RLX Technology Inc.
Q1 2020 Earnings Call Transcript

Published: 2 Jun 2021

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for the RLX Technology Incorporate First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Investor Relations of the Company. Please go ahead, Sam.

[Sam Tsang:]

Thank you very much. Hello, everyone, and welcome to RLX Technology first quarter 2021 earnings conference call. The Company's financials and operational results were released through PR Newswire press release earlier today and have been made available online. You can also view the earnings press release by visiting the IR section of our website at ir.relxtech.com.

[Kate Wang:]

Thank you, Sam. Thanks, everyone, for making your time to join our earnings conference call today. First-quarter 2021 was an eventful one for our company and the industry. In January, we successfully listed on New York Stock Exchange. After listing, we continued for a more solid leadership in scientific research, technology, and product development, supply chain production, and distribution of the retail network. Our net revenue for the first quarter grew 48% quarter over quarter. In March, the authorities made an announcement seeking public comment regarding a proposal to require rules and regulations aimed at strengthening the supervision of e-cigarettes and solving the quality and safety risk and false advertising problem among other guests. Just yesterday the newly revised law on the protection of minors was enacted. Partial process addresses the prevention of the underage use of alcohol and tobacco, e-cigarettes included. And with that, we have always been upholding user value, corporate value, and social value as a key pillar of everything we do. It is relentless to view these values that make us the most trusted brand of choice and a leading force in our industry.

[Chao Lu:]

Thank you, Kate, and hello, everyone. It has been an honor and a great pleasure to join the RLX management team to advocate value creation has been at the center of all our initiatives. Next, I will share some specifics regarding the initiatives we have taken in the first quarter. Then, I will walk you through our financial results for the first quarter and our guidance for the second quarter. In March, in response to user demand, we released a new product RELX Lite, also known as with more affordable pricing. We will keep expanding and enhancing our product offerings as we seek to serve the diverse needs of our users in China. We also continued our expansion of offline distribution networks and retail channels across the nation to further penetrate e-vapor products among adult smokers. As of March 31, 2021, we partnered with over 15,000 RELX branded partner stores nationwide, and we are excited to see an increase in number of branded store partners willing to start business with us to open RELX-branded partner stores, working together to better serve adult smokers in China. Meanwhile, as part of our consistent efforts to expand our industry-leading retail model nationwide, we have also been collaborating with various forms of retailers to diversify our distribution and retail network.

[Operator:]

Thank you. We will now begin the question-and-answer session. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Our first question comes from Lydia Ling from Citi. Please go ahead.

[Lydia Ling:]

Hi, management Hi, Kate, hi Chao, and hi, Sam. And thanks for the presentation and this is here from Citi. So, first, congratulations on the strong result achieved in the first quarter, I actually have two questions. Would like to share your -- hear your views. And the first question is to -- on the regulation side. So, after the opinion in March and also like the public feedback and in the -- at late April. So, could you share with us any regulatory updates for this industry and like what's your view on the current programs and the like, your expectation on the timeline for the detailed regulations? And my next second question is on some like your -- what's your views on the latest competitive landscape for the China e-cigarette market. And so, any changes have you observed after the March opinion announcement and the like how does your competitive market share evolve? And we also observed the opening has been very aggressive in the first quarter, so how about your peers? And also, did you observe any pushback in the opening in the second quarter after the announcement? Thank you.

[Sam Tsang:]

Sure. Thank you very much, Lydia. It's nice to see you again. So, I mean, on the first one is about the regulatory update. So, in response to the announcement made MIIC on March 22. So, we have submitted our feedback regarding the announcement before the deadline of April 22. So, we are absolutely supportive on the considerations being mentioned in the attachment of the announcements on March 22 which includes to regulate operating efficiencies of the e-vapor industry and tackle the potential safety issues of some of the e-vapor products in the market.

[Kate Wang:]

Thank you, Sam.

[Operator:]

The next question comes from Charlie Chen from China Renaissance. Please go ahead.

[Charlie Chen:]

Thank you, management. Thanks for taking my questions. I have two questions. Number one is since the announcement on March 22, have you seen any material changes or impacts on -- I mean, consumer behavior or your business or anything? Any color would be appreciated. Second question will be do you have visibilities toward your production capacity and whether your largest supplier has sufficient capacity reserves for your growth for the rest of the year? Thank you.

