Nova LifeStyle, Inc.
Q3 2015 Earnings Call Transcript
Published:
- Operator:
- Greetings, and welcome to the Nova LifeStyle’s Third Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Adam Prior of The Equity Group. Thank you, please go ahead.
- Adam Prior:
- Thank you, and good morning everyone. We’re pleased that you’re joining us for the Nova Lifestyle’s third quarter 2015 earnings conference call. On the call today will be Mr. Warren Wong, Executive Vice President, speaking on behalf Mr. Jeffrey Wong, Chief Executive Officer; Tawny Lam, President; and Sammy Ho, Chief Financial Officer. By now, everyone should have access to the press release that went out. If you have not received the press release, it is available on the Investor Relations section of Nova’s website at www.novalifestyle.com or you are welcome to contact our office and we would be happy to send you a copy at 212-836-9606. Before we begin, I would like to remind you that the information in today’s press release and the remarks made by our executives on this call may include Forward-Looking Statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on information currently available to us and involve risks and uncertainties that could cause our actual financial results, performance, prospects and opportunities to differ materially from those expressed or implied by these statements. These risks and uncertainties include but are not limited to the factors identified in our news release and our filings with the Securities and Exchange Commission. You may access any of these files at www.sec.gov. Please also note that the information provided on this call should be considered current only as of today. Except as expressly required by the federal securities laws, we undertake no duty to update that information. With that, I would now like to turn the call over to Mr. Warren Wong. Please go ahead, Warren.
- Warren Wong:
- Thank you Adam and good morning everyone. On behalf of Nova LifeStyle, thank you for joining us. We were pleased with our results this quarter and more importantly the momentum we have built. Our topline grew 12% driven by sales growth in our two biggest markets America and China. As we discussed in the call - our work on marketing brand awareness in the first nine months of 2015 as Nova Lifestyle positioned us for even greater sales growth during the upcoming holiday season and into 2016. Our North American business model which is predominantly sales through well established wholesale channels, top 100 furniture store throughout the U.S., is expanding at an accelerated pace. Additionally, our expansion of direct sales into U.S. we have the positive impact on both our topline and bottom-line, while helping to diversify our customer base. Future home sales and marketing efforts which includes showcasing our product trade shows such as High Point and Las Vegas. Customer have come to rely on our Diamond Sofa brand as stylish and contemporary innovator in the home furnishing solution market. 2015 has truly been a yield than [indiscernible] and increasing floor space to our North America and remain the primary driver of sale. In China, we continue to gain momentum. We reported favorable double-digit growth in the region and are on pace with our franchise store expansion and an embracing new methods of technologies to improve our customers' overall experience. We are expanding both as brick and mortar provider and a full e-commerce platform. Ever since we qualified as an approved vendor for our IKEA we have seen sales steadily increase in China as a result of the expansion and adoption of our product line, which can be used as both standalone and home furnishing solution. Some of you may have seen IKEA’s recent announcement that the company revenue has gained almost 20% in China and its planning to open three additional store there. China continues to remain the fastest growing market for the company. We recently filed a new yearly plan for IKEA and expect higher volume in the upcoming month. Now I would like to turn the call over to our President, Tawny Lam, who will explain further on our operating highlights for the quarter and to update our North American sales and marketing efforts. Tawny please
- Tawny Lam:
- Thank you, Warren. We have been so pleased with the response of our new product and are enthusiastic to move in to the holiday season. We feel that many of the initiatives we have put in to the place over the last year have increased the awareness of our product on a global scale and we look forward to rolling out more product and service for offering. What separates Nova LifeStyle from its competitors it's our ability to innovate with the understanding that our loyal customers and come to expect modern and contemporary solutions. In the end, our goal is to attract customers to two main areas of focus. Superior product and brand recognition. Our [Indiscernible] at the forefront of both quality and innovation and successful marketing of our brand drives consumer traffic on multiple continents. This defines our competitive advantage over other multinational peers in the home furnishing industry. We are expanding with the existing channels in North America in well known locations at Nebraska Furniture Mart, [indiscernible]. During the third quarter 2015, Nova LifeStyle’s largest selling product categories were sofa, cabinetry and dining tables, which accounted for approximately 24%, 16% and 70% of sales. We are targeting to hold customer experience throughout the home and continue to expand and develop line with a wide variety of options. Let me provide a couple of specific samples, one product where we have had tremendous success is our stainless steel collection. We introduced this at the Summer 2015 Las Vegas Market Trade Show, these are our cutting edge furniture designs with a retrofitted and comfort that provide a true modern solution to customers. In addition, earlier this year we introduced a new line of finishing solutions that our Diamond Sofa’s this century design is included in initial launch of the upholstered bed in a variety of colors which has captured the look of the 1950, 1960s and that consumers are trending towards. Since the launch, we have had a tremendous response specifically in the U.S. This has occurred in both e-commerce sector and through wholesale partners. I recently attended the High Point Trade Show at High Point, North Carolina. The High Point market is the largest furnishing industry trade shows in the world bringing more than 75,000 people every six months. At this show, we displayed an expansion of retro-inspired occasional tables, TV stands and desk incorporating a new vintage hardware look. Our display of the product at this trade show resulted in many orders on the spot and we have seen this momentum continuing. We have expanded this line further into dining and complete home furnishing based on its feedback in events of the holiday season. Moving geography, let's take a moment to highlight where we are focusing our efforts, I would like to a few minutes to talk about our sales results from our largest geographic market. First of all, sales in our largest market of North America were $21.8 million in three months ended September 30, 2015, which is an increase of 19% from the same period 2014, with a considerable double-digit increase in sales volume. We are being competitive on price, while we expand our brand and stay aggressive with marketing and this strategy has been working. North America remains Nova LifeStyle’s largest and fastest growing market as a percentage of total revenue. North America share well 75%. In Europe, we continue to keep an eye on the economic recovery of the overall region, as a result of the slower recovery on sales decrease about 30% to $1.4 million during the quarter. In China, we were very pleased with our sales progressions as we continue to benefit from the increased brand recognitions and expand our franchise store locations throughout the country. Our overall sales increased by 12% to $4.9 million in three months ended September 30, 2015 as compared to $4.4 million in the same period of 2014 driven by the increased sales from IKEA that Warren mentioned earlier. We have put in great effort in creating a truly global brand in 2015 and our sales growth in both North America and China this quarter were a testament to our hard work. With that, now let me turn the call over to our CFO Sammy Ho to discuss the financial results and then, I will conclude with some thoughts on the upcoming holiday season and the fourth quarter. Sammy.
