Secoo Holding Limited
Q1 2018 Earnings Call Transcript

Published: 19 Jun 2018

[Operator:]

Hello ladies and gentlemen. Thank you for standing by for Secoo Holding Limited's First 2018 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks there will be a question-and-answer session. 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 Ma:]

Hello everyone and welcome to the first quarter 2018 earnings conference call of Secoo Holding Limited. The company's results were issued via newswire services earlier today and are posted online. You can download it, the earnings press release at the company's distribution list by visiting the IR section of its website at ir.secoo.com. Mr. Richard Li, our Founder, Chairman, and Chief Executive Officer; Mr. Eric Chan, our Chief Operating 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 these and other risks and uncertainties is included in the company's prospectus 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 an audited non-GAAP financial measure. Secoo's 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 CEO, Richard Li. Please go ahead.

[Richard Li:]

[Foreign Language]. Hello everyone and thank you for joining our 2018 first quarter earnings conference call. [Foreign Language]. We are happy to take off 2018 on a very [indiscernible] with yearly growth of 43.2% and revenue growth of [43.3%] on a year-over-year basis [exiting] our guidance. The growth momentum has referred to the robust market environment in which we have the operating in. This [indiscernible] of our business [global] and strategy as well as our market disposition. [Foreign Language]. Recently, we officially launched and upgraded our service revenue with a [indiscernible] aiming at premium lifestyle comfort and focus on building in premium lifestyle platform that serves 20 million of our high-end purchases customers. We aim to further integrate our expenses online and offline capabilities to provide a wider range of high quality lifestyle services and product offering. [Foreign Language]. During the first quarter we continue to expand our luxury brand adding direct collaborations with 83 major brands, these include some international brands as Canali, Philipp Plein and Versace Porcelain. We believe our efforts is to generate lot of success and provide high quality aftersales customer service that help us to attract certain international brands to establish expenses for our customers and expand strong relationships with our existing brand offerings. [Foreign Language].

[Operator:]

Ladies and gentlemen, we are currently experiencing some technical difficulties. Please be online. Please standby while we address the situation. Your lines will be placed on music hold until the conference resumes. Thank you for your patience.

[Richard Li:]

Hello?

[Operator:]

Thank you. Please continue, sir.

[Richard Li:]

[Foreign Language]. Building on our comprehensive global supply system, we continued to expand collaboration with leading premium fashion brands. Notably, during the latest Shanghai International Fashion Week in March, Secoo formed strategic partnership with Top 100 Global Designers Alliance and renowned fashion show host, Ontimeshow. Currently more than 300 indie designers associated with Top 100 and Ontimeshow have either opened or planning to open their online stores in Secoo’s designer channel. We also recently [allowed] a collaboration with well-known Hong Kong office Edison Chen, fashion brand called Emotionally Unavailable to joint launch co-brand limited-edition that are designed by Edison Chen himself and exclusively debut on our platform in July to celebrate Secoo’s 10th anniversary. [Foreign Language] Furthermore, to continue the expansion of our lifestyle product portfolio, Secoo joined hands with the successful organic brand Chu Orange to offer the high quality organic products to our customers directly from Chu Orange. This cooperation marked Secoo’s first expansion into the agriculture sector aligned with 4 quality criteria that Secoo advocates which are product origin, limited production, organic, and premium quality. Secoo also continued to track growing opportunities in high-end proper market. In April, we established a partner with Sri Lanka National Tourism Development Authority to jointly launch Love in Sri Lanka customized last year e-commerce products. In addition, we ended into a strategic partnership with the well-known Chinese travel group Caissa Travel. Through this partnership, Secoo and Caissa will leverage respective resource and expertise to address the increasing demand for high-end tourism in China. We dedicate to serve our customers with premium quality products and service by expanding into these new sectors. [Foreign Language]. As Asia’s largest upscale lifestyle platform, Secoo devotes to offer first class merchandize and lifestyle portfolios to our high-end customers through online and offline operations at all levels. Following our alliance with the world-renowned department store operator, Edison Group we formed another strategic partnership with China leading outlets mall operator called Capital Outlets to integrate both parties' online and offline sales service network and to expand Secoo's new retail coverage. [Foreign Language]. Since we upgraded our membership scheme by adding paid membership service in the second quarter of 2017, our premium active customers including the paid members have reached 250,000 as of the end of the first quarter of 2018, representing a significant increase of 243.6% from the same period in 2017. Also, our premium customer purchase frequently was almost twice higher than that of our ordinary member in the first quarter of 2018. That being said, our new membership scheme effectively improved the loyalty of our members. We intend to continuously optimize our premium membership scheme. [Foreign Language]. Recently, we launched our one-stop Butler Service which we provide delivery service, via a luxury car for our VIP in select cites and exclusively premium customization service for our customers covering their personal shopping, gift selection, gourmet food and wine recommendation, high end travel products, luxury product maintenance and other premium services. [Foreign Language]. As for our technology perspective, Secoo signed a strategic agreement in connection with smart retail, with Tencent Cloud in the first quarter of 2018. The agreement will allow both sides to explore deeper cooperations in terms of smart retail store, cloud-based computing and Big Data. [Foreign Language]. In summary, the first quarter of 2018 was a fruitful quarter for Secoo as we successfully continued our business strategy, further expanding into China's robust luxury consumer market and a huge demand. With upmost attention to the diversity and quality of the product and services that we offer to our customers, we are confident that we are well positioned to capture emerging opportunities driven by consumption upgrades in China and create value both to our customers and investors. [Foreign Language]. With that, I will now turn the call over to our CFO, Mr. Shaojun Chen, who will discuss our key operating metrics and financial results.

