Ever-Glory International Group, Inc.
Q3 2017 Earnings Call Transcript

Published: 13 Nov 2017

[Operator:]

Good day, everyone, and welcome to the Ever-Glory International Group Third Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Wilson Bow of Ever-Glory International Group. Please go ahead.

[Wilson Bow:]

Hello everyone, and welcome to the Ever-Glory International Group’s Third Quarter 2017 Earnings Conference Call. The company distributed its earning press release earlier today via website Newswires Services. You can also download it from Ever-Glory’s website at www.everglorygroup.com. With us today are Ever-Glory's Chairman, President and Chief Executive Officer Mr. Yihua Kang; and Chief Financial Officer Mr. Jiansong Wang, both will deliver prepared remarks, followed by a question-and-answer session. 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 defer 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, 2016 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. I will now turn the call over to Ever-Glory's Chairman, President and CEO, Mr. Kang. Edward, please?

[Yihua Kang:]

Okay, thank you. Good morning to those in the United States and good evening to here in Asia. Thank you for joining our third quarter 2017 earnings conference call. We are glad to report that our repair business recorded a 24.9% revenue increase in the third quarter compared with the year ago period. Our relatively efforts in optimizing our store network, enhancing a quick responsive thing and improving our inventory measurement have been paying off with increased same store sales rose in the third quarter compared with the same period of last year. During the quarter, we remodeled or relocated 108 stores and created more [indiscernible] locations. At the same time, we stopped a more comprehensive evolution system to announce each store to operating and sales performance and for active and closed and performing stores. As of September 30, 2017, we operated a nationwide network of 1,363 stores compared with 1,345 stores as of September 30, 2016. We are very glad to see that our customers have provided us with very positive feedback regarding the new store designs we infused for La go, Sea to Sky, idole and Velwin. China's consumer accessory has [grown] reputation for Beijing over the last few years. While online shopping is growing more and more popular with strong demand for our product at our retail stores across China. Mobile platforms such are our La go store on [indiscernible] and JP.com are used as a strategic and effective way for us to reduce out of setting inventories and improve our brand awareness. We believe our integrated mode of online and offline were continue to best serve the needs of our customers. We had a great brands and great products with strong customer following. Our Velwin's well fashioned design continue to gain innovate and broadening range while also retain a high degree of product quality. Our domestic marketing therefore continued to gain traction with existing and new customers. In early September, we invited China famous actress Ms. Kim Hee Sun to endorse to celebrate clothing line of La go winter collection. We believe her fashion style and printings will match with our targeted audience who are confident consumers who are appreciate the fashionable brand and the [indiscernible] of our product. Look at our wholesale business. Total revenue remained flat compared with the year ago period during the quarter. The overall market conditions remain of our key global markets remained challenging. However, we expanded the encouraging sales results from mainland China and Hong Kong which reported a year-over-year increase of 4.5% and 100.3% respectively. Therefore, positive for our wholesale business in quarter remain focused on upgrading our customer base and effectively managing costs thus improving operating efficiency. Gross margin for our wholesale business increased by 20 basis points compared with the year ago period demonstrating our ability to control costs under the weak market environment. Overall, we are very pleased with our third quarter results. Our retail operations continue to rely strong customer following for our device factor of four great brands. We are also improving our store network and strengthening our quick response team and inventory management capabilities. We are also working diligently in our wholesale operations and to impinge our customer base with focus of higher quality and good creative clients. The results we have achieved so far, the part is the priorities we have set and the strategies we continue follow, to strengthening the foundations of our business and get ready to patch the opportunities when conditions improve. Now I will turn the call over to our CFO, Jiansong Wang, to provide details of our financial results. Jiansong?

[Jiansong Wang:]

