LightInTheBox Holding Co Ltd

SWB:L4XA

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, everyone. And welcome to the Fourth Quarter and Full Year 2021 Earnings Conference Call for LightInTheBox Holding Co. Limited. Today's conference is being recorded. At this time, I will turn the call over to Mr. Rene Vanguestaine for opening remarks and introductions. Please go ahead, sir.

[Rene Vanguestaine, Christensen & Associates]

Thank you, Amber. Hello, everyone, and welcome to LightInTheBox fourth quarter and full year 2021 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 CEO, Mr. Jian He, who will give an overview of the company's strategies and recent developments, followed by Ms. Yuanjun Ye, the company's Chief Financial Officer, who will go over financial results. They will be available for Q&A at the end. 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 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 U.S. Securities Initiative Commission on April 21, 2021. 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 Mr. He. Mr. He, please go ahead.

[Jian He, Chief Executive Officer]

Thanks, Rene. And thank you, everyone, for joining us today. Let me start by acknowledging and thanking all the team for all their efforts and the dedication to the company. 2021 was an eventful year for us and for the overall cross border online retail sector. We faced various unprecedented challenges and the pressures [ph] including very competitive environments, led by decelerating economic growth, high inflation consents [ph] and foreign exchange fluctuation, increasing marketing spend and the shipping cost. New locks in Europe related to VAT and regulations on electronic [ph] products. Despite of the unprecedented economic environment, we achieved 12% top line growth year-over-year from $398 million in 2020 to $446 million in 2021, and remained stable in our bottom line. Behind these numbers, our growth strategies have been filled by our strong mission to fulfill our customer’s needs and improve their shopping experience. Some of our highlight achievements in 2021 include, we continued to increase the volume of apparel sales within our product mix, as customers shop for clothes online based on our customer reviews, competitive price matching, wide selections to choose from and as a time saving benefits of sorting everything you need through one global platform. By the end of fourth quarter of 2021, our apparel category reached over 70% of our total product sales. With the increase in apparel sales, our gross margin increased to 47.2% in the fourth quarter of 2021. We continue to build a regiment [ph] supply chain to drive production agility and visibility and to provide our customers with the best value for money and globally sourced products. And the investment in R&D in 2021 increased by 34% year-over-year from $15 million to $20 million, which we believe will give us the edge in retail e-commerce to stay ahead of change and capture industry insights for our suppliers and the designers. Our ability to successfully leverage the challenge of 2021 is a testament to the effectiveness of our proven growth strategies. After years of building a solid foundation serving over 140 countries, the fundamentals of our business are healthy and sustainable. Looking ahead, although there are still uncertainties and [indiscernible] factors that may impact our business, we have proven that we have the long haul to stay in the middle of these challenges. We will continue to improve on operational efficiency and value-added services for our customers. The easing of travel restrictions around the world and the many countries resuming economically [ph] we are well positioned to capture more growth opportunity with our deep advertise in cross border e-commerce. I believe we achieved sustainable growth and better sales across the growing and the evolving needs of our customers in 2022. I will now turn the call over to Yuanjun to go through the financial results.

[Yuanjun Ye, Chief Finance Officer]

