Good morning everyone and welcome to the second quarter 2013 earnings conference call for LightinTheBox Holding Co., Ltd. Today’s conference is being recorded. At this time, I would like to turn the call over to Mr. Bill Zima of ICR for opening remarks and introductions. Please go ahead sir.

Thank you operator. Hello everyone and thank you for joining us on today’s call. LightinTheBox now disclosed the financial results from Monday, August 19 after the market closed. The earnings release is now available on the company’s investor relations website. Today you will hear from LightinTheBox’s Chairman and CEO Mr. Alan Guo who will discuss financial and operational results followed by the company’s Chief Financial Officer Mr. Richard Xue who will address financial results in more details. Before we proceed, I would like to remind you about the safe harbor statement. Please note the discussion today may contain certain forward looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to materially differ from those in the forward looking statements, please refer to the company’s prospectus filed with the Securities and Exchange Commission on June 5, 2013. The company does not assume any obligation to update any forward looking statements except as required under applicable law. At this point, I would like to introduce Mr. Alan Guo, Chairman and CEO of LightinTheBox. Alan, please go ahead.

Thank you, Bill. Welcome everyone to LightinTheBox second quarter 2013 earnings call. We are pleased to have completed a successful IPO in June and to be hosting our first quarterly earning call as a NYSE-listed public company. We are pleased to report second quarter 2013 financial results which reflect continued strong growth momentum and margin expansion attributed to our expanding sales platform, unique product offering with solid pricing power, continued optimization of repeat customer purchases and effective cost controls. Our revenue increased 53% over the last year the same period time and we were pleased to experience both year-over-year and a sequential improvement in both gross margin and adjusted net income. During the quarter, our total number of customers increased 140% to 1.2 million resulting in 53% year over year growth in our net revenues to $72.2 million. Our focus on customer satisfaction and ongoing investment in CRM have contributed to the strong growth in repeat customer revenue growth which increased 124% in the second quarter to $24 million representing approximately 32% of our total revenue. Revenue attributed to new customers increased 32% and represented approximately two-thirds of our total revenue in the second quarter. Our investments in data mining technology for merchandizing, website conversion and online distribution optimization helped contributed to our growth in new customers. We added three languages, Polish, Czech and Turkish to our website in the second quarter and are making the necessary investments in customer service support to expand our customer pool in the long run. Our e-commerce sites are now available in 20 languages and serving consumers in over 200 countries and territories. We also expanded ourselves in all major geographic regions led by triple digit sales growth in both Europe and South America. The [graphical view] of our platform in emerging countries such…

Thank you, Alan and thank you everyone for joining us for our first quarterly conference call as a public company. LightInTheBox continued to make progress with its operational performance and financial growth during the second quarter. We are also encouraged with our initiatives to expand our customer base and improve overall customer shopping experience. Now moving on to our quarterly financial highlights, before I get started I would like to clarify that all the percentage changes referred to year over year changes (inaudible). For the second quarter of 2013, net revenues increased 52.6% to $72.2 million mainly driven by growing the number of customers. During the quarter the number of customers increased 140% to 1.2 million. Revenue attributed to repeat customers increased 123.7% to $23.4 million compared to the same quarter of 2012. During the quarter, apparel, small accessories and gadgets and electronics and communication device remained the three largest revenue contributors. Revenues generated from small accessories and gadgets increased by 321% to $26 million from $6.2 million in the same quarter of 2012. As a percentage of total revenues, small accessories and gadgets revenue was 36.1% in the second quarter of 2013 compared to 13.1% in the same quarter of 2012. Revenues generated from apparel category decreased by 1.4 million to 24.7 million in the second quarter of 2013 from 26.1 million in the same quarter of 2012. As a percentage of total revenues, apparel revenue was 34.2% in the second quarter of 2013 compared to 55.1% in the same quarter of 2012. Revenues generated from electronics and communication device increased by 31.7% to 9.5 million from 7.2 million in the same quarter of 2012. As a percentage of total revenues, electronics and communication devices revenue was 13.2% in the second quarter of 2013 versus 16.3% in the same…

(Operator Instructions) The first question comes from the line of George Askew of Stifel. George Askew – Stifel Nicolaus: Thanks for providing the revenue guidance for the third quarter. Can you describe what is kind of the bottom-up process for forecasting third quarter revenue? I mean how is that number constructed?