Thank you, Mr. Kang, and hello to everyone on the call. The third quarter results coupled with our ability to increase operating leverage resulted in expanded overall gross margin of operating income. during this quarter we continue to improve our wholesale gross margin. Third quarter retail gross margin was impacted by higher production costs as we proactively committed out of season inventories. Now I will walk through our financial results for third quarter of 2017. Please note that, all numbers discussed today are in US dollars, unless otherwise noted. Total sales for the third quarter of 2017 were $128.3 million, an increase of 9.4% from $109.9 million in third quarter of 2016. This increase was primarily attributable to 0.2% increase in sales in our wholesale business and 24.9% increase in our retail business. Sales for the company’s branded and fashion apparel retail division increased by 24.9% to $51.3 million for third quarter of 2017 compared with $41.1 million for third quarter of 2016. This increase was primarily due to increased same-store sales. The company had 1,363 retail stores as of September 30, 2017 compared with 1,345 retail stores as of September 30, 2016. Sales for the company's wholesale division nicely increased by 0.2% to $59 million for the third quarter of 2017 compared with $58.9 million for the third quarter of 2016. This increase was primarily due to an increase in sales in Mainland China and the Hong Kong China, partially offset by a decrease in sales in Germany, the United Kingdom, Europe-Other, Japan and the United States. Total gross profit for the third quarter of 2017 increased by 12.3% to $33.3 million compared with $29.6 million for third quarter of 2016. Total gross margin increased to 27.6% from 23.9% for the third quarter of 2016. Gross profit for the retail business increased by 17.8% to $33 million for the third quarter of 2017 compared with 19.5 million for the third quarter of 2016. Gross margins decreased to 44.9% from 47.6% for the third quarter of 2016. [indiscernible] for the wholesale business increased by 1.6% to 10.2 million for the third quarter of 2017, compared with 10.1 million for the third quarter of 2016. Gross margin increased to 14.8% from 14.6% for the third quarter of 2016. Net expenses for the third quarter of 2017 increased by 9.3% to 20.2 million or 15.8% of total sales compared with 18.5 million or 15.8% of total sales for the third quarter of 2016. The increase was mainly attributable to higher retail sales. General and administrative expenses for the third quarter of 2017 increased by 3.1% to 10.2 million or 8.5% of total sales compared with 9.9 million or 9% of total sales for the third quarter of 2016. The increase was attributable to the increased average salaries. Income from operations for the third quarter of 2017 increased by 131.3% to 2.8 million compared with 1.2 million for the third quarter of 2016. Net income attributable to the company for the third quarter of 2017 was 3.2 million compared with the net income attributable to the company of 0.6 million for the third quarter of 2016. Basic and diluted earnings per share was $0.22 for the third quarter of 2017 compared with fiscal and diluted earnings this year of $0.04 for the third quarter of 2016. Turning to the balance sheet, as of September 2017, Ever-Glory has approximately 14.8 million of cash and accounts equivalent compared with approximately 45.3 million as of December 31, 2016. Ever-Glory had a working capital of approximately 55.7 million and outstanding bank loan of approximately 44.9 million as of September 30th 2017. Going forward, we remain confident in a long-term prospect of our business and we will continue increasing our margins enhancements and a cost control majors to further strengthen profitability of our business. This concludes my prepared remarks, operator we are now ready to take questions. Thank you.

[Operator:]

[Operator Instructions] We will take our first question from Shaun [indiscernible] Private Investor.

[Unidentified Analyst:]

Hello. I think that's me, congratulations on the great results and thank you for the presentation. Can you share some comments about your experience this year with the 11

[Yihua Kang:]

[Foreign Language].

[Wilson Bow:]

As you have seen the numbers posted on the website, the increase of Tmall was comparatively very large. Sales of La go go has similar numbers with Tmall platform. Of course, for us 11

[Unidentified Analyst:]

Thank you. That's great detail. And can I also ask. Could you share some comments about the sell through rate for your fall collections?

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

We currently are doing a lot of sales for our autumn and winter collections. To give you a rough idea that is the summer and the spring collections have already been sold out and we have increased 2% of the sales number.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

And we reached a rough number of 83.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

And the autumn and winter sales also increased over the last year same period.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

And the purchase volume of the three seasons of autumn, summer and winter also increased over last year.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

And we always do our efforts to have the balance of our sales volume and our inventory volume. We have maintained a delicate balance between the two factors.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

And such balance is very delicate and harder to achieve for our retail business.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

If we have not the enough inventory that will impact our sales volume.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

And the surplus inventory will also impact our total business.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

In any sense, we have made very great progress this year over the year before last and very pleased about this.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

And we have done very good work in the circulation of our goods and we have done very good work on our quick results to customer demands.

[Yihua Kang:]

Okay. Thank you.

[Unidentified Analyst:]

Thank you. That’s great detail. And my last question can I ask if you can share some comments about the performance of your new brands?

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

We have three new brands that is Sea to Sky, idole and Velwin and they performed much better than last year.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

Especially, idole and Velwin the same store sales for those two brands will perform very better in the future.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

And comparatively Sea to Sky is not so good.

[Yihua Kang:]

[Foreign Language]

[Wilson Bow:]

That is why we continue our efforts to better our performance. That is my idea, thank you. Thank you.

[Operator:]

[Operator Instructions]. It appears there are no further questions at this time. I'd like to turn the conference back to management for any additional or closing remarks.

[Yihua Kang:]

Okay. Thank you everyone for joining Ever-Glory third quarter 2017 earnings conference call. we look forward to talking with you next quarter. If you have additional questions, please feel free to contact our IR department or TPG investor relations. Thank you, good bye.

[Operator:]

This does conclude today's call. Thank you for your participation, you may now disconnect.

[Wilson Bow:]

Thank you, operator, see you next time.