Secoo Holding Limited (SECO) Q2 2020 Earnings Call Transcript

Secoo Holding Limited (NASDAQ: SECO) Q2 2020 earnings call dated Sep. 03, 2020

Corporate Participants:

Jingbo Ma — Investor Relations

Richard Rixue Li — Chairman of the Board & Chief Executive Officer

Shaojun Chen — Chief Financial Officer

Presentation:

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 — Investor Relations

Hello, everyone and welcome to the second quarter 2020 earnings conference call of Secoo Holding Limited. The Company’s results were issued via our 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 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 US 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 of Form F-1 and Form 20-F as filed with the US 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 unaudited most directly comparable GAAP measures.

I will now turn the call to our Chairman and CEO, Mr. Richard Li. Please go ahead.

Richard Rixue Li — Chairman of the Board & Chief Executive Officer

[Foreign Speech] Hello, everyone and thank you for joining us today.

[Foreign Speech] In the second quarter of 2020, we continue to deliver healthy operational and financial results with GMV of RMB3.632 billion up 12.1% year-over-year. Despite the ongoing impact of the COVID-19 pandemic across the globe, our long-term growth driver remains intact and the execution of our strategies remains on track. Bolstered by our well placed globalized supply chain, we continue to elevate our relations with top brands and build our ties with high quality suppliers and strategic partners worldwide. As a go-to luxury platform in China, we are committed to enriching and expanding high-end premium quality products and services offering. At the same time, we are strengthening our operational capability 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.

[Foreign Speech]

In our effort to curate the product portfolio and broaden the brand collaboration, we continue to step up our car platform capability and strength in the upscale retail sector. Since the beginning of the second quarter to-date, they have secured direct cooperation partnership with a total of 148 brands. All the top luxurious brand in collaboration with Secoo continue to sign up with Secoo in order to gain access to the enormous consumer demand for luxurious goods in China during the global pandemic.

[Foreign Speech]

With a clear strategic focus on pivoting our operations on a number of key brands and the strengthening or influence in the luxury fashion space, we have been determined our cooperations 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 campaign, which created gorgeous moments 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 three-fold increase year-over-year, and average spending per customers passed RMB7,000.

In addition, as encouraged by the positive results from Secoo hosted live stream in-store shopping session in April, Milan Luxurious footwear brand Giuseppe Zanotti teamed up with Secoo once again to launch the Italian Summer Brand Week marketing campaign which fueled 425% year-over-year increase of sales during the week.

[Foreign Speech]

Building on our successful momentum of June 18 sales campaign, the success of the kick-off of our anniversary campaign for the 12th consecutive years is the focus on bolstering our membership. This years’ anniversary campaign featured a series of promotional event centered on top luxurious brands in partnership with Secoo, coupled with technology-driven target marketing approach and compelling promotional tactics to activate the registered members. This shopping festival attracts a large member of loyal customers to conduct a repeated purchase. During the anniversary campaign, the overall sales of top 10 luxurious brands on Secoo platform increased by 57.8% year-over-year with average price for other up 44.8% year-over-year. Notably, the sales of Chanel, Miu, Hermes, LV and Bulgari through this anniversary campaign all increased more than a 100% compared with the year-ago period.

[Foreign Speech] As Asia’s leading premium lifestyle platform, we were mainly engaged in our diversified strategy, aiming to create a comprehensive fraction of trends that in luxurious manufacturers, providers, distributors and influencers from all over the world so as to tap into more potential, high-end consumers. Recently Artemest, e-commerce platforms specializing in handmade products that crafted by the exceptional artisans in Italy opened its official online flagship store on Secoo, which further expanded our high-end premium lifestyle offerings. The Artemest feature a network of more than 400 independent Italian craftsmen and designers who provide extensive product offerings spanning customizable luxurious furniture from home decor, 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.

