

* Zhiping Qi

LightInTheBox Holding Co., Ltd. - CEO & Director

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Conference Call Participants

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* Richard Wyman Shea

Vardon Capital Management, LLC - Founder, Principal, CEO, and Senior Portfolio Manager

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to LightInTheBox Second Quarter 2018 Earnings Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 20th of September, 2018. I would like to hand the conference over to your first speaker today, Mr. Christian Arnell. Thank you. Please go ahead.

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Christian Arnell, [2]

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Thank you, operator. Hello everyone, and welcome to LightInTheBox's Second Quarter 2018 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's CEO, Mr. Zhiping Qi, who will give 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 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 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 March 28, 2018. 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 now turn the call over to Mr. Qi. Mr. Qi, please go ahead.

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Zhiping Qi, LightInTheBox Holding Co., Ltd. - CEO & Director [3]

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Thanks, Christian, and thank you everyone for joining us today on my first call as CEO of LightInTheBox. I would like Mr. Hantao Lu, my translator, read through my prepared remarks in English for me, and I will be available for the Q&A after. Hantao, please go ahead.

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Unidentified Participant [4]

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I am thrilled to join LightInTheBox and work closely with all the highly talented employees here, who care about the company and are deeply committed to its long-term success. The transition since I joined in July had been incredibly smooth, and I have been quickly brought back to speed by everyone here on every aspect of this business.

I believe, LightInTheBox is truly a unique business with enormous potential. The addressable market for cross-border e-commerce is massive and growing rapidly. LightInTheBox's highly sophisticated mobile apps, extensive supply chain, advanced back-end systems and deeply experienced team across the globe have created the ideal platform to seize the enormous opportunities created by global cross-border e-commerce by offering localized products and services.

I come to LightInTheBox from Shenzhen Sinoagri, a leading Chinese agricultural e-commerce platform, that I cofounded and served as Co-President and Vice Chairman from 2010 until 2017.

My experience in building Shenzhen Sinoagri into a top 500 enterprise in China gives me unique insight, which I will apply to LightInTheBox supply chain management systems, investing in the development of its e-commerce platforms, strategic planning and management and the deployment of resources globally.

I look forward to replicating my experience here at LightInTheBox. In the 2 months I have been here so far, I have worked closely with the core management team here to familiarize myself with every aspect of this business. Together, we have formed a strategic consensus to focus our resources on building our B2C cross-border e-commerce out to scale globally. This will be done by enhancing the user experience and improving supply chain management and fulfillment capabilities.

Now I would like to go into further details on the strategy we are implementing and the actions we have taken in the 2 months that I have been here to improve operational efficiency and our bottom line. We are currently reviewing all operations, regional businesses and key products as we seek to build a mechanism to gradually reduce our losses.

We have established a series of new procedures and standards to help us deliver the best product mix for each of the regional markets we operate in. As part of our new strategy, this will help us to focus on the most profitable products for each market.

We have also implemented a management system that grades each of our suppliers and allow us to further optimize our relationship with them, increase sales, reduce inventory risks and improve capital efficiency.

In addition, we have reevaluated and enhanced our partnership approach with logistic partners, allowing us to bargain from a position of strength and improve delivery efficiencies.

We also adjusted our advertising strategy by reviewing each advertising channel and adding new ones when needed to target specific markets and demographics in a more efficient manner, leveraging a global mobile and social networking channels. We have also implemented tailored marketing strategies for new and existing customers in order to increase the repurchase rates, retain existing customers, reduce the cost of delivery and improve advertising effectiveness.

In conclusion, I am pleased with the progress we have made in the short time that I have been here. There is still a lot of work ahead, but I am confident that we have the right strategy and team in place to leverage LightInTheBox's potential. The company's core management team and business operation remain in place and are as strong as ever. The team here has the experience and understanding of the company's historical business to build upon the solid foundation already in place to further consolidate and optimize the business.

At the same time, we are actively recruiting global talent to join us in our journey going forward.

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

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Bin Lu, LightInTheBox Holding Co., Ltd. - CFO [5]

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Thank you. 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 refer to year-over-year unless otherwise mentioned.

So to start, net revenue decreased 29.4% to $55.4 million for the second quarter of 2018. Net revenues from product sales were $52 million compared with $73.7 million in the same quarter of 2017.

Net revenues from service and others were $3.4 million compared with $4.8 million in the same quarter of 2017. As a percentage of net revenues, service and others accounted for 6.1% in the quarter.

Total orders of product sales were 0.9 million compared with 1.7 million in the same quarter of 2017. While total number of product sales customers in the quarter was 0.7 million compared with 1.4 million in the same quarter of 2017.

