LightInTheBox Holding Co Ltd

SWB:L4XA

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to LightInTheBox Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday 20th of September, 2018.

I would now like to hand the conference over to your first speaker today, Mr. Christian Arnell. Thank you. Please go ahead.

[Christian Arnell, IR]

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 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 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 may 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 20, 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.

[Zhiping Qi, CEO]

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

[Unidentified Company Representative]

I’m 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, has been incredibly smooth, and I have been quickly brought up 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 co-founded and served as Co-President and Vice Chairman of 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 two 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’d like to go into further details on the strategy we are implementing and the actions we have taken into -- in the two months that I have been here to improve operational efficiency and our bottom line. We are currently reviewing all operations, regional businesses, and key product 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 stress and improve delivery efficiencies.

We’ve 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 our 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’m 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’m confident that we have the right strategy and team in place to leverage LightInTheBox 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 a solid foundation already in place to further consolidate and optimize the business. At the same time, we are actively recruiting global talents 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?

[Robin Lu, CFO]

Thank you. As I review our financial results, let me remind you about a few things. All numbers reported are in U.S. dollars, all the percentage change we refer to year-over-year unless otherwise noted.

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 revenue, 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 were 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 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 was $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 $14.0 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 included $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 cash and cash equivalents and restricted cash of $41.7 million.

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

[Operator]

[Operator Instructions] Our first question comes from the line of Rick Shea from Vardon Capital. Please ask your question.

[Rick Shea, Vardon Capital]

Good evening. The question is, what is the product focus of the Company going forward and why do you think you have a special offering that will attract consumers?

[Zhiping Qi, CEO]

[Interpreted] Okay, Rick. So, I’m going to translate Mr. Qi’s answer. So, first of all, we are 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 and especially in like apparel businesses, fast fashion products, it’s the kind of product categories where we’ll be paying more attention on. Thank you.

[Operator]

Our next question comes from the line of David Ellis. [Ph] Please ask your question.

[Unidentified Analyst]

Good morning. I’ve 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, that’s gone absolutely flat. I mean, your revenues have gone down, and even though you went with a lot of companies, like a big shoe company and 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 long-time investor, and I wish you the best. But we’ve seen the Company shares go from $23 down to a $1. 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 questions. And I will -- now, I will listen.

[Unidentified Company Representative]

Thank you for your question. Let me just quickly translate it to Mr. Qi. [Foreign Language]

[Zhiping Qi, CEO]

[Interpreted] Sure. Thank you, Mr. Qi. So, let me just 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 two months here is that, I think LightInTheBox has a very good foundation technically and also has a very good team, which I’m 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 as 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 this 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 JJsHouse, companies like JollyChic and a few other of our competitors have been specializing certain regions in the emerging market are doing really well. And 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 a price competition. We need really need to 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, I think another point that Mr. Qi wants 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 fundamentals and to find its own niche, to find its own strengths 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.

[Operator]

Our next question comes from the line of Xin Hu [ph] from Guangfa Securities. Please ask your question.

[Unidentified Analyst]

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

[Unidentified Company Representative]

[Foreign Language]

[Zhiping Qi, CEO]

[Foreign Language]

[Unidentified Company Representative]

Okay. Thank you, Mr. Qi. So, not only we just focus on 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 two dimensional focus to really gain those profit growth.

And thirdly, in emerging markets that we have been trying, and experimenting in the past two quarters in 2018, we would like to -- we have learned a lot of lessons. So, now, we will be going to do something different. We will want to make it not only just growing the top-line but also the 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 on the business operations, we will then divide backwards from this bottom-line. And I’m very confident that in the coming two 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.

[Operator]

Your next question comes from the line of [indiscernible]. Please ask your question.

[Unidentified Analyst]

We can see your gross margin depleted significantly in the second quarter. So, I want 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.

[Unidentified Company Representative]

Thank you. Let me quickly translate that. [Foreign Language]

[Zhiping Qi, CEO]

[Foreign Language]

[Unidentified Company Representative]

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’d 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 higher 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 costs and increase our product quality. Also, we’ve been talking to our logistics 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 purchases. 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 the top-line of LightInTheBoxin the near future. Thank you.

[Operator]

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

[Christian Arnell, IR]

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.

[Operator]

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