Ever-Glory International Group, Inc. (EVK) Earnings Call Transcript & Summary

Good day, and welcome to the Ever-Glory International Group First Quarter 2020 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Mr. Wilson Bow. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to Ever-Glory International Group's First Quarter 2020 Earnings Conference Call. The company distributed its earnings press release earlier today via newswire services. You can also download it from Ever-Glory's website at www.everglorygroup.com. With us today is Dandan Song. Mr. Yihua Kang, Ever-Glory's Chairman, President and Chief Executive Officer; and Mr. Jason Wang, Ever-Glory's Chief Financial Officer, both of them 2 are on business trip today and unable to join the call. So instead of them, Song, Dandan will give up the numbers. Before we get started, I will review the safe harbor statement regarding today's conference call. Please note that the discussion today 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 differ materially from the views expressed today. Further information regarding this and other risks and uncertainties are included in the company's annual report on Form 10-K for the first quarter ended March 31, 2020 and in other documents filed with the U.S. Securities and Exchange Commission. Ever-Glory does not assume any obligation to update any forward-looking statements except as required under applicable law. As a reminder, this conference call is being recorded. In addition, an audio webcast of this conference will be available on Ever-Glory's Investor Relations website. Now I will turn the call over to Mrs. Song, Dandan. Please, Dandan.

Thank you. Good morning to those in the U.S. and good evening to those participants in Asia. Thank you for joining our first quarter 2020 earnings conference call. The sales for the first quarter of 2020 decreased both in retail business and wholesale business. This decrease was primarily due to the pressure of the economic downturn and the outbreak of COVID-19. The outbreak in China has resulted in the reduction of customer traffic and the temporary closure of shopping malls as mandated by the provincial government in various provinces of China from late January to March, which has adversely affected the company's retail business with a decline in sales since February 2020. The company's wholesale business is also significantly affected as the company is facing a sharp decline in its order quality since COVID-19 spread around the world. We will actively respond to the changes in the external economic environment. During the first quarter, we maintained our focus on developing the retail business through our multi-brand strategy and self-network optimization initiatives, while improving our wholesale business by upgrading customer portfolio and enhancing our account receivables. Retail side, our brand continued to attract new customers and retain expanding customers by focusing on design, quality and value. Our inventory management strategy continually improved the balance between inventory turnover and our diligent cost control measures, further strengthening the profitability of our business. In order to create more visible and accessible locations, we remodeled and relocated 2 stores during the first quarter of 2020. As of March 31, 2020, we operated a nationwide network of 1,038 stores compared with 1,315 stores as of March 31, 2019. While we still see strong demand for our products at our retail stores, we continue to see opportunity in the economy area. Mobile platforms such as our La go go stores, Tmall and Jing Dong are used as a strategic and effective way for us to drive customer engagement, encourage cross-channel shopping, reduce off-season inventory and create a unique and differentiated customer experience to grow our loyal customers base. As for wholesale business, the company enhances our intensive product development and the supply chain management expertise as well as network of high-quality, reliable and cost efficiency sourcing channels and manufacturers. In addition, our market research center provides our wholesale customers with in-depth research and analysis in the areas, including brand positioning, fashion trend, new material development and new style design. Going forward, we still continue to focus on enhancing our product development capabilities and optimize -- and optimizing the customer base with our long-term vision of being a leading supply chain solution provider for the mid- to high-end apparel brands, both in Mainland China and worldwide. The company's results of operations could be adversely affected by general conditions in the global economy, including conditions that are outside of its control, such as the impact of health and safety concerns from the outbreak of COVID-19. Although China has already begun to recover from the outbreak of COVID-19, the epidemic continues to spread on a global scale, and there is the risk of epidemic returning to China in the future, thereby causing further business interruption. This concludes Mr. Kang's comments. I will now turn -- I will now go -- walk through our financial results for the first quarter of 2020. Please note that all numbers discussed today is in U.S. dollars, unless otherwise noted. First quarter 2020 financial results. Total sales for the first quarter of 2020 were $58.4 million, a decrease of 33.7% from $88 million in the first quarter of 2019. This decrease was primarily driven by a 20.7% decrease in our wholesale business and a 39.7% decrease in our retail business. Sales for the company's wholesale division decreased by 20.7% to $22.3 million for the first quarter of 2020 compared with $28.1 million for the first quarter of 2019. This decrease was primarily attributable to decreased sales in Mainland China, Germany, other European markets and Japan, partially offset for increased sales in Hong Kong, the United States and the United Kingdom. Sales for the company's branded fashion apparel retail division decreased by 39.7% to $36.1 million for the first quarter of 2020 compared with $59.9 million for the first quarter of 2019. This decrease was primarily due to the decrease in same-store sales. The company had 1,038 retail stores as of March 31, 2020, compared with 1,315 retail stores as of March 31, 2019. Total gross profit for the first quarter of 2020 decreased by 45.4% to $16 million compared with $29.4 million for the first quarter of 2019. Total gross margin decreased to 27.5% from 33.4% for the first quarter of 2019. Gross profit for the wholesale business increased by 46.7% to $3.5 million for the first quarter of 2020 compared with $6.6 million for the first quarter of 2019. Gross margin decreased to 15.7% from 23.3% for the first quarter of 2019. Gross profit for the retail business decreased by 45% to $12.5 million for the first quarter of 2020 compared with $22.8 million for the first quarter of 2019. Gross margin was 34.8% compared to 38.1% for the first quarter of 2019. Selling expenses for the first quarter of 2020 decreased by 35.8% to $13.5 million, or 23.1% of total sales, compared with $21 million, or 23.9% of total sales, for the first quarter of 2019. The decrease was attributable to the decreased sales. General and administrative expenses for the first quarter of 2020 decreased by 23.2% to $5.8 million, or 9.9% of total sales, compared with $7.5 million, or 8.6% of total sales, for the first quarter of 2019. The decrease was mainly attributable to the decreased office expenses. Loss or income from operations for the first quarter of 2020 decreased by 493% to minus $3.2 million compared with $0.8 million for the first quarter of 2019. Net loss attributable to the company for the first quarter of 2020 was $2.7 million compared with $0.5 million for the first quarter of 2019. Basic and diluted loss per share was $0.18 for the first quarter of 2020 compared with basic and diluted earnings per share of $0.04 for the first quarter of 2019. Balance Street. As of March 31, 2020, Ever-Glory had approximately $70 million of cash and cash equivalents compared with approximately $48.6 million as of December 31, 2019. Ever-Glory had a working capital of approximately $49.3 million as of March 31, 2020, and outstanding bank loans of approximately $26.1 million as of March 31, 2020. Our relentless efforts have been paying off with the 2020 first quarter results, and we look forward to further strengthening the fundamentals and increasing operation -- operating leverage to support the long-term profitability of our business. Thank you for participating in Ever-Glory's 2020 First Quarter Earnings Call. We look forward to talking with you next quarter. If you have additional questions, please feel free to contact our IR department. Goodbye.

Well, with all these numbers given out, that concludes today's conference call. Operator, thank you.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.