Product sales in the apparel category were $18.7 million compared with $27 million in the same quarter of 2017. As a percentage of product sales, apparel revenues accounted for 36% compared with 36.6% in the same quarter of 2017. Product sales from other general merchandise were $33.3 million for the second quarter of 2018.

Looking at business geographically, product sales from Europe were $24.9 million for the second quarter of 2018 compared with $37.4 million in the same quarter of 2017, representing 47.8% of total product sales for the second quarter of 2018. Product sales from North America were $10.6 million compared with $19.2 million in the same quarter of 2017, representing 20.4% of total product sales for the second quarter of 2018.

Product sales in the Gulf Cooperation Council, which is GCC, countries were $3.3 million for the second quarter of 2018 compared with $0.3 million in the same quarter of 2017, representing 6.4% of total product sales for the second quarter of 2018, while product sales from other countries were $13.2 million, representing 25.4% of total product sales for the same quarter.

Total cost of revenues were $41.4 million compared with $50.9 million in the same period of 2017. Cost for product sales was $38.2 million compared with $46.2 million in the same period of 2017.

Cost for service and others was $3.2 million compared with $4.7 million in the same period of 2017. Gross profit was $14 million compared with $27.6 million in the same period of 2017. Gross margin was 25.4% compared with 35.2% in the same quarter of 2017.

Fulfillment expenses, which include payment processing fees, were $3.7 million compared with $4.3 million in the same quarter of 2017. Selling and marketing expenses were $11.3 million compared with $18.1 million in the same quarter of 2017. G&A expenses were $8.7 million, an increase from $7.2 million in the same quarter of 2017. G&A expenses include $2.8 million in technology investments compared with $2.7 million during the same period of 2017.

Net loss was $9.5 million compared with net loss of $1.8 million in the same quarter of 2017. Net loss per ADS was $0.14 compared with net loss per ADS of $0.03 in the same quarter of last year.

As of June 30, 2018, we had a cash and cash equivalents and restricted cash of USD 41.7 million.

This concludes my prepared remarks. This will be my last call as LightInTheBox's CFO, and I wish the company all the best going forward. At this point, we are ready to take some questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our your first question comes from the line of Rick Shea from Vardon Capital.

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Richard Wyman Shea, Vardon Capital Management, LLC - Founder, Principal, CEO, and Senior Portfolio Manager [2]

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The question is, what is the product focus of the company going forward? And why do you think you have the special offering that will attract consumers?

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Zhiping Qi, LightInTheBox Holding Co., Ltd. - CEO & Director [3]

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(foreign language)

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Unidentified Participant [4]

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Okay, Rick, so I'm going to translate Mr. Qi's answer. So first of all, we will going to be focusing on the high gross margin product categories going forward, especially in the regions that also buys those very high margin products. Meanwhile, we are very much focusing on improving our customer experience and our cost structures within our supply chain management, especially in like apparel businesses, fast fashion products, it's the kind of product categories where we will be paying more attention on. Thank you.

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Operator [5]

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Our next question comes from the line of David Elise.

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Unidentified Participant [6]

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I have been looking over your quarters from 2013 to present, and I went back and looked at the first quarter that you ever reported in 2013 and you had a revenue of $72 million. And this was actually pretty good because in 2012, before you went public, you had $47.3 million. So you ramped up beautifully 52% and an increase of 140% for your customers. And since then, it's -- you've gone absolutely gone flat. I mean, your revenues have gone down, and even though you went with a lot of companies like a big shoe company and a good -- big electronics company. What do you think the problem has been? And also, I had one question about sales inside of China. On Singles' Day, Alibaba did something like $25 billion in one day. And I know that you're a small company, but there must be some tremendous opportunities within inside of China and I don't think that's a big emphasis on what you're doing and I was wondering why? I think there might be a big opportunity for you. I'm a longtime investor and I wish you the best, but we've seen the company shares go from $23 down to $1. How -- what is going to be your main emphasis on turning this around? And are you going to pursue inside of China, the sales? It seems like a big opportunity. Thank you for my long-winded question, and I will -- now I will listen.

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Unidentified Participant [7]

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Thank you for the question. Let me just quickly translate it to Mr. Qi.

(foreign language)

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Unidentified Company Representative [8]

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(foreign language)

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Unidentified Participant [9]

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Sure. Thank you, Mr. Qi. So let me quickly translate. First of all, thank you, Mr. David, for paying attention to us in the past few years. And what would I like to say about LightInTheBox in my short 2 months here is that I think LightInTheBox has a very good foundation technically and also has a very good team, which I am proud of. Our primary business is in the cross-border e-commerce, B2C customer businesses. So we haven't been spending much time in looking at the China market, which you mentioned, which China has also been growing so rapidly, thanks to the population benefit as well the economic growth in the recent years. Yes, meanwhile, so in terms of those problems we have been experiencing since you asked since 2013, I think, first of all, the competition has been tremendous within this field, like AliExpress, GearBest all those competitors, they have been all trying to take the market share within the space and which gives us a lot of challenges.