[Chao Lu:]

Thanks, Charlie for your question. On your first question, since March 22 announcement, we have been closely monitoring the macro environment and market condition, and our own operating results. We have also been gathering feedback from our business partners including retailers, distributors, and suppliers through daily communication. We have also been closely monitoring our operating and financial metrics, including the retail sales value, frequency of purchases, and inventory levels through our own system. We continue to see sustained support from our business partners and users for our business development and our products. We have not yet experienced a material negative impact on our operating results since that announcement. We will keep monitoring the industry landscape including the regulatory framework. We're maintaining the active communication with our trusted partners and monitoring key operating metrics. You know, we will aim at delivering value creation to our users, stakeholders, and the society as a whole. On your second question regarding production capability visibility and our capacity with the partners, right, with our supply chain partners. We strive to be agile in managing our supply chain and production plants. We formed our supply chain and production plants for various timeframe work based on a multiple of factors, including user demand, distributors and retail sales, commercial goals, inventory levels to ensure that we could achieve our optimal inventory level while fulfilling user demand for our e-vapor products. Our e-vapor products contain multiple components including easy, quick packaging, battery, and various materials. And we currently have hundreds of SKUs. We have been discussing and communicating with our production needs with our suppliers and manufacturers periodically over the past year and the past quarter. Our suppliers and the manufacturers have fulfilled our needs effectively. We remain vigilant on all our suppliers and manufacturers' capability -- capacity and their actual production volumes. I think we can manage that capacity and expand or adjust accordingly. We expect our suppliers and manufacturers to be able to meet our needs under the current supply chain timing mechanism and fulfill our future expansion plans.

[Charlie Chen:]

Thank you very much.

[Operator:]

Our next question comes from Chen Haofei from CICC. Please go ahead.

[Chen Haofei:]

Okay. Thanks, management. I'm Chen Haofei from CICC. I have two questions. The first question is, what's your latest number of members and will the membership system helps the Company's operation? And the second question is does the industry's upstream raw material price increase affects the Company's cost especially some electronic components such as chips had -- the price had go up, what's the effects on the Company's cost?

[Chao Lu:]

Sure, Chen Haofei. Nice to talk to you again. So there are two questions. One is on the membership system and the other one is on the macro cost increase. So, on the membership side, which means development our own membership system since 2019 to better serve our users with our reward system and enhance experience. So I mean, for us, the membership system can also improve our understanding of our user needs and how we can deliver the best possible product. So, currently, we have over 10 mil of members in our membership system on a registered basis, where we can keep updated them on our scientific information, some introduction of our product, store locations, and also offers our services. So we will continue to improve and enhance the membership system in a bid to better serve, and we want our members, as we tried a safe approach in using e-vapor products as harm reduction alternatives. So, on the second question is on the raw material pricing on a macro level. So, we are still aware that there has been a challenging global economic situation. Prices of raw materials in electronic industry like chips have indeed having an upward trend. So as part of this, we also see that some of our suppliers have experienced an increase in costs in part of the supply chain process. However, so far, our costs have not experienced any material adverse impact from the change in the price of raw materials. So I mean, for us, as a brand manufacturer, so we'll continue to closely monitor the latest developments throughout our supply chain and some of the operating or financial issues that could be faced by us. So, if the costs of our products do increase, so we do seek for very active solutions to mitigate any potential impact on our financial or operating results.

[Operator:]

The next question comes from Stephanie Lam from Haitong International. Please go ahead.

[Stephanie Lam:]

Hi, management. Thank you for taking my questions and congratulations on the strong result. I have two questions. First one is regarding the store opening target. We noticed that some of your peers have been accelerating the store opening in China. So just want to check if we have any adjustment on our current store opening plans? This is my first question. The second question is related to the new product site. Could you talk about the price positioning of our future products? It would be great if you can also share the sales and testing progress of our sixth-generation low-price vape products? Thank you.

[Sam Tsang:]

Sure. Thanks very much, Stephanie. So for store opening plan, so I can explain the logic of this. So for logic of our branded kind of stuff, operating model remains intact, and it is likely dependent on whether there are enough potential users for our products in a given area or district. So for each district or area where we have our branded kind of stuff, we would monitor and evaluate the site productivity in combination with other macro or micro factors to decide whether more stores are needed to be there open instead of looking what's out there. Early implementation of our branded kind of stuff operating model has achieved great success in the past. We have finally offered 15,000 branded kind of stuff nationwide as of March 31 this year. So, we have been consistently monitoring the theme of store openings based on a comprehensive set of metrics including participation of existing store. So for us, we will continue to expand our network based on the above criteria with careful measurements of potential use of topic. We will also pay a very close attention to avoid cannibalization among stores by enforcing distance requirements for most of the region. So it is the first one on the store opening plan and how we adjust in accordance with our competitors as well. So the second one is the product pricing and also our latest . So, I mean, for us, the product pricing strategy has been dynamic. It really depends on user penetration in the industry together with actual commercial feedback. We will continue to offer a range of products at various price, as we seek to fulfill differentiated needs of different types of adult smokers. For example, really for this one of other features for high-end products and manage the cost for lower-end product to make various types of our smokers to affordable. Regarding the sixth-generation products, we have been conducting the path testing of the times in multiple cities. We are still in the process of collecting preliminary feedback from our users and business partners. It will require more time for us to properly evaluate the performance of such products and better decide the scale and availability of such products. So thanks very much for your question.

[Stephanie Lam:]

Thank you.

[Operator:]

There are no further questions. This concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

[Sam Tsang:]

Thanks again for joining us today. If you have any further questions, please feel free to contact our RLX Technology's Investor Relations team through the contact information provided on our website or TPG Investor Relations.

[Operator:]

This concludes the conference call. You may disconnect your line.