Thank you, Mr. He. And thank you, everyone, for joining the call. I'll now review our financial results for the fourth quarter. Please be reminded that all numbers quoted are in U.S. dollars. Total revenues was $113.2 million, down 14.8% year-over-year from $132.7 million. Product sales were $110.5 million versus $129.5 million in the same period of 2020. Revenues from services and others was $2.7 million, compared with $3.2 million a year ago. Included in product sales, revenue from apparel increased 25.2% to $77.9 million in the fourth quarter of 2021, compared with $62.2 million in the same quarter of 2020. Revenue from apparel as a percentage of total product sales improved to 70.5% from 48.1% in the same quarter of 2020. Gross profit was $53.4 million compared with $59.6 million during the same period of 2020. Gross margin was 47.2%, up from 44.9% a year ago, primarily due to our continued efforts to optimize our product mix. Total operating expenses was $60.9 million, compared with $62.3 million during the same quarter of 2020. Fulfillment expenses were $7.5 million, compared with $8.8 million in the same quarter of 2020. As a percentage of total revenue, fulfillment expenses was 6.7% compared with the same 6.7% in the same quarter of 2020 and 7.3% in the third quarter of 2021. Selling and marketing expenses were $41.1 million, compared with $44 million in the same quarter of 2020. As a percentage of total revenue, selling and marketing expenses were 36.3% compared with 33.1% in the same quarter of 2020 and 34.4% in the same quarter of 2021. G&A expenses were $12.5 million compared with $10.5 million in the same quarter of 2020. As a percentage of total revenues, G&A expenses were 11.1% compared with 7.9% in the same quarter of 2020 and 9.4% in the third quarter of 2021. Included in the G&A expenses, R&D expenses were $4.9 million compared with $4.8 million in the same quarter of 2020 and $5.5 million in the third quarter of 2021. Adjusted EBITDA, which represents income loss from operations before share-based compensation expense, interest income, interest expense, income tax expense and depreciation and amortization expenses, were income of $16.2 million in the fourth quarter of 2021 compared with the loss of $0.5 million in the same quarter of 2020. Net income was $8.7 million, compared with net loss of $3.2 million in the same quarter of 2020. Net income per ADS was $0.08 compared with net loss per ADS of $0.03 in the same quarter of 2020. As of December 31, 2021, we have cash and cash equivalents and restricted cash of $59.6 million compared with $55.5 million as of December 31, 2020. Now let me walk you through our 2021 full year financial results very briefly. Total revenues increased by 12% year-over-year to $446.1 million. Revenues generated from product sales were $435.2 million compared with $382.1 million in 2020. Revenues from services and others were $10.9 million compared with $16.1 million in 2020. Included in product sales, revenues from apparel increased by 73.6% to $274.2 million for 2021 compared with $157.9 million in 2020. Revenues from apparel represented 63% of total profit sales for 2021 compared with 41.3% in 2020. Gross profit for the full year was - for the full year of 2021 was $206.7 million, compared with $176.2 million in 2020. Gross margin was 46.3% for 2021 compared with 44.2% in 2020. Adjusted EBITDA was $27.9 million for 2021 compared with $22.8 million in 2020. Net income was $13.5 million compared with $13.3 million in 2020. Net income per ADS was $0.12 for both 2021 and 2020. This concludes our prepared remarks. At this point, we are ready to take some questions. Operator?

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Matthew Larson [ph] from National Securities. Please ask your question.

[Unidentified Analyst]

Okay. Good evening. Thanks for taking my call. Listen, I just - the questions I have are similar to the previous ones, though I've been probably the only person on the conference call. You're a company that you did $446 million in revenues. Your market value is only 126. So it's very unusual for an online merchandise like yourself to trade at almost a quarter of the revenues, particularly when half the market cap just about $59 million out of 126 is in cash. And one of the problems is you guys have - even though you've doubled your revenues, have done very well since the COVID pressures and you changed your merchandise makeup and what have you and put more apparel, it sounds like. You still lose money on an operating basis. So you've doubled your revenues and you still haven't paid any money. Now you do have this equity investments, which depending on how that's valued when you do either a profit or a loss. And so I have two questions. What is this equity investment, if you could tell me? Because it is a pretty substantial part of your market cap. It's the $36 million that it's swung up or down really was the difference between you all making $0.07 and losing money in previous quarters. Can you answer that for me, please?

[Yuanjun Ye, Chief Finance Officer]

Thank you for your question, Matthew. I think for the equity investment, you really can't comment that much for the moment. The stock price is quite volatile and really out of controls. But you know, our vision [ph] for the management is always to bring the long-term value for the company, and we are very much focused on the fundamentals on our business. And you have seen for the past, Mr. He mentioned in his script, 2021 was quite a eventful year. We have been through a lot of difficulties in the markets, including the higher marketing spending and very high shipping delivery cost and new regulations in VAT and new regulations in the electronic products. At the same time, the US dollar depreciate quite a lot. And these have a lot of pressures on the company's operations. And even though that we have been gaining some significant progress, you have seen that our margin continue to increase since the apparel takes a larger portion of the whole product mix. I think we - it's always our focus to drive the sustainable strategy for the company. But on the other side, the stock market side, it's quite - we can't really do anything on that part. I don't know if I answer your question.

[Unidentified Analyst]

Not really. I mean, again, why can you not identify what the equity investment is? Is it - I mean, is it in investing in stocks in the Shanghai market? Is it an investment with - I have no idea. I mean, that is such an important part of your business and as a percentage of your market value, why can't that be identified? Because an investor can't very well make a confident investment in your firm unless they would know something about that. Is it off balance sheet or I mean, I don't really understand it. I mean, why can't you identify it?

