Ruhnn Holding Ltd
Q2 2021 Earnings Call Transcript

Published: 23 Nov 2020

[Operator:]

Hello ladies and gentlemen. Thank you for standing by for Ruhnn Holdings Limited's Earnings Conference Call for the Second Quarter of Fiscal Year 2021. Today's conference call is being recorded. I will now turn the call over to your host; Mr. Sterling Song, Senior IR Director of Ruhnn. Please go ahead.

[Sterling Song:]

Thank you. Thank you, operator. Hello everyone and welcome to Ruhnn's earnings conference call for the second quarter of fiscal year 2021 ended September 30, 2020. As a reminder this conference is being recorded. The company's financial and operating results were issued in our press release earlier today and are available online. You can download the earnings press release and sign up for the company's e-mail distribution list by visiting the IR section of the company's website at ir.ruhan.com.

[Lei Sun:]

Thank you, Sterling. Hello everyone and thank you for joining our earnings conference call for the second quarter of fiscal year 2021. In the second quarter of fiscal year 2021 following the business transition our Services segment under the platform model maintained a strong growth momentum from the previous quarter fueled by significant organic growth and demonstrating solid profitability. Services revenue increased 84% year-over-year continuing its rapid and consistent growth for the sixth consecutive quarter, following our IPO in April 2019. Our platform model continues to play an increasing important role as services revenue in the second fiscal quarter, contributed approximately 48% of total revenue, doubling the contribution from the same period last year and higher than 41% in the previous fiscal quarter. Income from operations for the service segment reached RMB 12 million with operating margin over 10%. Looking ahead to the second half of fiscal year 2021, we are focused on stressing we have competitive advantages with the rapid development of our platform model. Additional resources being deployed towards the platform continued out of our growth strategy. Further, the diversification of our business, and finally, improvements in operating efficiency and profitability. We are very confident that we can make that competitively.

[Jacky Wang:]

Thank you, Mr. Sun, and hello, everyone. In the second quarter of fiscal year 2021, we further grew our platform model with services revenue growing 84% year-over-year, demonstrating a well-executed quarter. Services revenue as a percentage of total net revenue further increased to 48% from 41% in the previous fiscal quarter, and 24% in the same quarter of last fiscal year. Moreover, we also further narrowed our net loss attributable to Ruhnn by 38% year-over-year. The good performance in our platform model enables our continued investment in this segment, underpins our future growth and will ultimately deliver strong profitability. Now, let's move to detailed financial performance for the second quarter of fiscal year 2021. Total net revenue was RMB 248.5 million, a decrease of RMB 24.2 million, or 9% from RMB 272.7 million for the same quarter of last fiscal year, which was mainly due to the decline in product sales revenue through the full sales model, partially offset by the significant increase in services revenue through the platform model.

[Operator:]

Ladies and gentlemen, we will now begin the question-and-answer session Your first question comes from the line of Vicky Wei of Citi. Please ask your question.

[Vicky Wei:]

Good evening, management. Thanks for taking my question. My question is about the single sale performance and e-commerce live streaming. So would management provide some color about the Taobao store's performance during the Singles' Day shopping festival? And for live streaming e-commerce, does management notice any new trend in this year's Singles' Day, let's say, in terms of competition, user behavior, as compared to last year? Thank you.

[Jacky Wang:]