- Sammy Ho:
- Thank you, Tawny and hello everyone. I would like to review our third quarter financial results in comparison to the prior year period in more detail. I will also welcome each of you to review our filings with the SEC. Net sales for the third quarter were $29 million compared to $25.9 million. This represents 12% increase in revenue. The increase in net sales resulted primarily from a 29% increase in sales volume despite our being more competitive with price. Gross profit was $4.3 million in the quarter compared to $5.9 million. The decrease in gross profit and ultimately gross margin we saw primarily because of increased cost of products, purchase on third-party manufacturers, we increased these products in order to fulfill the increased sales orders from North America, while building inventory from our own manufacturing facilities in events of the fourth quarter. Net income was $0.03 million for the quarter compared to $3.12 million. This decrease was mainly due to an increased cost of sales by [8%] (Ph). Now I would like to discuss the balance sheet and liquidity. We have a net working capital of $48.3 million as of September 30, 2015, an increase of $30.8 million from net working capital of $34.5 million at December 31, 2014. The ratio of current assets to current liabilities was healthy 4.2 to 1 at September 30, 2015. We are also benefitting in our credit availability as a result of our increased scale. On September 28, 2015 Diamond [indiscernible] expand of the line of credit up to maximum of $6 million with annual interest of 3.75% and maturity on June 1, 2017, we have [indiscernible] in the past year and have particularly secured improving very favorable rates on the financing. We feel this asset liquidity accessible rate as to our company’s financial stability. Let us now discuss our accounts receivables in bit more detail. As of September 30, 2015, we had gross accounts receivable of $49.4 million of which $31.8 million was with aging within 90-days, and $14 million was with aging over 90-days. We also had an allowance for bad debt of $0.47 million for accounts receivables. The annualized inventory turnover rate was 19.2 at September 30, 2015, compared with 15.7 at September 30, 2014. The increase of inventory turnover rate was due to receiving more sales orders for our fast-selling products. In the past, we have mentioned that our goal is to improve the turnover rates over long-term while balancing the company's need to growth is prime. We are now making to progress in this regard. We are now [indiscernible] payments improve before delivery in China coupled with improved longevity amongst our largest major accounts. Our goal is to stay consistently in our efforts while understanding that we are fast growing enterprise that is expanding in scale and scope. That concludes my comments. Let me now turn the call back to Tawny to discuss our outlook. Tawny.
- Tawny Lam:
- Thank you, Sammy. We believe the next few months will be especially important for the company. As we have positioned Nova LifeStyle well in advanced of the holiday buying season and into 2016. Our goal at Nova remains to expand our current portfolio of product, providing our customers with the most stylish and accessible modern life style furniture and providing them with innovative tools and act to make their experience memorable. We remained, optimistic about our growth initiatives and the diversity of our product in the marketplace. As many of you know, the upcoming Black Friday period and Cyber Monday period are important drivers for retail industry, it is for Nova LifeStyle as well. In addition, it is important to understand a considerable difference in our company versus our competitors and also how far we have come from last year. First, we are one of the few publicly held home furnishing companies that can both advantage of the furniture and retail market equally in both China and North America. Going further, we are also reaching to consumers to brick and mortar establishments and through e-commerce. Some of you may be aware of doubled 11 day for those of who that aren’t familiar this took place last Wednesday on November 11, is consider a growing holiday on a single day in China, where young, unmarried people go on shopping street to buy future gift. Now granted, Nova LifeStyle is not selling a home furnishing solution to each single person in China, but we are targeting the e-commerce market where we manufacture. We doubled our revenue on this day on the previous year and are looking to continue to grow further. As an example, the site Alibaba took $14 billion on this sale alone from over 300 million shoppers. The market is sizable and we can take advantage in our segment. In North America we have worked diligently to expand our platform and brand awareness throughout 2015. Leveraging a new look and our ability to manufactured quality products. We opened up considerably more channels in the first half of the year and in brick and mortar stores throughout the U.S. To take it further, we have several of our participating partners with online stores listed to Amazon prior to Cyber Monday. In short, the exposure of our Diamond Sofa and Nova LifeStyle is much greater than the prior year. We are a unique company in that, we have the operational leverage to address the home furnishing needs of notable market and we have a brand that is recognizable and growing. As we look through 2016, we believe that we have plenty of opportunities ahead of us and we are making sure we are well positioned to take advantage. With that, operator please open the line for questions.
- Tawny Lam:
- This will conclude the question-and-answer session for today. I would like to thank everyone for listening to our earnings call today and for your continued support. We look forward to discussing the fourth quarter 2015. Again thank you.
- Sammy Ho:
- Thank you.
- Operator:
- This concludes today’s conference. You may disconnect your lines at this time. And thank you for your participation.