Secoo Holding Limited
Q2 2020 Earnings Call Transcript

Published: 3 Sep 2020

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for Secoo Holding Limited's Second Quarter 2020 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Ms. Jingbo Ma, Board Secretary of the company. Please go ahead, Jingbo.

[Jingbo Ma:]

Hello, everyone, and welcome to the Second Quarter 2020 Earnings Conference Call of Secoo Holding Limited. The company's results were issued via Newswire services earlier today and have been posted online. You can download the earnings press release and sign up to the company's e-mail alerts by visiting the IR section of our website at ir.secoo.com. Mr. Richard Li, our Founder, Chairman and the Chief Executive Officer; and Mr. Shaojun Chen, our Chief Financial Officer, will start the call with their prepared remarks, followed by a question-and-answer session. Before we continue, please note that today's discussion 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 results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in the company's registration statement on Form F-1 and Form 20-F as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that Secoo's earnings press release and this conference call includes discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Secoo's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the audited most directly comparable GAAP measures. I will now turn the call over to our Chairman and CEO, Mr. Richard Li. Please go ahead.

[Richard Li:]

Hello, everyone and thank you for joining us today. In the second quarter of 2020, we continued to deliver healthy operational and financial results with GMV of RMB3.632 million, up 12.1% year-over-year despite the ongoing effects of the COVID-19 pandemic across the globe; our long-term growth drivers remain intact. And the execution of our strategies remains on track. Bolstered by our well-placed globalize supply chain, they continue to elevate our relations with top brands and build our ties with high quality suppliers and strategic partners worldwide; as our go-to luxury platform in China, we are committed to reaching and expanding high end premium quality product and services offering. At the same, we are strengthening our operational capabilities which are powered by intelligence technology. All these efforts are allowing us to further optimize the luxury shopping experience on Secoo’s platform, which in turn can further increase our user retention rate. In our effort to curate the product portfolio and broaden the brand collaboration, we continue to step up our core platform capability and the strength in the upscale retail sector. Since the beginning of the second quarter to date, they have secured direct corporation partnership with a total of 148 brands. All the top brands in collaborations with Secoo continued to sign up with Secoo in order to gain access to the enormous consumer demand for luxurious goods in China during the global pandemic. With a clear strategic focus on priority operations on a number of key brands and the strengthening of our influence in the luxury fashion space; we have been deepening our cooperation with the top luxurious brands by cooperating in more creative promotional event. Just to name a few in April, we joined hands with Miu Miu to launch Brand Week marketing campaigns which created gorgeous moment and Giuseppe's meaningful increase of sales of the brand seasonal group. In May, Secoo entered Paris, classic footwear brand Roger Vivier jointly launched a love-themed promotional event during which the brand's average daily GMV posted threefold increase year-over-year and average spending per customers past RMB7,000. In addition, as encouraged by the positive results from Secoo hosted live streams in-store shopping fashion in April, Milan luxurious footwear brand, Giuseppe Zanotti, teamed up Secoo once again to launch the Italian Summer Brand Week marketing campaign which fueled 425% year-over-year increase of sales during the week. Building our successful momentum of the July 2018 sales campaign, we successively kick off our anniversary campaign for the 12th consecutive year as we focus on bolstering our membership. This year's anniversary campaign featured a series of promotion event centered on top of growth brands in partnership with Secoo coupled this technology driven target marketing approach and compelling the promotional tactic to reactivate the registered members. This shopping festival attracted a large number of loyal customers to conduct repeated purchase. During anniversary campaign, overall sales of Top 10 luxurious brands on Secoo platform increased by 57.8% year-over-year, thus average price per order up 44.8% year-over-year, notably the sales of Chanel, Miu, Hermes, LV and Bulgari, through this anniversary campaign all increased more than 100% compared to the year ago period. As Asia's leading premium platform, we remain engaged in our diversified strategy aiming to curate a comprehensive section of transacting luxurious manufacturers, providers, distributors and influencers from all over the world so as to tap into to more potential high end consumers. Recently, Artemest, e-commerce platform specializing in handmade product that crafted by the exceptional artisans in Italy, opened its official online flagship store on Secoo which further extend our high end premium lifestyle offering. The Artemest feature a network of more than 100 independent Italian craftsmen and designers who provide extensive product offerings spanning customizable luxurious furniture, home décor, lifestyle products, and jewelry and have seen a broad presence in Europe and the US while Asia is emerging as its second major business region. Through several quarters of operations in live streaming business, we have seen that this type of sales channel presentation has become more likely recognized in the gross retail, benefiting from the active interaction, higher authenticity and real time feedback that enable or to greatly engage customers in superior distancing shopping experience. In the second quarter, we will further optimize our stream ecosystem and extended the collaboration with the most popular social networking platform such as Kuaishou and Douyin, reinforcing our leading position in the luxurious e-commerce market based industry. Underpinned by our valuable live streaming programs such as live stream in-store shopping worldwide, 24-hour live studio, the global duty free product live stream and rent authorized live streaming room, we went extra mile to drive the economy growth through the live streaming channel. The economy is on the rise, as backed by Secoo's big data analytics that indicate a growing demand by male consumer for luxurious goods. This is also echoed by the fact that proportion of male members shopping Secoo platform has been increasing year by year especially in those geographic areas with the strongest purchasing power mainly Beijing, Shanghai, Guangzhou and Shenzhen, and etc. We've also seen a marked Secoo live stream driven orders that the proportion of the male customers placing orders in watch, garment, sports, skin care product, the suitware, bags increased this considerable GMV. We are striving for elevating the intelligent operation infrastructure in effort to deploying our capability in AI big data and cloud computing in the spirit of uplifting the user experience, Secoo sustained in technology innovation and upgrades in order to improve the customer satisfaction and enhanced the upgrading efficiency across our platform. For instance, we have been deploying more functions to facilitate the video merchandising, which effectively stimulate the interest and intends customers to make more purchase. Additionally, supported by the standard customer classification and the consolidation of products and descriptions, we optimize the product discovery experience when it comes to multiple vendors starting the same product. Looking ahead, leveraging our strength in technology, Secoo will build out more efficient and effective target marketing platform to establish ecosystem to support the sustainable growth for our suppliers, business partners and high end customers. This consumers activities and the business operation retain to a more normal routine in China, we believe a solid infrastructure built on the supply chain, key brands, new initiative, AI-powered technology deployment and customer engagement capability in addition for our strategy focus on increasing elevate our value proposition and the go-to luxurious platform to Chinese consumers will have us well equipped to attract more high end brands to our platform along with broader section of new and limited additional offerings, further increasing the customer needs and ultimately capture the tremendous opportunities in the luxurious e-commerce industry. With that I'll now turn the call over to our CFO, Mr. Shaojun Chen who will discuss our key operating metrics and financial results.

