Ever-Glory International Group, Inc.
Q2 2018 Earnings Call Transcript

Published: 14 Aug 2018

[Operator:]

Good day, and welcome to the Ever-Glory International Group Second Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jiansong Wang, Chief Financial Officer. Please go ahead, sir.

[Wilson Bow:]

Thank you, operator. I am Wilson Bow from Ever-Glory International Group. Hello everyone, and welcome to Ever-Glory International Group's second quarter 2018 earnings conference call. The company distributed its earning press release earlier today via Newswire Services. You can also download it from Ever-Glory's website at www.everglorygroup.com. With us today is Ever-Glory's Chief Financial Officer, Mr. Jiansong Wang, Mr. Yihua Kang, the Ever-Glory's Chairman, President and Chief Executive Officer is on a business trip today and 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 statement 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 result 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, 2017 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 statements except as required under applicable law. As a reminder, the conference call is being recorded. In addition, an audio webcast of this conference will be available on Ever-Glory's Investor Relations website. Now I will turn the call over to Mr. Wang.

[Jiansong Wang:]

Thank you, Wilson. Good morning to those in the U.S. and good evening to those participant in Asia. Thank you for joining our second quarter 2018 earnings conference call. During the second quarter, we maintained our focus on developing retail business through our multi-brand strategy and store network optimization initiative, while improving our wholesale business by upgrading customer portfolio. Notably, we achieved year-over-year improvement in gross margins for both of our retail and wholesale business, as well as a year-over-year revenue increase of 17.6% for our wholesale business. Retail side, our four retail brands have delivered satisfying sales for the 2018 spring/summer collections in La go [ph] which focus on innovative distinctive product designs that tend for exceptional fine [ph] quality and value. Our store network optimization efforts and e-commerce initiatives also helped to improve retail sales n enhance customer business. Going forward we will continue to optimize our operations, so the positive trends can continue. We remodelled or relocated 69 stores during the second quarter and remain on track to relocated or remodel 200 to 300 stores in 2018. As of June 30, 2018 we updated a nationwide network of 1,417, compared with 1,362 stores as of June 30, 2018. We currently had also played an important role in our overall retail changes. I wanted to elaborate a little bit more on this point. For example the number of new customers that come in through our retail store or same-store has constant growth and those platforms have also brought a lot of cross channel spending opportunities at our offline stores. We believe we will have more opportunities in the e-commerce area and we will be able to better understand customers shopping heavier and fashion taste, which in turn will enable us to acquire new customers and retail service our existing customers. Looking at our wholesale business, we maintained focus on upgrading customer portfolio to reduce credit risk and improve margin in the light of weak micro environment. Our wholesale gross margin continued to improve on a year-over-year basis. Going forward, we'll implement a stricter client evaluation system and remain diligent in account receivables collection. We believe the enduring strength of our wholesale business will support its long-term profitability. This concludes Mr. Kang’s comments. I will now walk through our financial for the second quarter 2018, please note that all numbers discussed today are in U.S. dollars unless otherwise noted. Firstly, for the second quarter of 2018. Total sales for the second quarter of 2018 were $8.5 million, a increase of 11% from $79.8 million in the second quarter of 2017. This increase was mainly due to 17.6% increase in our wholesale business, and 6.3% increase in retail business. Sales for the company’s branded fashion apparel retail division increased by 6.3% to $49.7 million for the second quarter of 2018, compared with $46.8 million for the second quarter of 2017. This increase was mainly due to an increase in same-store sales. The company had 1,417 retail stores as of June 30, 2018, compared with 1,362 retail stores as of June 30, 2017. Sales for the company’s wholesale division increased by 17.6% to $38.8 million for the second quarter of 2018, compared with $33 million for the second quarter of 2017. This increase was mainly due to an increase in sales in Mainland China, United Kingdom, United States and Japan, partially offset by a decrease in sales in Hong Kong, Germany and Europe others areas. Total gross profit for the second quarter of 2018 increased by 12.7% to $34.5 million, compared with $30.7 million for the second quarter of 2017. Total gross margin increased to 39% from 38.4% for the second quarter of 2017. Gross profit for the retail business increased by 10.6% to $27.4 million for the second quarter of 2018 compared with $24.8 million for the second quarter of 2017. Gross margin was 55.1%, compared to 52.9% for the second quarter of 2017. Gross profit for the wholesale business increased by 21.3% to $7.2 million for the second quarter of 2018, compared with $5.9 million for the second quarter of 2017. Gross margin increased to 18.4% from 17.9% for the second quarter of 2017. Selling expenses for the second quarter of 2018 increased by 11.7% to $22.6 million, or 25.5% of total sales, compared with $20.2 million, or 25.3% of total sales for the second quarter of 2017. The increase was attributable to the increased store decoration and marketing expenses. General and administrative expenses for the second quarter of 2018 increased by 18% to $8.8 million, or 10% of total sales compared with $7.5 million or 9.4% of total sales for the second quarter of 2017. The increase was mainly due to the increased average salaries. Income from operations for the second quarter of 2018 increased by 6.1% to $3.1 million compared with $2.9 million for the second quarter of 2017. Net income attributable to the company for the second quarter of 2018 was $2.8 million compared with $2.7 million for the second quarter of 2017. Basic and diluted earnings per share were $0.19 for the second quarter of 2018 compared with basic and diluted share earnings per share of $0.18 for the second quarter of 2017. Turning to the balance sheet as of June 30, 2018, Ever-Glory had approximately $36.4 million of cash and cash equivalents, compared with approximately $52.9 million as of December 31, 2017. Ever-Glory had a working capital of approximately $55.7 million and outstanding bank loan of approximately $34.8 million as of June 30, 2018. We are glad to say that our operating efficiency continued to improve in the second quarter. Overall gross margin increased by 50 basis points, with wholesale gross margin increased by 50 basis points, compared with the same period of last year. Looking ahead to the remaining of 2018, our percentage remains the same and we executed against that very focused and very diligently, with strengthened fundamentals and improved operating leverage of our overall business. We are excited about the opportunities that there before us and we look forward to updating you with our progress next quarter. This concludes our prepared remarks. Thank you for participating in today’s call. If you have additional questions, please feel free to contact our IR department. Good bye. Thanks.