So from the company perspective, we have quarterly based bottom up process where we start from different dimensions. We start with geographic breakdown by the geographic owner team and we also start with categories, breakdown by the category team. We also start from the marketing – channel marketing team, we spent on marketing dollars and three team will come with independent judgement on the forecast. And then the senior management team will triangulate that – the three teams and then with the triangulation where we will first examine their assumptions and then we will iterate this process for the second time. And then after that the senior management will meet together and based on the management forecast and also the objectives for each management team, and then we will present this guidance in the board meeting and with the discussion with the board meeting. And so that’s basically the general process that we come with the quarterly guidance. George Askew – Stifel Nicolaus: As you sort of look back to the second quarter, I mean has the process kind of changed from that time and what was the weakness that caught you off-guard in June, that – I mean I know you described the issues but was that something you could have anticipated or worked through with a different marketing strategy or – I am just curious how that would have – how that process sort of may have fallen short of the second quarter?

So for the second quarter, I think there are two major things that impact on the result. The first is the internal executions. I think when we look at the original assumptions on conversion rate, that with the original forecast, was in line with our – with seasonality adjusted, it was in line with the last year the same period of time and was in line with the Q1 the same 2013, which we did anticipate was deteriorating of the conversion rate in June which was partially caused by the merchandizing, we placed our focus too much on the high end product, not enough on the lower end product, and secondly, there was also external surprise discrepancy where we see a very aggressive competitive response to our [investment] potentially to our IPO news. And that was something that we never experienced in the past, the magnitude of drop in pricing, the severe competitiveness in bidding on traffic. However we believe those things are very temporary because those competitors’ tactics, we experienced by the competitor, we don’t think that’s sustainable from their perspective. I think what we learned in our own internal forecast and planning phase is, not only we will examine the assumptions about the numbers but also we will further look into their assumptions in external impact, traffic impact, in the short term, number one. And we will also look into their operational strategies that enable them to achieve that [conscious] that is presented. So those are the two things that we learned from the Q2 and we have already incorporated in our Q3 forecast methodology. George Askew – Stifel Nicolaus: North America was up – revenues grew just 16%. With that sort of ground zero, I was surprised there was that slower growth. Is that where you saw the challenge in apparel?

Yes, that is correct. So in North America because – there are two reasons. North America has traditionally very strong outline wearing retailers, and we think they responded very significantly in their partner strategy. And number two, there is relatively more English speaking competitors coming from China online wedding dresses versus other languages such as French or German or Brazilian. So we also – from a domestic competitor perspective we also experienced more temporary competitive challenges there as well. So that’s the major challenges for the apparel that translate into the slower growth in North America. George Askew – Stifel Nicolaus: And then just one last then I will turn it over. Alan, in your remarks, you said you were reducing guidance in the second half. Should we look for fourth quarter revenue growth to be at about the same level as third quarter?

At this moment the company is giving guidance for the third quarter. We don’t think now is the time for us to giving guidance for the fourth quarter.

The next question comes from the line of Chad Bartley of Pacific Crest.

Thank you. Just to follow up on the Q3 revenue guidance and outlook for a further slowdown, is there one primary driver, for example, is that apparel or just a combination of some of the issues that you have already talked about? I am just trying to determine if there is one key there. And then just in general, as you improve on execution and your strategy, when might growth trends start to improve and turn around, is that a one quarter process, two quarter process, what are your thoughts a little bit longer term? Thanks.

So the guidance in Q3 majorly represents our adjustment in the expectation of the apparel business. And that is the one category and the primary reason for the guidance. And secondly, we are in a process of fixing internal problems in response to competitive landscape change for the apparel business. But apparel business, particularly the wedding and prom dress business has a very strong seasonality. So the next season will be next Q1 and Q2. So we believe a lot of the effort and investment we make from now on will be truly reflected in the next season which means the Q1 and Q2 next year.

The next question comes from the line of Andy Yeung of Oppenheimer.

My first question is about your second quarter sales. When we look at across certain region, I think besides from North America, other region out of Europe and South America also was quite weak. In fact, I think there was a decline in other region. Can you perhaps give us some idea of what’s going on there, did you exit some market of those three key regions, and what’s the geographic expansion plan in those areas?

Andy, can you clarify your question, is that more of a sequential growth question?

I think on a year over year basis the country outside Europe, North America and South America, there has been some decline right?

No, on a year over year basis, our European sales increased to 44 million from the 1.4 million a year ago. And our North America sales increased to 14.3 million from over 12.3 million a year ago. And our South America sales again increased to 7.3 million in Q2 this year from 2.5 million a year ago. So all those are very positive growth. It will be South America, especially Brazil and Europe are doing much better than North America which Alan had articulated about the reason behind that.