[Shaojun Chen:]

Thank you, Richard and hello, everyone. During the second quarter, the ongoing global economic impacts of COVID-19 negatively affected demand in high-end discretionary spending. We remained nimble in our sales and marketing strategy which bolstered our growth momentum in both GMV and total number of orders. However, due to lower efficiency in logistics globally and domestically during the global pandemic, revenue posted year-over-year decline in the second quarter. Encouragingly, we regained sequential positive operating profit and efficiency, which was mainly attributable to effective cost control and ultimately demonstrated our ability to navigate the dynamic market and drive profitable growth. The performance in this quarter makes us remain confident that we are on to the right tract to achieve our long-term corporate goals and maximize shareholder value. Now I'd like to walk you through our detail financial results in the second quarter of 2020. GMV increased by 12.1% to approximately RMB3.63 billion for the second quarter of 2020, from RMB3.24 billion for the second quarter of 2019. Total number of orders increased by 7.7% to 1,028 thousand for the second quarter of 2020 from 955 thousand for the second quarter of 2019. Total revenues for the second quarter of 2020 was approximately RMB1.31 billion compared with RMB1.71 billion in the second quarter of 2019, primarily attributable to a slowdown in demand of discretionary spending and delayed logistics services due to the impact of COVID-19 pandemic. Cost of revenues decreased by 21% to approximately RMB1.1 billion for the second quarter of 2020 from RMB1.35 billion for the second quarter of 2019, primarily due to the decrease of total revenues. Gross profit was approximately RMB210 million for the second quarter of 2020, compared with RMB324 million for the second quarter of 2019. This decrease was mainly due to the decrease of total revenues and the increase in discount on sales to boost customers’ willingness to purchase during the pandemic. Operating expenses decreased by 35% to RMB178 million for the second quarter of 2020 from RMB274 million for the second quarter of 2019. Our fulfillment expenses decreased by 9.1% to RMB41.1 million for the second quarter of 2020 from RMB45.2 million for the second quarter of 2019. The decrease was primarily attributable to the decreased freight and staff cost during the period. Our marketing expenses decreased by 55% to RMB68.2 million for the second quarter of 2020 from RMB152 million for the second quarter of 2019, primarily due to reduced online and offline advertising expenses, as well as the decreased staff cost. Technology and content development expenses increased by 7.6% to RMB27 million for the second quarter of 2020 from RMB25.1 million for the second quarter of 2019. The increase was primarily due to the continuous investment in the technology department in order to strengthen the driving force of technology for operation. General and administrative expenses decreased by 20% to RMB41.5 million for the second quarter of 2020 from RMB51.9 million for the second quarter of 2019. The decrease was primarily attributable to the decreased staff cost during the period, offset by the rising office rental expenses. Income from operations was RMB31.9 million for the second quarter of 2020, compared with RMB50.2 million for the second quarter of 2019. Non-GAAP income from operations, which excludes share based compensation expenses, for the second quarter of 2020 was RMB33.3 million compared with RMB53.1 million for the second quarter of 2019. Income tax benefit was RMB0.1 million in the second quarter of 2020, compared with income tax expense of RMB3.3 million for the second quarter of 2019. We record net income of RMB5.9 million for the second quarter of 2020, compared with a net income of RMB40.1 million for the second quarter of 2019. Non-GAAP net income, which excludes share-based compensation expenses for the second quarter of 2020 was RMB7.4 million, compared with RMB43 million in the second quarter of 2019. As of June 30, 2020, the Company had cash, cash equivalents and restricted cash of RMB1.2 billion. This concludes our prepared remarks. We will now open the call for questions. Operator, please go ahead.

[Operator:]

[Operator Instructions]

[Operator:]

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

[Jingbo Ma:]

Thank you once again for joining us today. If you have further questions, please feel free to contact Secoo's Investor Relations through the contact information provided on our website of The Piacente Group Investor Relations, whose information is also on our website.

[Operator:]

This concludes the conference call. You may now disconnect your lines. Thank you.