Secoo Holding Limited
Q4 2017 Earnings Call Transcript

Published: 22 Mar 2018

[Operator:]

Hello ladies and gentlemen. Thank you for standing by for Secoo Holding Limited's Fourth Quarter and Full-Year 2017 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 Secoo Holding. Please go ahead, Jingbo.

[Jingbo Ma:]

Hello everyone and welcome to the fourth quarter and full year 2017 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 measures. Secoo's press release contains a reconciliation of the unaudited non-GAAP measure to the audited most directly comparable GAAP measures. I will now turn the call over to our CEO, Richard Li. Please go ahead.

[Richard Rixue Li:]

Hello everyone and thank you for joining our 2017 fourth quarter and 2017 full year earnings conference call today. 2017 was a landmark year since Secoo's establishment nine years ago. During the year we successfully listed on the NASDAQ global market, fully upgraded our online and offline channels, developed collaboration with more luxury brands and strengthened Secoo's leading position in high matched out [ph] capital. Our total sales continue to grow significantly in the fourth quarter of 2017. During the quarter, our GMV reached RMB 1.94 billion, up 43.9% from the same period of last year. In addition to the solid growth in our traditional deep main segments, mainly the handbags and the watches, we also saw an exceptional growth performance in clothing, footwear, sportswear and cosmetic products. Our strong sales growth in the fourth quarter reflect the remarkable results from our large scale promotion events such as the Double 11, Black Friday, and our signature 1217 Global Luxury Festival. In particular during our 1217 Global Luxury Festival, we recorded substantial increase in new registered customers and also the number of orders placed by the new customer compared to last year. We also launched a new presale function for our 1217 event which effectively attracted more customers and managed our inventories more efficiently in the same time. Utilizing various theme recommendations we were able to provide effective guidance towards the customers' purchases. In the fourth quarter of 2017 we continued to expand our break off rate with 18 new brands including 10 international brands, 33 apparel and accessory brands, 11 home lifestyle brands and 6 liquor brands. Notably, major international brands such as Corto Moltedo, [indiscernible] and House of Fraser are introduced for the time on China's online platform and we are very pleased to be the exclusive partner of Corto Moltedo in China. Additionally, top-tier global brands such as Armani and Versace Casa also launched their flagship stores on the Secoo platform. In 2017, Secoo's international website was officially launched which marked a critical step towards Secoo's global strategy to serve the Chinese overseas by exporting the [indiscernible] products and brands from chain helping China a lot with traditional Chinese culture. Building increasing demand for high quality products and services driven by consumption upgrade in China, Secoo is committed to serve our high-end customers with extensive and superior merchandise and lifestyle portfolios. In the fourth quarter Secoo expanded and upgraded a lifestyle channel catering to a premium lifestyle. We set up segments such as the Secoo Life, Secoo Fine Craft, Secoo Art, Secoo [indiscernible] Culture and Secoo Finance. As of today, our lifestyle channel covers high-end travel, premium lifestyle, education, wellness and up scaling events. We have signed collaboration agreement with 22 high-end tourism and travel partners, 12 wellness and education service providers, and 21 premium lifestyle partners. We believe the upgrades of Secoo Lifestyle channel will significantly expand our products and services selection and further increase the customer stickiness and purchases frequency, as well as generating more cross-selling opportunities. Based on our original plan we have four offline experience centers in Qingdao, Hangzhou, Changsha and Tianjin during the fourth quarter of 2017. Our Xiamen experience center was opened on January 28, 2018 and Beijing Wangfujing Central pop up store was opened on February 9, 2018. As of today we have 10 offline experience centers or theme stores in China. In the future we will continue to collaborate with our external partners to open more new experience centers in China and obviously aiming to provide better service to our customers and to promote our brand worldwide. Being the largest upscale lifestyle platform in Asia, Secoo focuses for expanding the omni-channels, following the strategy cooperation what Chinese state giant country guided in the development of offline experience centers. In January of this year, we formed a strategic alliance with the world renowned department stores Parkson Group to drive the omni-channel sales services land work, where we are able to exchange the membership and pick data aiming to build an integrated retail model. So far, Parkson cosmetic products are now available in Secoo’s offline centers and also the online shopping malls, which further enhanced capacity of our beauty and cosmetic products line. Furthermore, we teamed up with Parkson to create Goddess Day at the beginning of March together [indiscernible] customers that are keen on upscale products, which includes cosmetics, handbags, footwear, accessories, jewellery and other categories. We're delighted that the event achieved excellent results in sales and market reaction. Secoo firmly believes that, there is a huge potential demand for high-end lifestyle in the offline market. In March of this year we allowed our collaboration with the world renowned beverage group, Pernod Ricard, which we bought our entrance into the liquor and bar industry by rebuilding our own brand 24/7 by Secoo, a signature ready-to-drink cocktail. Looking forward, we plan to open high end bars across the nation. We aim to extend our access to new customer channels by constantly enriching our offline lifestyles and experience product selection. In December 2017, Secoo teamed up with Tencent and Deloitte Consulting, leveraging Secoo and Tencent spectator and Deloitte’s market research analysis advantages. We conduct an in-depth analysis of online consumption behaviors of high-end Chinese users and jointly published 2017 Chinese Luxury E-Commerce Whitebook which provides high-value data insight for the industry and further enhance Secoo’s influence among our industry peers and consumers. So amidst the growing demand of Chinese consumers desiring for the finest products in lifestyle we strive to connect with key opinion leaders in combining with high-end products and industry resources. As a result we established the cruiser [ph] project. Cruisers [ph] are experts and key opinion leaders from around the world who bring special enthusiasm and unique understanding, expertise and opinions in specialized areas. This is a group of people who understand the events of lifestyle and have the ability to attract a large number of fans and followers. Secoo has been cooperating with many cruisers [ph] around the world. We will exert our unique material influence together in areas such as opinion leadership, precise marketing and consumption trends. In terms of integrated brand marketing, we have launched advertising collaborations with major brands such as Mercedes-Benz, BMW, and Singapore Airlines. We have also initiated our emerging business of enabling Eco Cloud following our 2017 Chinese Luxury E-Commerce Whitebook. We will further expand our collaboration with Tencent in this area. In summary, Secoo is actively progressed in line with our business strategy during the past year. We have great confidence in the growth potential of the Chinese Luxury consumer market. Looking forward to 2018, Secoo is committed to provide more diversified product selections and a great variety of product recommendation for our global customers. In the same time, we will continue to improve our brand collaborations, supply chain and global warehouse logistics, enhancing our typical [ph] driving ability, actively increasing our offline experience centers and push forward our global expansion strategy. As I like to say, Secoo will work hard to fulfil our mission which is devoted to you. 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:]