So like for countries outside of Europe, North America and South America did you experience growth as well?

Yes but much slower. That’s a smaller – that’s a very small portion of our total sales. We generated more than 90% of our sales from Europe, North America and South America in Q2 this year.

So just highlighting from the Spanish perspective, so Europe has been our largest geographic market and the European sales is growing more than 100% year over year. We feel our strategies such as introduce more languages in Czech, Polish, and Turkey and also some of the language we introduced the latter part of last year really helped us driving the growth in Europe. And South America is the representative to emerging countries where we experienced explosive growth, and we think it’s also the right strategy our focus in these countries where the e-commerce, its adoption curve is at the tipping point.

And maybe come up like your expansion plan, for the coming quarters, is that new languages or new country that you are expanding into?

Yes, there will be several new languages we plan to launch in the second half of this year. But given the development cycle we are not giving exactly the timing and numbers of those languages and we will be able to announce them when we are ready. Yes, our strategies of launching new languages, to break the language barrier for the consumers and our platform will continue to be important significant strategy for us to increase customer base and address the market.

I just have one more question, Alan. In your prepared remarks, you mentioned that you are establishing a global sourcing network beginning with South Korea. Is there any particular product category that you are building on initially and what other product categories that you are thinking about expanding in the future?

So we have a global supply chain sourcing strategy and which give us an opportunity of not only limit us the sourcing from Chinese manufacturers but also from suppliers all over the world. And we will be starting through Korea as our first pilot project, because we think Korea’s suppliers has unique designing capabilities in categories such as apparel and accessories. So those will be the starting point for us to think about merchandizing from Korea – sourcing from Korea but in the future we will not limit the categories that we will be sourcing from either Korea or any other part of the world.

The next question comes from the line of Alicia Yap of Barclays. Alicia Yap – Barclays Capital : My first question is actually regarding your geographic breakdown. Can you at least sort of break down the European region, specifically what is the percentage contribution from the Eastern Europe versus the Western Europe? And then can you also remind us when did you actually start entering Brazil market?

For the European market breakdown, it’s actually pretty extensive. So I am not going to go through the full detail. I will think one country that is France traditionally has been our largest European country because France has a language – is the second language we rolled out after English. So out of the European total sales, we roughly generate somewhere between 20% to 25% of the sales in France alone and we do have a whole group of other language from the earlier one of German, Spanish, to some of the later ones, the Portuguese, the Dutch is the latest one that we rolled out, including the Scandinavian languages. In terms of Portuguese, Alan, do you remember when we rolled out Portuguese?

2011.

2011. Alicia Yap – Barclays Capital : What about Brazil, when did you enter Brazil?

Brazil is 2011, it’s a Portuguese language we launched. So when we launched the Portuguese language, it supports both Portugal and Brazil at the same time. Alicia Yap – Barclays Capital : And my second question is if you could break down the margin for apparel – gross margin for apparel, what this is small gadgets and also the electronic and communication products?

Alicia, we don’t give category level gross margin information for competitive reasons but qualitatively, if you look at our main categories, apparel because it’s top line and gadgets and accessories because of its lower price tag and the fast fashion element of the offering tend to have higher than other category gross margin. So that’s a qualitative description in terms of different categories, different margin structure. Alicia Yap – Barclays Capital : So you mentioned apparel will have a little bit higher margin, right?

Yes, both apparel and small gadgets and accessories tend to have higher margin among all the categories. Alicia Yap – Barclays Capital : So then the follow-up question is that, given there are some difficulty and challenge on the apparel side, will there be any change on your gross margin, for example, on the quarter?

So we’d only expect major changes in gross margin outlook for the third quarter, we think that while we are facing internal executional problems with the focus on improved supply chain and operational efficiency, we will be able to maintain a similar margin in the third quarter, while we are facing those problems. Alicia Yap – Barclays Capital : And then just lastly if I may on – can you remind us the seasonality of your business? I think you mentioned apparel is strong in first quarter and second quarter but just in general your total business, what is the seasonality?

Right, for the total business traditionally due to seasonality strongest quarter is the fourth quarter, for the Christmas shopping season and where we will have slightly stronger presence of wedding and prom release in Q1 and Q2 that has been the case traditionally.

Weakest quarter on the other side, Alicia, tends to be Q3.

And the next question comes from the line of Maria Zhao of China Renaissance.

So for the third quarter you plan the gross margin was up a percent compared to one year’s growth. So could you give more color on this, is this the seasonal reasons or the different category mix and how about a change in the future? This is my first question and I have a follow-up question.

