Ever-Glory International Group, Inc.
Q3 2018 Earnings Call Transcript

Published: 13 Nov 2018

[Operator:]

Good day everybody, and welcome to the Ever-Glory International Group Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen mode. And this call is being recorded. It is now my pleasure to turn the conference over to Wilson. Please go ahead.

[Wilson Bow:]

Thank you, operator. Hello, everyone, and welcome to Ever-Glory International Group's third quarter 2018 earnings conference call. The Company distributed its earnings 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, our boss, Mr. Yihua Kang, Ever-Glory's Chairman, President and Chief Executive Officer is on a business trip today and is unable to join this 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, this 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. Mr. Wang, please?

[Jiansong Wang:]

Thank you, Wilson. Good morning to those in the U.S. and good evening to those participants in Asia. Thank you for joining our third quarter 2018 earnings conference call. During the third 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 customers, continue and enhancing our accounts receivables. Notably, we achieved year-over-year revenue increase of 24.2% for our wholesale business. Retail side, our store network optimization, efforts and e-commerce initiatives also helped to improve retail stores and enhancing customer business. Going forward, we will continue to optimize our operations, those are positives trends and continue. We remodeled or relocated 225 stores during the third quarter and remain on track to relocate or remodel an aggregate of 200 to 300 stores in 2018. As of September 30, 2018, we operated a nationwide network of 1,396 stores compared with 1,353 stores as of September 30, 2017. Looking at our hotel business, we maintained focus on upgrading customer portfolio to reduce credit risk in the light of weak macro environment 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 results for the third quarter 2018. Please note that all numbers discussed today are in U.S. dollars unless otherwise noted. Total sales for the third quarter of 2018 were $125.5 million, an increase of 4.3% from $120.3 million in the third quarter of 2017. This increase was primarily driven by a 24.2% increase in our wholesale business partially offset by a 22.4% decrease in retail business. Sales for the Company’s branded fashion apparel retail division decreased by 22.4% to $39.8 million for the third quarter of 2018, compared with $51.3 million for the third quarter of 2017. This decrease was primarily due to a decrease in same-store sales. The Company had 1,396 retail stores as of September 30, 2018, compared with 1,393 retail stores as of September 30, 2017. Sales for the Company's wholesale division increased by 24.2% to $85.7 million for the third quarter of 2018, compared with $69. million for the third quarter of 2017. This increase was primarily attributable to the increase in sales in Mainland China, Germany, the United Kingdom, Europe-Other, Japan and the United States partially offset by a decrease in sales in Hong Kong, China. Total gross profit for the third quarter of 2018 decreased by 9.6% to $30.1 million, compared with $33.3 million for the third quarter of 2017. Total gross margin decreased to 24% from 27.6% for the third quarter of 2017. Gross profit for the retail business decreased by 13.9% to $19.8 million for the third quarter of 2018, compared with $23 million for the third quarter of 2017. Gross margin was 49.8%, compared to 44.9% for the third quarter of 2017. Gross profit for the wholesale business increased by 0.1% to $10.24 million for the third quarter of 2018, compared with $10.2 million for the third quarter of 2017. Gross margin decreased to 12% from 14.8% for the third quarter of 2017. Selling expenses for the third quarter of 2018 decreased by 13.1% to $17.6 million, or 14.6% of total sales, compared with $20.2 million, or 16.8% of total sales for the third quarter of 2017. The decrease was attributable to lower retail sales. General and administrative expenses for the third quarter of 2018 decreased by 16.2% to $8.5 million, or 7.1% of total sales, compared with $10.2 million, or 8.5% of total sales for the third quarter of 2017. The decrease was mainly attributable to lower financial fees. Income from operations for the third quarter of 2018 increased by 39% to $4 million compared with $2.8 million for the third quarter of 2017. Net income attributable to the Company for the third quarter of 2018 was $3.3 million compared with $3.2 million for the third quarter of 2017. Basic and diluted earnings per share were $0.22 for the third quarter of 2018 compared with basic and diluted earnings per share of $0.22 for the third quarter of 2017. Turning to the balance sheet. As of September 30, 2018, Ever-Glory had approximately $24.5 million of cash and cash equivalents, compared with approximately $62.9 million as of December 31, 2017. Ever-Glory had working capital of approximately $64.6 million as of September 30, 2018, and outstanding bank loans of approximately $35.6 million as of September 30, 2018. We are glad to say that our operating efficiency continued to improve in the third quarter. Looking ahead to the remaining of 2018, our strategy remains the same and we execute 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 are 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. Thank you. Thank you, operator.

[Operator:]

Thank you. And this will conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.