[Shaojun Chen:]

[Foreign Language]. Thank you, Richard and Alex. And hello everyone. [Foreign Language]. We are delighted to continue having strong financial performance in the first quarter 2018, with solid growth trends and sustained profitability. During the first quarter, we recorded 42.8% year-over-year revenue growth from the same period in 2017 and delivered net profit for the seventh consecutive quarters with 46.8% year-over-year increase in non-GAAP net income. [Foreign Language] As we discussed in prior quarters, our business trend to be affected by seasonality. Q3 and Q4 really performed better, while Q1 and Q2 are relatively weaker. As for the first quarter of 2018, sales were relatively slow largely due to Chinese New Year Holiday. [Foreign Language] Now, I’d like to walk you through our detailed financial results in the first quarter of 2018. [Foreign Language] GMV increased by 43.2% to RMB1,120 million for the first quarter of 2018 from RMB780 million for the same period of last year. [Foreign Language] Total number of orders increased by 45.3% to 306,000 for the first quarter of 2018 from 211,000 for the first quarter of 2017. [Foreign Language] Total net revenue for the first quarter of 2018 increased by 42.8% to RMB803 million from RMB562 million in the first quarter of 2017 primarily driven by an increase in the total number of orders as well as stabilize the average order side. [Foreign Language] Cost of revenue increased by 44.2% to RMB671 million for the first quarter of 2018 from RMB465 million for the first quarter of 2017 which is in line with the increased of total net revenue and GMV. [Foreign Language]. Gross profit increased by 36.2% to RMB132 million for the first quarter of 2018 from RMB96.8 million for the first quarter of 2017. [Foreign Language]. Operating expenses increased by 48.8% to RMB108 million for the first quarter of 2018 from RMB72.9 million for the first quarter of 2017. [Foreign Language]. Our procurement expenses increased by 73.2% to RMB26.5 million for the first quarter of 2018 from RMB15.3 million for the first quarter of 2017. The increase was primarily attributable to the increase of sales volume which results in the increase in delivery expenses, packaging and third-party payment conditions. We will continue to improve our packaging service and customer experience on ongoing basis. [Foreign Language]. Our marketing expense increased by 69.5% to RMB57.3 million for the first quarter of 2018 from RMB33.8 million for the first quarter of 2017. The increase was primarily due to increase in our marketing and promotions as well as staff compensations and branded expenses. [Foreign Language]. Technology and content development expenses increased by 58% to RMB17.7 million for the first quarter of 2018 from RMB11.3 million for the first quarter of 2017. The increase was generally due to our continuous investment into technology development as well as increase in staff compensation expenses. [Foreign Language]. Our general and administrative expense decreased by 44% to RMB7 million for the first quarter of 2018, from RMB12.5 million for the first quarter of 2017. The decrease was primarily attributable to the recovery of bad debt expenses. [Foreign Language]. Our operating income for the first quarter of 2018 was RMB23.2 million representing a 3.5% decrease from RMB23.9 million for the first quarter of 2017. [Foreign Language]. Non-GAAP operating income, which excludes share-based compensation expenses increased by 33.5% to RMB31.9 million for the first quarter of 2018 from RMB23.9 million for the first quarter of 2017. [Foreign Language]. We recorded income tax expenses of RMB10.5 million in the first quarter of 2018 compared to nil for the first quarter of 2017. [Foreign Language]. We recorded a net income of RMB25.9 