Okay. From the margin perspective, we increased from the same period last year to this year, we think it attribute to couple of factors. A is our scale effect, when we grow bigger we have a higher negotiation power and purchase power from our suppliers, so that’s the scale effect of the improved margins. And secondly, it’s also a matter of the category mix, while the small gadgets and accessories business increased significantly flat from a year before which is a high margin business as we qualitatively describe. So that’s second. And thirdly, we also – it’s also certainly a part a result of our operational improvements where we are more sophisticated in pricing and I think the margin improvement, it’s a combination of those three things. So for the margin outlook I just describe that in Q3 we think we can maintain the margin outlook – gross margin outlook.

So you also mentioned that the apparel would only contribute right about 30% in this quarter, so is this mostly because of the draw-down in the North America or any other reasons? So could you – and second, can you talk more on the gadgets, so what’s the sub-categories under the gadgets, you [saw] more growth potential?

So the major reason – I would describe the major reason for the revenue was slower than we expected in the second half of Q2 was mainly due to the apparel business slowdown and mainly representing the wedding and prom dress business and North America growth slower than others was the result of the apparel business declining year over year, because traditionally, we sell more apparel in North America than other geographies. Can you repeat the second question about the small gadgets and accessories business, what’s the question?

So what’s the sub-category under the gadgets category, so does company plan more growth potential in the future?

Small gadgets and accessories business in our company, primary listing website called www.miniinthebox.com and it has a large number of sub-categories, things like iPhone cases, adaptors, binoculars, all kinds of cables, power kits, some small ticket fashion jewelry, pet supplies and et cetera and it’s a very wide range of small items that – with a much smaller average ticket size. And with a long tail of choice of product selections, we think the growth in a large number of sub-categories within the small gadgets and accessories business will continue to drive strong growth momentum for these categories.

And my last question is regarding the high growth in the area such as South America, so is this mostly because of small base before all the more potential in the future, so what’s the company strategy in this area?

So we think our growth in emerging countries such as Brazil, primarily coming from two factors. The factor number one is our global platform that enabled us to sell product efficiently [investing] from our websites consumer in those places and also offering in their native speaking languages. And secondly, it’s also because the – the fast growth is also because these countries is at a tipping point of quickly adapting e-commerce as the shopping experience. So basically the market growth rate is very high in these countries and also we have giving our formula to offering very unique product offerings in a very convenient way as we have supplies for consumers in these countries. We think Brazil is not alone, we will also get our access in other emerging countries where the e-commerce is at a tipping point such as Russia.

I have another follow-up question. So how about the new customer acquisition cost in the recently – or in the second half this year, so the company have 1.2 million active customers in this quarter and how many is new customer, can you break down that?

Maria, we don’t break down that.

So how about new customer acquisition cost?

New customer acquisition cost, you are asking me to break out new customer acquisition cost from sales and marketing?

So is this – we need spending more to attract new customer in this year?

From the dollar value perspective, obviously we are spending more dollar compared to 2012 to attract more customers, yes.

And the next question comes from the line of [Wendy Chai] of Standard Chartered.

Your fulfilment revenue as a percentage of revenue was much lower than (inaudible) in the ecommerce space, so could you please help me understand what is the main factor contributed to the lower fulfilment cost as a percentage of revenue?

Sure, Wendy, our fulfilment cost has two major components which is different – very different from some of the other ecommerce players contribution of – in China. Our fulfilment cost, the component number one is the service fee we pay to third party payment gateway such as PayPal or credit card company. The second component of our fulfilment cost is our own internal fulfilment center operation costs which include both the rental costs of our warehouse facilities as well as the payroll we incur with the workers that work in the warehouse facilities. We do not have shipping or logistics charges as part of the fulfilment cost. In our financial presentation we have shipping charges as part of the cost of goods sold.

And the next question comes from the line of Eric Wen of China Renaissance.

I just want to hear from you some of your thoughts on your category strategy and any of the new developments in terms of new geographies and the new categories and what’s their – the timeline that’s on [the print]?