[Foreign Speech]

Through several quarters of operations in this streaming business, they have seen that this type of sales channel presentation has become more likely recognized in the gross retail, benefiting from the active interactions, high authenticity and real-time feedback that enable to quickly engage customers in superior distancing shopping experience. In the second quarter, we served way further, optimized our live streaming 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 place industry. And they’re being led by our valuable live streaming programs such as live stream in-store shopping worldwide, 24-hour live studio. The global duty-free products are being streamed and brand-authorized live streaming room. We went extra mile to drive the key economy growth through the live streaming channel. Economy is on the rise as factored by Secoo’s big data analytics that indicate both joint demand by male consumers for luxurious goods. This is also echoed by the fact that the proportion of male members shopping on Secoo platform has been increased year by year, especially in lowest geographic areas with the purchasing power, mainly Beijing, Shanghai, Guangzhou and Shenzhen, and et cetera. We’ve also seen a Secoo live stream driven orders that the proportion of the male customers placing orders in watch, garment, the sports, skincare products, the footwear bags increased this consumable GMV.

[Foreign Speech]

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 video merchandising which effectively stimulate the interest and enhance the customer to make more purchase. Additionally supported by the standard customer classification and consolidation of product descriptions the optimized product discovery experience when it come to multiple vendors selling the same product.Looking ahead, leveraging our options in technology, Secoo will build out more efficient and effective target marketing platform to establish ecosystems to support the sustainable growth for our suppliers, business partners and high-end customers.

[Foreign Speech] With consumers activities, the business operation retained to a more normal routine in China. We believe our solid infrastructure built up the supply chain in key brands the initiative AI-powered technology deployment and customer engagement capability in addition for our strategic focus on increasing elevate value proposition as the go-to luxurious platform will retain its consumers, we’ll have us well equipped to attack with more high-end brands through a platform along this progress action of new and limited additional offeringfurther increasing the customer dignity and ultimately capture the tremendous opportunities in the luxurious e-commerce industry.

[Foreign Speech]

With that, I will now turn the call over to our CFO, Mr. Shaojun Chen who will discuss our key operating metrics and the financial results.

Shaojun Chen — Chief Financial Officer

[Foreign Speech] Thank you, Richard, and hello everyone.

[Foreign Speech] During the second quarter, the ongoing global economic impact of COVID-19 actively affected the 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 a lower efficiency in logistics globally and domestically during the global pandemic, our revenue posted year-over-year declined in the second quarter.

Encouragingly, we regained sequential positive operating profits 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 this quarter makes us remain confident that we are on the right track to achieve our long-term corporate goals and maximize shareholder value.

[Foreign Speech]

Now, I would like to walk you through our detailed financial results in the second quarter of 2020.

[Foreign Speech] 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.

[Foreign Speech] Total number of orders increased by 7.7% to 1,028,000 for the second quarter of 2020 from 965,000 for the second quarter of 2019.

[Foreign Speech] Total revenue 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.

[Foreign Speech] Cost of revenues decreased by 21% to approximately RMB1.1 billion for the second quarter of 2020 from RMB1.39 for the second quarter of 2019, primarily due to the decrease of total revenue.

[Foreign Speech] Gross profit was approximately RMB210 million for the second quarter of 2020 compared with our RMB324 million for the second quarter of 2019. This was mainly due to the decrease [Technical Issues].

[Foreign Speech] Operating expense decreased by 35% to RMB178 million for the second quarter of 2020 from RMB274 for the second quarter of 2019.

Now I’d like to walk you through the Company’s expense items in detail.

[Foreign Speech] Fulfillment expense 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.

[Foreign Speech] Our marketing expense 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.

[Foreign Speech]

Technology and content development expense 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.

[Foreign Speech] Our general and administrative expense decreased by 20% to RMB41.5 million for the second quarter of 2020 from RMB51.9 million for the second quarter of 2019. This decrease was primarily attributable to the decreased staff cost during the period, offset by the rising office rental expenses.

[Foreign Speech] Our income from operations was RMB31.9 million for the second quarter of 2020 compared with income from operations of RMB50.2 million for the second quarter of 2019.

[Foreign Speech] 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.

[Foreign Speech] We recorded a net income of RMB5.9 million for the second quarter of 2020 compared with RMB40.1 million for the second quarter of 2019.

[Foreign Speech] 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.

[Foreign Speech] As of June 30, 2020, the Company had cash, cash equivalents and restricted cash of RMB1.2 billion.

[Foreign Speech] This concludes our prepared remarks. We will now open the call for questions.

Operators, please go ahead.

Questions and Answers:

Operator

Thank you so much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]

As there are no further question, now I’d like to turn the call back over to the Company for closing remarks.

Jingbo Ma — Investor Relations

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, whose information is also on our website.

Operator

[Operator Closing Remarks]