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Edited Transcript of BZUN earnings conference call or presentation 4-Aug-16 12:30am GMT

Zhabei District, Shanghai Aug 4, 2016 (Thomson StreetEvents) -- Edited Transcript of Baozun Inc earnings conference call or presentation Thursday, August 4, 2016 at 12:30:00am GMT

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Corporate Participants

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* Beck Chen

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* Robert Lin

* Binnie Wong

* Evan Zhou

* Sean Zhang

86Research - Analyst

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Operator [1]

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Thank you for standing by and welcome to the second quarter 2016 Baozun Incorporated earnings conference call. (Operator Instructions). I must advise you that this conference is being recorded today, Thursday, August 4, 2016. I would now like to hand the conference over to your first speaker today, Ms. Caroline Dong, Investor Relations Officer. Please go ahead Ms. Dong.

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Caroline Dong, Baozun Incorporated - IRO [2]

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Thank you operator. Hello everyone and thank you for joining us today. Baozun's earnings release was distributed earlier today and is available on our IR website at ir.com -- ir.baozun.com as well as on global newswire services.

On the call today from Baozun are Mr Vincent Qiu, Chairman and Chief Executive Officer, Mr Junhua Wu, Chief Operating Officer and Mr Beck Chen, Chief Financial Officer. Mr Qiu will review business operations and Company highlights, followed by Mr Chen who will discuss financials and guidance. They will be available to answer your questions during the Q&A session that follows.

Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, and as defined in the US Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminology such as will, expect, anticipate, future, intends, plans, believes, estimates, targets, going-forward, outlook and similar statements. Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under the applicable law.

It is now my pleasure to introduce our Chairman and Chief Executive Officer Mr Vincent Qiu. Mr Qiu, please go ahead.

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Vincent Qiu, Baozun Incorporated - Chairman & CEO [3]

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Thank you Caroline and thank you everyone for joining our earnings call today. We had another strong quarter of solid growth, in which we beat our quarterly guidance, as we did every quarter since or IPO in May 2015.

On a year-over-year basis, total net revenues increased by 35%, while total GMV increased by over 81%.

Our growth continues to be driven by China's increasing appetite for e-commerce and upgrading in Chinese cities and consumption habits. More and more high-quality foreign brands are looking to enter this market. And we are well positioned to help them flourish here.

Baozun's total number of brand partners increased to 120 at the end of the second quarter. We signed a number of new brands which have long been demanded by Chinese consumers. We are constantly in talks with a number of brands seeking to benefit from the enormous growth opportunities in China's e-commerce market.

One such example is the strategic cooperation agreement we recently signed with CJ O Shopping, a division of CJ Group, which is a Korean culture and lifestyle conglomerate. CJ manages a diverse number of highly sought after Korean brands across a number of industries.

Together we will establish an e-commerce JV that will leverage our respective resources in e-commerce operations, online marketing and logistics, to introduce these brands to Chinese consumers. The JV will act as an important channel for the introduction of Korean brand products into China and Chinese products into Korea in the future. We look forward to working closely to create more synergies between our businesses.

I am pleased with the progress we have made during the first half of this year. We will continue to develop deep relationships with our brand partners and business partners. We are always working to find new ways to service our brand partners and are developing more tools that will allow them to fully benefit from China's rising consumer spending.

With that, I will pass the call over to Beck who will review our financials.

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Beck Chen, Baozun Incorporated - CFO [4]

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Thank you Vincent. Just a few housekeeping items before I go through the numbers. We believe year-over-year comparisons are one of the most useful ways to judge our performance. All percentage changes I am going to give will be on that basis.

So, to start, GMV during the quarter increased by 81% to RMB2.2 billion. We continuously focus our efforts on growing the non-distribution model in which GMV increased by 119%. We believe the continuous optimization of our business model mix will further decrease inventory risk, improve our working capital position and increase our margin profile.

Total net revenue beat our guidance by increasing 35% to RMB700 million. Breaking down further, product sales revenue rose by 18% to RMB412 million, mainly due to increased popularity of our brand partners' products and increasingly effective promotion and marketing activities.

Maikefeng accounted for RMB5 million in product sales revenues. Services revenue rose by 87% to RMB214 million, of which Maikefeng contributed RMB2 million. The increase in services revenue was mainly due to rapid growth in our non-distribution model and, in particular, growth in sales of apparel products sold by our existing brand partners, as we expand their online presence.

Total operating expenses were RMB700 million. In particular, cost of products rose to RMB412 million, primarily due to the increase in the volume of product sales. Maikefeng accounted for RMB32 million in cost of products, including a one-time inventory write-down of RMB27.7 million due to the restructuring of the direct sales business.

Fulfillment expenses rose to RMB110 million. The increase was mainly due to the increases in GMV contribution from consignment business, more orders fulfilled by the premium delivery service provider as a percentage of the total orders, and increase in warehouse rental expenses. Maikefeng accounted for RMB1 million in fulfillment expenses.

The sales and marketing expenses rose to RMB141 million. The increase was primarily due to an increase in promotional and marketing expenses associated with our online stores. Maikefeng accounted for RMB4 million in sales and marketing expenses.

Technology and content expenses rose to RMB22 million. The increase was primarily due to the increase in technology-focused staff and the project-based variable technology expenses from brand stores. Maikefeng accounted for RMB2 million in technology and content expenses.

G&A expenses rose to RMB20 million. The increase was mainly due to increase in professional services fees as a listed Company. Maikefeng accounted for RMB0.4 million in G&A expenses.

Excluding Maikefeng's direct impact on revenues and expenses, non-GAAP income from operations was RMB40 million, a significant increase compared with RMB22 million in the same quarter of last year. And the non-GAAP operating margin improved significantly to 5.7% compared with 4.4% in the same quarter of last year. The increase in our non-GAAP operating margin was driven by continuous optimization of our business model mix and improvements in the operational efficiency.

In this quarter we continued to review Maikefeng's operations and strategy. Including a one-time inventory write-down of RMB27.7 million as a result of the restructuring of its direct sales business, Maikefeng's operating loss this quarter decreased significantly by around 50% when compared to last quarter and the same period last year.

We are committed to adjusting Maikefeng's strategy to the evolving Chinese market. And we will continue to effectively control and closely monitor operations and make necessary adjustments to improve its performance.

In Q2 net income rose to RMB2 million, when non-GAAP net income rose to RMB8 million. The basic and diluted net income attributable to ordinary shareholders per ADS was RMB0.03 compared to zero during the same period last year.

The basic and diluted non-GAAP net income attributable to ordinary shareholders per ADS was RMB0.17 and RMB0.15 respectively...


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