And meanwhile, let me introduce you about the latest of our cross-border businesses, like a lot of focus now is moving to the emerging market. Companies like JenJenHouse, companies like Jollychic and a few other of our competitors have been specializing in certain regions in the emerging market are doing really well. So by learning from these competitors, we start realizing that we should probably need to revamp our business model, avoiding head-to-head competition like the price competition. We need to really focus on our business fundamentals, such as enhancing our customer experience, enhancing our supply chain management to reduce our cost structure, improve our product quality and to really emphasize on the things that we are good at.

So also into -- I think another point that Mr. Qi want to mention is that every company is now having their own like niche in the field to play well. So LightInTheBox should really start reviewing its fundamentals and to find its own niche, to find its own strength and to play well in certain markets with its new strategy. And so, yes, thank you very much, David, for asking this question. We very much appreciate. We will try our best to make this company better again. Thank you.

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Operator [10]

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Our next question comes from the line of Xing Hu from Guangfa Securities.

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Unidentified Analyst [11]

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The new management team has been on board for about 2 months. What are you doing to reverse a decline and to regain growth momentum? What is your strategy over the medium- to long-term?

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Unidentified Participant [12]

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(foreign language)

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Zhiping Qi, LightInTheBox Holding Co., Ltd. - CEO & Director [13]

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(foreign language)

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Unidentified Participant [14]

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Okay. Thank you, Mr. Qi. So not only we just focus on the growth, but we actually focus on the quality of our growth. We want to make profitable growth, rather than just the revenue growth. So how to achieve that? First of all, we will pick the locations we are having traditionally strength in, so that we will then invest more resources into those regions. Secondly, we will focus on these high-margin products as well, and then we will bring the country and product mix so that we will have this 2-dimensional focus to really gain most profitable growth. And thirdly, in the emerging market that we have been trying and experimenting in the past 2 quarters in 2018, we would like to -- we have learned a lot of lessons. So now we were going to do something different. We will want to make it not only just grow in the top line, but also bottom line. We want to be very ROI focused, return on investment focused, so that every division, every business unit in this company will focus on this bottom line, and then all the business operations will then divide backwards from this bottom line. And I am very confident that in the coming 2 quarters, we will see potential improvements on those segments. And also we will probably see something different in the reporting -- in the coming quarters. Yes, that's my answer. Thank you.

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Operator [15]

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Your next question comes from the line of Rui Zhang from (inaudible) Securities.

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Unidentified Analyst [16]

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We can see your gross margin decreased significantly impacting the quarter. So I wanted to ask, if it is due to the change of your product mix? If it is, what is your product strategy going forward? That's my question.

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Unidentified Participant [17]

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Thank you. Let me quickly translate that.

(foreign language)

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Zhiping Qi, LightInTheBox Holding Co., Ltd. - CEO & Director [18]

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(foreign language)

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Unidentified Participant [19]

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Sure. Let me quickly translate that. Thank you, Mr. Qi. So first of all, I would like to just -- thank you for the question. I just like to repeat the company's strategy taking back again this opportunity. So yes, we do have experienced serious challenge in the second quarter, while we see the declines in our top line as well as our gross margin. So looking at these problems, we are taking steps to make changes in this company in the past few months, including our product strategy that you asked. We will definitely focus on those high-margin categories within the regions that we are good at, such as like the fast fashion categories. Meanwhile, we are also trying to improve our supply chain and also the suppliers relationship so that we can reduce our product cost and increase our product quality. Also we've been talking to our logistic suppliers so that we can enhance our delivery time as well as the cost of shipping so that we can provide better customer experience to the end users. In addition to that, we want to start more focusing on our existing customers, the repeat purchasers. We want to increase our repurchase rate as well as making them coming back to LightInTheBox even more. By doing those, I think then we can improve both the bottom line and top line of LightInTheBox in the near future. Thank you.

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Operator [20]

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(Operator Instructions) There are no further questions at this time. I would like to hand the conference back to Mr. Christian Arnell. Please continue.

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Christian Arnell, [21]

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This concludes our second quarter 2018 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. If you have any further questions or comments, please don't hesitate to reach out to the Investor Relations department. Thank you very much. Have a good day and a good night.

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Operator [22]

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Ladies and gentlemen, this concludes the conference for today. Thank you for participating. You may all disconnect.