So our category strategy is we always want to find the categories where it has attractive weight to value ratio which means it’s effective to shipping overseas by express or by post offices. And secondly, we want to find categories where there is no brand domination. We try to avoid categories where there is a brand domination. And thirdly, we want to find categories where consumers value variety and merchandizing and offer – want to value of all kinds of different choices. And in addition to that, if a category with a potential to be customized, that will be a plus. So those are the general categories, different strategies. And in addition to that, we also want to make sure that because – the primary sources in advantage in China, we want to find categories where China is very strong in manufacturing base so that we gain supply chain advantage and we could work with supply chain to optimize and improve over time. So those are the – our primary categories strategy selection. And secondly, when we talk about category expansion, we basically talk about two things. A is select a major category and second is within our major category expanding in sub-categories. We are very systematic and methodology in terms of increased sub-category within each category. For example, in wedding dress, in the apparel business we start with wedding dress and then bride maids and then flower girl and then the mother of the bridge and so and so forth. In home decorations, we start with floor sets, chandeliers and bedding and then window frame and then paintings and so and so forth. So for each categories we go, we want to build a very rich and complete portfolio within that category so that we will become a go…

Just on two-follow up questions, you mentioned about corporate gift and fashion jewelry categories, what – how material do you expect them to be, say, by the end of next year, how much revenue contributions do you think these two or maybe other new categories companies are planning that will contribute to next year’s revenue? And my second question is that, currently wedding dress is one category that’s been into other categories [and you just supplied]. But do you see that our market share in the wedding dress market is approaching to a saturation point, some light if you could shed on that point would be very appreciated. Thanks.

So Eric, for your first question, we think we are not at a position to give very specific revenue impact of those category expansions for the next year yet. So it’s still at very early stage of development but definitely not at a point where we are ready to quantify the revenue impact for next year. For the second question, we don’t – we did extensive studies on the wedding and special occasion dress business based on third party data, we believe it’s a large market compared with our current revenue size. We don’t think it’s a market saturation point, we think we are only within a very small percentage in the total market. We think our temporary setback was the executional problem we need to correct and also it was the temporary setback by competitions and we definitely want to look forward to further expanding that, we are far from saturation point in that regard.

And the last question is a follow-up question from the line of Mr. George Askew of Stifel. George Askew – Stifel Nicolaus: I am a little bit confused by something stated earlier in the call, the 1.2 million total customers, am I correct that, that’s the number of customers who made a purchase in the second quarter?

Yes, George. George Askew – Stifel Nicolaus: Okay. Now if 32% of revenue came from repeat customers, can we therefore assume that roughly 32% of customers are repeat customers recognizing there could be some average selling price differences?

30%, that’s a revenue concept. 32% of the revenue was from non-first time transacting customer. (Multiple speakers) I was going to say, George, if you look at the repeat purchase behaviour at different categories, they do that very differently. Most of the repeat customers are coming from accessories and gadget categories which tend to have a much smaller ASP or order size than some of the other categories for the company on average. George Askew – Stifel Nicolaus: I understand that but it seems that as apparel which is sort of the gateway category for a customer, as apparel shrinks we should see the ASPs, or average revenue per customer for example starts to convert a little bit with that total customer count, I am just trying to ballpark the numbers but I appreciate your comments there.

Are you ballparking it sequentially from Q1 2013 to Q2 2013 though? George Askew – Stifel Nicolaus: No. Look, I am just saying that if you had 32% of revenue in the second quarter from repeat customers, you have 1.2 million total customers, somewhere around that 32% with a wide standard deviation is going to be the number of customers that were repeat customers? But we can make our own assumptions.

Maybe we can take it offline. George Askew – Stifel Nicolaus: And Richard, you made a comment regarding – I forget the exact phrase, but it was like early acceleration of options in the quarter – was that IPO related? Can you give us some sense of what that was?

Yes, there was a roughly $2 million one-time IPO related stock based compensation that is reflecting of accelerations for some of the employees stock option plan. That’s why I made a comment at the end of my prepared remarks that we believe for Q3 and Q4, the share based compensation will come back to a more normalized range of around 600,000 for each quarter. George Askew – Stifel Nicolaus: What was the strike price on that – those one-time option grants?

It was mostly restricted shares. George Askew – Stifel Nicolaus: I am curious I know part of the motivation of the IPO was to incent employees and what not, what sort of the mood internally given kind of the turn of events here this quarter and the stock price reversing obviously today, what’s the mood?

Well, from internal perspective, we have communication with our executive managers. We think we remain to be very confident about this model, about the core competency of the company and the whole team feels as excited before and feel fully energetic and to correct the temporary one category challenges and move forward with expansion plans and with the successful IPO and the resources – new resources opportunity presented to us.

Thank you. We have now approached the end of the conference and I would like to hand the conference back to today’s presenters. Please continue.

This concludes our second quarter 2013 earnings conference call. Thank you for your participation and ongoing support of LightInTheBox. We look forward to providing with updates of our business in the coming weeks and months ahead. Have a good day.

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