[Yuanjun Ye, Chief Finance Officer]

Well, we surge [ph] to advice. And I - for this equity investment part, I think we will convey this message to the Board, and we will seriously consider you know, your suggestion…

[Unidentified Analyst]

Okay. All right. We'll move on. I mean that just doesn't work, okay. Here's the thing. Your company has been public, probably almost 10 years. I remember when it came public, it was a popular, almost a hot issue. And I think it was about $10 or $15. You're at $1 of the 10 years later. So even though your revenues have climbed very sharply, you're gaining scale. You're in 120 countries, you claim, and you did 440 - your stock's $1. I mean, for the Board members and the founder, I mean, how does that feel to like be worth like one tenth, 10% of what you - one was worth 10 years ago. I just - I don't understand, if this company would never be able to exist if it was a US company because you would have private equity come in there and make an offer for it because with all the cash on your balance sheet, you could use that to buy the company. I just - but since there's majority ownership because of the structure, that's very difficult because the insiders own so much stock. So how are you going to get your stock higher? I mean you've grown revenues, you have a ton of cash, a lot of cash. You're in the right space, which is online sales, particularly with some lockdowns going on around the world periodically, people are at home, and they tend to buy things, you know, because they are sitting at home on their computers versus going out to the store, and yet you still lose money, except for this mysterious equity investments. I'm glad you have something because without it, I mean, that would add - if you could identify it, I could add that to this $50 [ph] or $9 million in cash and get a better sense of out of value of your company is a special situation. So I'll just close with this because you're being opaque. Opaque, meaning you're not very clear. No wonder your stock is $1, nobody will trust what's going on. And we could wake up one day and that equity investment gets cut in half, and then your stock gets cut in half. So - and then finally, with all your cash, have you ever thought about a share buyback? I mean, if you were to buy back 5 million shares, I mean, it wouldn't put a dent in your cash holdings. You know, 5 million shares would put a nice bid in the market. Why don't you just take the company private? I mean a lot of your - I've had many Chinese companies that I've owned go private at significant premiums. You could take this stock. I mean why trade in the US? Why not bring it home or just take it private? I mean it has very little value here, $1 a share, $1.20 or whatever it's trading at. So on closing, I did it, are you guys ever interested in getting your share price higher to grow your wealth, I mean is that an interest for you? And it's just I'm a frustrated investor. I lost a lot of money on the stock after making some. And it's just - it is an enigma, okay, which is a term here in the United States, which is a puzzle. I mean one can't figure it out. What are your intentions to just run a company for - and never make any significant wealth? I'll leave it there. I mean, can you comment on that?

[Yuanjun Ye, Chief Finance Officer]

Mr. Matthew really, a management team, we really cannot comment on the - we cannot add or speak for the Board regarding the share buyback or the other financing that you were just mentioning. I think we will really seriously draw down your advises, and we would really seriously take this advice to the Board and see if they would - what they would do. Before the management team is that we are here, our mission is always to build a strong foundation and a strong business for the company and for the shareholders. Yes. I hope you're not too disappointed.

[Unidentified Analyst]

Well, of course, I'm disappointed. The stock's at $1, all right? And 10 years after you went public, it's at $1. And you're in the right space at the right time, which is online merchandise sales, and your stock is at $1, all right? And if you call that building wealth for shareholders, that's just not true. So I'll leave it there. Listen, I mean, you're not the only company domiciled in the PRC that is trading at $1 or two. If people just have thrown in the towel [ph] here in the United States because they'd rather buy stocks domestically that they can get better transparency. So that's just my advice. If you ever want to grow your wealth, just need to take it private and you know, it's something low and take it off the floor here. But I just don't understand it. I cannot understand why you all would be satisfied with a $1 stock when it's a fraction of your gross, your revenues. So I'll leave it there. Just my advice, if you want. It will be unlikely your stock will go up. If you have this opaque, again, that's another term here, opaque, which is a non-transparent mission and what your balance sheet is obscured with this equity investment. So, okay. Thanks for your time. I appreciate it. I'll follow you. But it's tough to get really, really get conviction to put a lot of money into it when there is you know, these questions. So thanks for your time. Good luck, nice quarter.

[Yuanjun Ye, Chief Finance Officer]

Thank you.

[Operator]

Thank you. [Operator Instructions] As there are no further questions, I'll turn the call back to Mr. Rene Vanguestaine for closing remarks. Please continue.

[Rene Vanguestaine, Christensen & Associates]

Thank you, Amber. This concludes our earnings 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.

[Operator]

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.