million for the first quarter of 2018 increased by 10.2% from a net income of RMB23.5 million for the first quarter of 2017. [Foreign Language] Non-GAAP net income, which excludes share-based compensation expenses increased by 46.8% to RMB34.5 million in the first quarter of 2018 from RMB23.5 million in the first quarter of 2017. [Foreign Language] Net income attributable to ordinary shareholders of Secoo Holding Limited for the first quarter of 2018 was RMB25.7 million compared to net loss attributable to ordinary shareholders of Secoo Holding Limited of RMB252.8 million for the first quarter of 2017. [Foreign Language] Basic and diluted net income per ADS was RMB0.51 and RMB0.49, respectively, for the first quarter of 2018, compared to basic and diluted net loss per ADS of RMB16.85 for the first quarter of 2017. [Foreign Language] Basic and diluted non-GAAP net income per ADS was RMB0.68 and RMB0.65, respectively. For the first quarter of 2018, compared to basic and diluted non-GAAP net income per ADS of RMB1.57 and RMB0.56, respectively for the first quarter of 2017. [Foreign Language] As of March 31, 2018, the company had cash, cash deposits and restricted cash of RMB566 million, compared to RMB925 million as of December 31, 2017. [Foreign Language]. Now for the second quarter of 2018 we currently expect. [Foreign Language]. The company currently expects total net review for the second quarter of 2018 to be in the range of RMB1,100 million and RMB1,130 million which would represent an increase of approximately 40.2% to 44% on a year-over-year basis. [Foreign Language]. The guidance is based current market conditions and with that the company’s current and the preliminary estimate of market in the operating conditions and customer demand which are all subject to change. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

[Operator:]

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instruction]. Our first question comes from the line of [Nelson Chang] from Jefferies. Please ask your question.

[Unidentified Analyst:]

Thank you for taking my question and congratulations for a very strong set of results. And I have two questions; my first question is about the active customer growth because we see a very strong active customer growth in this quarter. So just wonder if management can give us a rough breakdown between the existing and new customers by this quarter and what about the customer potential risk in first quarter of 2018. And my second quarter is about the gross margin in this quarter because we get that the gross margin in this quarter is partially impacted by one-time discounts and also the stronger than expected new customer addition. So how should we think about the gross margin trend for the rest of the year? [Foreign Language].

[Eric Chan:]

This is Eric Chan and I will take the question one and our CFO will take the question number two. For the number of active customer, they have 162,000 in the first quarter of 2018 with a year-over-year growth of 57% out of which 50% were new customers and the rest were existing customers. And the second part is the quarterly retention rate that was 19%, which was the total number of existing customers was 430,000 in 2017. [Foreign Language].

[Shaojun Chen:]

As to the gross margin, in the first quarter of 2018 due to the impact of the new membership rewarding program, the gross margin is comparatively lower than the first quarter of 2017. In 2018, we do expect to yield increase 1 to 2% gross margin in that of more [direct risk] operations and adjustment of the product categories.

[Operator:]

Thank you. As there are no further questions. I'll now 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 or The Piacente Group Investor Relations.

[Operator:]

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.