Ever-Glory International Group, Inc.
Q3 2019 Earnings Call Transcript

Published: 13 Nov 2019

[Operator:]

Good day and welcome to the Ever-Glory International Group's Third Quarter 2019 Earnings Conference Call. Today's conference is being recorded.At this time, I'd like to turn the conference over to Mr. Wilson Bow. Please go ahead.

[Wilson Bow:]

Thank you, Operator. Hello everyone and welcome to Ever-Glory International Group's third quarter 2019 earnings. The Company distributed its earnings press release earlier today via Newswire services. You can also download it from Ever-Glory's website atwww.everglorygroup.com.With us today is Ever-Glory's Chief Financial Officer, Mr. Jason Wang; and Mr. Yihua Kang, Ever-Glory's Chairman, President and Chief Executive Officer is on the business trip today and he is unable to join the call. Mr. Wang will read the prepared remarks on behalf of Mr. Kang.Before we get started, I will review the Safe Harbor statements regarding today's conference call. Please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.Forward-looking statements involve inherent risks and uncertainties. As such, the Company's results may differ materially from the views expressed today. Further information regarding these and other risks and uncertainties are included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in other documents filed with the U.S. Securities and Exchange Commission.Ever-Glory does not assume any obligation to update any forward-looking statement, except as required under applicable law. As a reminder, this conference call is being recorded. In addition, an audio webcast of this conference will also be available on Ever-Glory's Investor Relations website.Now I will turn the call over to Mr. Wang. Jason please?

[Jason Wang:]

Thank you, Wilson Bow. Good morning to those in the U.S. and good evening to those participants in Asia. Thank you for joining our third quarter 2019 earnings conference call.Results for the third quarter of 2019 decreased both in retail business and wholesale business. This decrease was mainly due to the pressure of the economic downturn as China-U.S. trade forecasting. We will actively respond to the change in the near-term economic environment.In the third quarter we intend our forecast on developing the retail business through our multi-brand strategy and store network. Optimization initiative while improving our wholesale businesses by upgrading customer portfolio and enhancing our accounts receivables.Retail side, our brands continue to attract new customers and return existing customers by focusing on design, quality and value. Our inventory management strategy continually improved the balance between inventory turnover and our diligent cost control measures further strengthened the profitability of our business. All of our efforts have contributed to the solid build-out for the past year in order to create more visible and accessible locations rewarded or we located 89 stores in the third quarter of 2019.As of September 30, 2019 we operated a nationwide network of 1,157 stores compared with 1,396 stores as of September 30, 2019 towards 2018. While we still see strong demand for our products at our retail stores, we continue to see opportunities in the e-commerce areas.Mobile platforms, such as our La go go stores on Tmall and Dangdang are used as a strategic and effective way for us to drive our customer engagement. We encourage cross-channel shopping, reduce out-of-season inventory and create a unique and differentiated customer experience to grow our loyal customer base.As a wholesale business, the Company enhanced our extensive product development and the supply chain management including a network of higher quality, reliable and cost efficient sourcing channels and manufacture.In addition, our market research center provides our wholesale customers with in-depth research and analysis in areas including brand, position, fashion trends, new material development and new guide design. Going forward, we will continue to focus on enhancing our product, development, capabilities and optimizing the customer best with our long-term vision of being a leading supply chain solution provider for middle to high apparel ground both in Mainland China and the worldwide.This concludes my comments. I will now go through our financial results for the third quarter of 2019. Please note that, all numbers discussed today are in U.S. dollars unless otherwise noted.Total sales for the third quarter of 2019 were $113.3 million, a decrease of 9.7% from $125.5 million in the third quarter of 2018. This decrease was mainly due to a 20.6% decrease in our retail business and a 4.6% decrease in wholesale business.Sales for the Company’s branded fashion apparel retail division decreased by 20.6% to $31.6 million for the third quarter of 2019, compared with $39.8 million for the third quarter of 2018. This decrease was primarily due to a decrease in the amounts of stores and same-store sales. The Company had 1,157 retail stores as of September 30, 2019, compared with 1,396 retail stores as of September 30, 2018.Sales for the Company’s wholesale division decreased by 4.6% to $81.7 million for the third quarter of 2019, compared with $85.7 million for the third quarter of 2018. This decrease was primarily attributable to a decrease in sales in Mainland China, Hong Kong, Germany and Europe-Other partially offset by an increase in sales in United Kingdom, Japan and United States.Total gross profit for the third quarter of 2019 decreased by 19% to $24.4 million, compared with $30.1 million for the third quarter of 2018. Total gross margin decreased to 21.5% from 24.0% for the third quarter of 2018.Gross profit for the retail business decreased by 28.9% to $14.1 million for the third quarter of 2019, compared with $19.8 million for the third quarter of 2018. Gross margin was 44.7%, compared to 49.8% for the third quarter of 2018.Gross profit for the wholesale business increased by 0.2% to $10.3 million for the third quarter of 2019, compared with $10.2 million for the third quarter of 2018. Gross margin increased to 12.6% from 12% for the third quarter of 2018.Selling expenses for the third quarter of 2019 increased by 2% to $17.9 million, or 15.8% of total sales, compared with $17.6 million, or 14.6% of total sales for the third quarter of 2018. The increase was attributable to the marketing expenses associated with the promotion of the retail brand.General and administrative expenses for the third quarter of 2019 decreased by 11% to $7.6 million, or 6.7% of total sales, compared with $8.5 million, or 7.1% of total sales for the third quarter of 2018. The decrease was mainly attributable to the decline in number of stores.Income loss from operations for the third quarter of 2019 decreased by 129.6% to negative $1.2 million compared with $4 million for the third quarter of 2018. Net income loss attributable to the Company for the third quarter of 2019 was negative $1.1 million compared with $3.3 million for the third quarter of 2018. Basic and diluted earnings loss per share were negative $0.07 for the third quarter of 2019 compared with $0.22 for the third quarter of 2018.As of September 30, 2019, Ever-Glory had approximately $45.8 million of cash and cash equivalents, compared with approximately $47.0 million as of December 31, 2018. Ever-Glory had working capital of approximately $54.0 million as of September 30, 2019, and outstanding bank loans of approximately $35.5 million as of September 30, 2019.Our relentless efforts have been paying off with 2019 third quarter results and we look forward to future further strengthening the fundamentals and increasing operating leverage to support the long-term profitability of our business.Thank you for participating in Ever-Glory's third quarter of 2019 earnings call. We look forward to talking with you last quarter. If you have additional questions, please feel free to contact our IR department. Good-bye, thank you. Thank you, operator.

[Operator:]

Thank you. This concludes today’s call. Thank you for your participation. You may now disconnect.