Thank you, Richard and Eric and hello everyone. I’m delighted to continue to achieve strong financial performance in the fourth quarter and full-year 2017 with solid growth trends and sustained profitability. During the fourth quarter of 2017, we recorded net revenue of RMB 1.41 billion representing a 58.5% [ph] year-over-year revenue growth from the same period in 2016. Our net income for the first quarter of 2017 was RMB 46.96 million up 74.1% compared with the same period in 2016. The growth of our net income was primarily due to our continuous efforts to increase our revenue improving our margins and effectively implementing cost control measures. Since the third quarter of 2016 we have been delivering net income for six consecutive quarters. We believe that our continuous strong performance is a testament to the strength of our business as we remain confident in delivering strong operational and financial results for the coming quarters. Now I’d like to walk you through our detailed financial results in the first quarter of 2017. Our GMV increased by 43.9% to RMB1.94 billion for the fourth quarter of 2017 from RMB1.35 billion for the four quarter of 2016. Total number of orders increased by 57.6% to 549,000 for the four quarter of 2017 from 349,000 for the fourth quarter of 2016. Total net revenue for the fourth quarter of 2017 increased by 16.5% to RMB1.41 billion from RMB888 million in the first quarter of 2016 primarily driven by a increase in the total number of orders and merchandise sales. Cost of revenue increased by 59.9% to RMB1.19 billion for the fourth quarter of 2017 from RMB750 million for the fourth quarter of 2016 primarily attributable to the growth of our merchandise sales. Our operating expense increased by 111.7% to RMB210 million for the fourth quarter of 2017 from RMB97.7 million for the fourth quarter of 2016. Our fulfillment expense increased by 83.8% to RMB37.5 million for the fourth quarter of 2017 from RMB28.4 million for the fourth quarter of 2016. The increase was primarily attributable to the increase in total numbers of orders and sales transactions which drove our delivery expenses, storage and third-party payment commissions to increase. Our marketing expense increased by 110.9% to RMB98.3 million for the fourth quarter of 2017 from RMB46.6 million for the fourth quarter of 2016. The increase was primarily due to the increase in our online and offline marketing expenses as well as staff compensation benefits expenses. Technology and content development expenses increased by 79% to RMB18.8 million for the fourth quarter of 2017 from RMB10.5 million for the fourth quarter of 2016. The increase was primarily due to the increase in compensation paid to our staff. Our general and administrative expenses increased by 157.1% to RMB52.2 million for the fourth quarter of 2017 from RMB20.3 million for the fourth quarter of 2016. The increase was primarily attributable to the increase in staff compensation, office expenses, and professional consulting expenses. We recorded our net income of RMB46.96 million for the fourth quarter of 2017 at 74.1% from a net income of RMB26.96 million for the fourth quarter of 2016. Our non-GAAP net income increased by 224.1% to RMB87.5 million in the fourth quarter of 2017 from RMB26.97 million in the fourth quarter of 2016. Let’s look at our net income per ADS. Basic and diluted net income per ADS was RMB0.92 and RMB0.88 respectively. For the fourth quarter of 2017 compared with basic and diluted net loss per ADS of RMB9.85 for the fourth quarter of 2016. Basic and diluted non-GAAP net income per ADS was RMB1.71 and RMB1.64 respectively. For the fourth quarter of 2017 compared with basic and diluted non-GAAP net income per ADS of RMB1.80 and RMB0.64 respectively for the fourth quarter of 2016. As of December 31, 2017 we have cash, cash equivalents and restricted cash of RMB928 million compared with RMB211.3 million as of December 31, 2016. The increase was primarily due to the net proceeds from RMB874.9 million raised in our initial public offering in September 2017. To be mindful on the length of our earnings call for the full year 2017 financial results, I will encourage listeners to refer to our earnings press release for further details. As we stated during our last earnings call, our business is affected by seasonality. Q3 and Q4 are usually the strong quarters, while Q1 and Q2 are relatively weaker. For the first quarter of 2018 we currently expect total net revenue to be between RMB760 million and RMB775 million which would represent an increase of 35% to 38% compared with the first quarter of 2017. The above guidance is based on current market conditions and reflects the company's current and preliminary estimates of markets and operating conditions and customers demand which are all subject to change. This concluded our prepared remarks. We will now open the call to questions. Operator, please go ahead.