Okay. Thank you, Vicky. This is Jacky. Let me take your question. Overall, talking about the Taobao 11 event, our performance was in line with our expectation and total service revenue is expected to be over 70% year-over-year increase. Well, we were talking about the online stores, our own online stores, and under the full-service model, we continue to feel pressure on that. And if you look at the product sales revenue, we believe, will be expected to decrease as compared to prior year. Talk about the difference or changes in trend in the e-commerce live streaming in the current year as compared to prior, I might want to focus on the live streaming under our platform model. Several points to share. First one, we could feel, during the current year, consumers or customers are more used to live streaming. In the prior year – for example, in prior year, maybe a majority – a lot of consumers, maybe it's their first time to utilize the live streaming to buy products, so they might actually compare the price of the products bought through the live streaming as compared to other channels. They compare the price. But in the current year, they got the idea. Yes, the products bought from the live streaming will be much cheaper. So that's their – they're kind of used to the live streaming. They feel comfortable to buy products through live streaming. And second, there are multiple platforms in the live streaming. Take Ruhnn, as an example. Live streaming from other platforms, I mean, in addition to the major one, the Taobao platform, are increasing, including Kuaishou, Douyin and Xiaohongshu, they are all increasing. I mean, they are focusing on doing the e-commerce live streaming. Third, I will see the categories of the brand are expanding, I mean, from women's apparel to cosmetics, shoes, handbags, fast-moving consumer products, food, electric appliances. And the new domestic brand -- new brands are playing a more and more important role. Fourth, I want to mention that, we feel the brands are more rational in dealing with the live streaming. In prior years, we might think, okay, that's the first time to do that. They don't really care probably. But in current year, they are switching there both on a strategy that combining both quality and efficiency, it means we care about the product sales volume. But meanwhile, they also care about to establish a good brand image, while -- I mean, mitigates the impact from a lower price promotion during the e-commerce live streaming. I think that's the point I want to share. I hope I answered your question. Thank you.

[Operator:]

Your next question comes from the line of Corrine Hu of UBS. Please ask your question.

[Corrine Hu:]

I will translate myself. My first question is about, for next one or two quarters, how is your target of e-commerce live streaming's revenue share? And could you elaborate more about the assumptions and the key drivers behind? Second is industry. Could your management give more color on e-commerce live streaming industry's dynamics like the relationship among MCN platforms and merchants? Will all of them be profiting in the long run? And how should we think about the change of their bargaining powers? Thanks.

[Min Feng:]

Thank you for your questions. I am Feng Min. Let me answer your questions. We anticipate that the percentage from e-commerce live streaming will continue to increase. And in the next one to two quarters, that percentage will be around 13% as compared to the total service revenue. In order to realize this target, expansion will depend on the following view of factors

[Operator:]

Your next question comes from the line of Lingyi Zhao of SWS. Please ask your question.

[Lingyi Zhao:]

Hi, management team. This is Lingyi from SWS Research. The live streaming industry has seen a period of rapid growth and has a threat -- has problems such as data evaporation. And recently, the regulatory authority has also criticized from KOLs by name. And my question is, as one of the most important players in the industry, how do you view the industry in the future and the impact of corresponding regulations on it?

[Min Feng:]

Thank you for your question. I am Feng Min. Let me answer your question. For product selection process, Ruhnn is committed to bringing the best products and the best services to our consumers. We have a selection team of nearly 100 persons and we refuse any product in low quality without certificates or documents to enter into the KOL product pool. All the products must provide certificates, registration certificates, brand merchandise certificates, as well as the sales authorization certificate et cetera. After a very strict screening in the early stage our KOLs will conduct product selection again by themselves. They will personally try out the products, give very strict supervise and control the quality. We also have a professional customer service team helping to coordinate between consumers and merchants, urge merchant to provide solutions to consumers. Ruhnn will evaluate and select our KOLs from the aspects of their professionalism, personal value, to add tolerance et cetera. We also provide our KOLs with all necessary training and require them to follow all relevant laws and regulations from the government or administration, and ask them to abide by the normal social order, and deliver more positive energy to our supplies. Just recently, we are working with the administration for market regulation of province to launch the green live streaming in China, to promote a strict selection of quality products and operation and regulated industry standards. We actively support all the relevant laws and regulations in the e-commerce live streaming sector from the administration. And we'll cooperate with other large players in the sector for healthy and orderly development of the e-commerce live streaming industry. Thank you.

[Sterling Song:]

Operator?

[Operator:]

As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.

[Sterling Song:]

Thank you, operator. Thank you everyone. Thank you again for joining us today. And if you have any further questions, please feel free to contact the company's Investor Relations department through the contact information provided on our website, or our IR from TPG, Investor Relations. Thank you everyone. Thank you, operator. Thank you. Bye.

[Operator:]

This concludes this conference call.