LightInTheBox Holding Co., Ltd. (LITB) Q4 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the LightInTheBox Fourth Quarter of 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today March 16, 2017. I would now like to hand the conference over to your first speaker today, Mr. Christian Arnell. Thank you. Please go ahead.

Thank you. Hello, everyone and welcome to LightInTheBox’s fourth quarter 2016 earnings conference call. The Company’s earnings results were released earlier today and are available on the Company’s IR website as well as through PR Newswire. Today, you will hear from LightInTheBox’s Chairman and CEO, Mr. Alan Guo, who will give you an overview of the Company’s strategies and recent developments, followed by Mr. Robin Lu, the Company’s Chief Financial Officer, who will address financial results in more detail. Before we proceed, I would like to remind you of our Safe Harbor statement. Please note that the discussion today may contain forward-looking statements made under the Safe Harbor provisions of the U.S. 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 our Form 20-F filed with U.S. Securities and Exchange Commission on April 29, 2016. We do not assume any obligation to update any forward-looking statements, except as required under applicable laws. At this point, I would like to turn the call over to Alan. Alan, please go ahead.

Thanks, Christian and thank you everyone for joining us today. I am pleased with our performance during the fourth quarter with revenue being at the high-end of our guidance of $93.0 million. More importantly, revenue increased 8.8% year-over-year, a major improvement when compared to the third quarter of 2016. This was a direct result of strong sales during Black Friday and the Christmas holiday season as well as the increased traction that our logistics and warehousing platform and services are getting. We believe, this marks a milestone as we have reversed our top-line trend and are regaining growth momentum again. This demonstrates our persistence and effectiveness of our strategy to strengthen our core business, to improve supply chain management and customer satisfaction, to develop new business growth engines, and to continue to innovate. We continue to persistently execute our strategy to improve our supply chain management and customer satisfaction. Throughout the year, customer complaints about the product quality steadily decreased. We believe improved customer satisfaction leads to revenue growth in a number of key categories including sports and hobbies, home décor customized apparel and wigs and hair extensions. During the quarter, we deployed an upgraded version of an intelligent quality assurance system, which is able to digest a vast amount of data we have collected and with increased precision predict and cash [ph] product quality deficiency prior to being shipped to customers. We have also significantly improved our data-driven merchandising infrastructure. Our IT systems are able to grow [ph] index and understand a wider variety of websites to more precisely identify emerging product trends. We have also leveraged the online behavioral and demographic data of our users to enhance the personalized recommendation engine on our website, direct e-mail and mobile app. We believe that intelligent merchandising using big data has enabled us to gain momentum during the quarter in a number of geographic markets such as the UK, Brazil and Australia. With big data in our corporate DNA, we are naturally progressing towards become a new type of online retail company with sophisticated machine learning and AI tools to make intelligent decisions on almost all aspects of our online retail business such as merchandising, quality assurance and the personal recommendations. We are still in the very early stage of the AI era but we strive to build a long-term competitive advantage as we enter the early stage of the AI adoption lifecycle in a global e-commerce. Our improved supply chain management is creating opportunities for us to introduce more of our OEM products marketed during -- under LightInTheBox associated private label brands beyond the wedding category. This gives us more margin expansion opportunities and allows us to develop new sales channels outside of our website and app. While still early, some of our OEM products in the home décor category have become to gain traction on Amazon platforms globally. As China’s manufacturing industry moves from product imitator to product innovator in many sectors, we are developing ways to connect innovative domestic manufacturers across variety of different categories with the global consumer market under our own brand. The rapid adoption and the penetration of mobile internet, has developed in tandem with the growth of e-commerce in major emerging markets such as India. This has created new opportunities for us, given our knowledge of China e-commerce market developments, as many lessons learned in China can be applied directly or indirectly to India and other emerging markets. We think our strong consumer value propositions such as price and quality, trendy selection and large variety can directly appear to Indian internet users. We are leveraging this experience to develop and/or encompassing solution specifically tailored to the India market as one of our major focuses in 2017. Our logistics and warehousing platform has become an important growth driver. We are exploring value-added service that leverages our overseas warehouse in Europe and North America. Our self-developed and proprietary cloud based ERP system is now officially launched. We are now working with our strategic partner, Zall Development to roll out in their wholesale system. [Ph] We believe that our cloud software will be a very important long-term strategy for us in the years ahead. I am pleased with what we have accomplished this quarter. I am confident in our ability to effectively execute our strategy and look forward to further improving our business and developing new initiatives in 2017. I would now turn the call over to Robin to go through the financials for the quarter.

Thank you, Alan. As I review our financial results, let me remind you about a few things. All numbers quoted are in U.S. dollars; all the percentage changes refer to year-over-year unless otherwise noted. Net revenues starting in fourth quarter of 2016 will be classified into two categories, net revenues from product sales, and net revenues from service and others, so to start. Net revenues increased 8.8% to $95.2 million. Net revenues from product sales were $84.7 million, compared with $80.9 million in the same quarter of 2015. Net revenues from service and others were $10.5 million, compared with $6.6 million in the same quarter of 2015. As a percentage of net revenues, service and others accounted for 11%. Total orders of product sales were 2.2 million and total number of product sales customers in the quarter were 1.7 million. Product sales in the apparel category were $24.1 million, compared with $25.2 million in the same quarter of 2015. As a percentage of product sales, apparel revenues accounted for 28.5%, compared with 31.1% in the same quarter of 2015. Product sales from other general merchandise were $60.6 million for the fourth quarter of 2016. Looking at our business geographically, product sales from Europe were $47 million for the fourth quarter of 2016, compared with $48 million in the same quarter of 2015, representing 55.4% of total product sales for the fourth quarter of 2016. Product sales from North America were $22.7 million, compared with $24.4 million in the same quarter of 2015, representing 26.8% of total product sales for the fourth quarter of 2016, while product sales from other countries were $15 million, representing 17.8% of total product sales for the same quarter. Total cost of revenues was $63.4 million an increase from $56.6 million in the same period last year. Cost for product sales was $53.6 million, compared with $50.5 million during the same period last year and cost for service and others was $9.8 million, compared with $6.1 million in the same quarter of 2015. Gross profit was $31.8 million and gross margin was 33.4%, compared with 35.3% in the same quarter of 2015. Fulfillment expenses, which include payment processing fees, decreased to $4.6 million from $5.2 million. Selling and marketing expenses were $19.5 million, decreased from $20.4 million in the same quarter of 2015. G&A expenses were $10.1 million, compared with $8.6 million in the same quarter of 2015. G&A expenses improved $3.1 million in the technology investments, compared with $3.3 million during the same quarter of 2015. Net loss was $2.4 million compared with net loss of $3.5 million a year ago. Non-GAAP net loss was $0.7 million compared with non-GAAP net income of $5.5 million in the same quarter 2015. Net loss per ADS was $0.04 compared with net loss of ADS of $0.07 in the same quarter of last year. As of December 31, 2016, we had cash and cash equivalents and restricted cash of $91.1 million. As of December 31, 2016, the Company has repurchased a total of $0.8 million of ADS as a part of $10 million share repurchase program announced on June 8, 2016. For the first quarter of 2017, based on our current estimates and business seasonality, we expect the net revenues to be in the range of $70 million to $72 million, representing an increase of 4% to 7% year-over-year. This forecast reflects the Company’s current and the preliminary views of the market and operational conditions, all of which are subject to change. This concludes our prepared remarks. At this time, we are ready to take some questions. Operator?