[Operator:]

[Operator Instructions] Our first question comes from the line of Nelson Chung of Jefferies. Please ask your question.

[Unidentified Analyst:]

Thank you for taking my question and congratulations management for announcement [indiscernible] quarter and on behalf of Jefferies analyst, Karen Chan, I have two questions. My first question is, can management give us some color on the breakdown on of customer acquisition cost within the sales and marketing expense? And my second question is, can management give us an update on GMV mix by categories mix between watches, bags and others including apparel, shoes, and accessories?

[Richard Rixue Li:]

So your first question is about customer acquisition cost. The customer acquisition cost in the year 2017 is around RMB330 [ph] which is lower than RMB380 of 2016. It is mainly because we used coupon and discount to do the promotion activities in Q4.

[Shaojun Chen:]

As to the category GMV breakdown, watches in year 2017 takes 25% which decreased 8% compared with the year 2016 and that takes 23% which decreased 4% compared to the year 2016. And apparels, footwear and accessories takes 26.4% which is 10.06% increase compared with the year 2016, that has been the main categories.

[Unidentified Analyst:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] As there are no further questions now, I would like to turn the call back over to the company.

[Jingbo Ma:]

Thank you once again for joining us today. If you have any 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:]

This concludes today’s conference call. You may now disconnect your lines. Thank you.