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

Good day, and welcome to the Ever-Glory International Group Fourth Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Wilson Bow. Please go ahead, sir.

Thank you, operator. Hello, everyone, and welcome to Ever-Glory International Group's Fourth 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 Ever-Glory's Chief Financial Officer, Mr. Jiansong Wang. Mr. Yihua Kang, Ever-Glory's Chairman, President and Chief Executive Officer, is on a business trip today and unable to join the call. So Mr. Wang will read the prepared remarks on behalf of Mr. Kang. 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 these and other risks and uncertainties are included in the company's quarterly report on Form 10-Q for the third quarter ended September 30, 2020; annual report on Form 10-K for the fiscal year ended December 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 Mr. Wang.

Thank you, Wilson. Good morning to those in the U.S., and good evening to those participants in Asia. Thank you for joining our fourth quarter 2020 earnings conference call. We are very pleased to announce the 2020 fourth quarter results with a 2.7% year-over-year increase in gross profit. Notably, we achieved a year-over-year improvement in gross profit of 28.1% for our retail business. This increase was primarily due to an increase in same-store sales. On retail side, our brands continue to attract new customers and retain existing customers by focusing on design, quality and value. Our inventory management strategy continue to improve the balance between inventory turnover, and our diligent cost control measures further strengthened the profitability of our business. In order to create more feasible and accessible locations, we remodeled and relocated 54 stores during 2020. As of December 31, 2020, we operated a national-wide network of 936 stores compared with 1,101 retail stores as of December 31, 2019. During 2020, we incorporated proposal of La go go. The effect of the profitability will enhance our brand and product interest. While we've still seen strong demand for our products at our retail stores, we continue to see opportunities in the e-commerce area. Mobile platforms such as our La go go stores on Tmall and Jingdong.com are used as a strategic and effective way for us to drive customer engagement, encourage cross-channel shopping, reduce out-of-season inventory and create a unique and differentiated customer experience to grow our loyal customer base. The company's wholesale business is significantly affected as the company is facing a sharp decline in its order quantities since the spread of COVID-19 around the world and the pressure of the economic downturn. We will actively respond to the changes in the internal economic environment. As for our wholesale business, the company has enhanced its extensive product development and supply chain management expertise as well as network of high-quality, reliable and cost-efficient sourcing channels and manufactures. In addition, our market research center provides our wholesale customers with in-depth research and analysis in the areas, including brand positioning, fashion chain, new material development and new product design. Going forward, we will continue to focus on enhancing our product development capabilities and optimizing the customer base with our long-term vision of being a leading supply chain solution provider for mid- to high-end apparel brands, both in Mainland China and worldwide. The company's results of the operations could be adversely affected by general conditions in the global economy, including conditions that are outside of its control, such as 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 the global scale, and there is risk of the epidemic returning to China in the future, thereby causing further business interruption. This concludes Mr. Kang's comments. I will now walk through our financial results for the fourth quarter of 2020. Please note that all numbers discussed today are in U.S. dollars unless otherwise noted. Full year 2020 financial results. Total sales for the full year of 2020 was $267.4 million, a decrease of 30.2% from $383.1 million in the full year of 2019. This decrease was primarily driven by a 39.9% decrease in our wholesale business and a 20.1% decrease in retail business. Sales for the company's brand fashion apparel retail division decreased by 20.1% to $150.1 million for the full year of 2020 compared with $187.9 million for the full year of 2019. This decrease was primarily due to a decrease in same-store sales. The company had 936 retail stores as of December 31, 2020, compared with 1,101 retail stores as of December 31, 2019. Sales for the company's wholesale division decreased by 39.9% to $117.2 million for the full year of 2020 compared with $195.2 million for the full year of 2019. This decrease was primarily attributable to a decrease in sales in Mainland China, Hong Kong Germany, Europe-Other, Japan, United States and United Kingdom. Total gross profit for the full year of 2020 decreased by 23.2% to $91.2 million compared with $118.8 million for the full year of 2019. Total gross margin increased to 34.1% from 31% for the full year of 2019. Gross profit for the retail business decreased by 22.1% to $61.5 million for the full year of 2020 compared with $78.9 million for the full year of 2019. Gross margin was 40.9% compared to 42% for the full year of 2019. Gross profit for the wholesale business decreased by 25.4% to $29.7 million for the full year of 2020 compared with $39.9 million for the full year of 2019. Gross margin increased to 25.4% from 20.4% for full year of 2019. Selling expenses for the full year of 2020 decreased by 30.3% to $56 million, or 20.9% of total sales, compared with $80.2 million, or 20.9% of total sales for the full year of 2019. The decrease was attributable to the lower retail sales. General and administrative expenses for the full year of 2020 decreased by 11.2% to $31.2 million, or 11.7% of total sales, compared with $55.1 million, or 9.2% of total sales for the full year of '19 -- 2019. The decrease was mainly attributable to the decline in number of stores. Income from operations for the full year of 2020 increased by 19.5% to $4.1 million compared with $3.5 million for the full year of 2019. Net income attributable to the company for the full year of 2020 was $3.3 million compared with $1.3 million for the full year of 2019. Basic and diluted earnings per share was $0.22 for the full year of 2020 compared with $0.09 for the full year of 2019. As of December 31, 2020, Ever-Glory had approximately $81.9 million from cash and cash equivalents compared with approximately $48.6 million as of December 31, 2019. Ever-Glory had a working capital of approximately $59.3 million as of December 31, 2020, and outstanding bank loans of approximately $65.8 million as of December 31, 2020. Our relentless efforts have been paying off with the 2020 fourth quarter results, and we look forward to further strengthening the fundamentals and increasing operating leverage to support the long-term profitability of our business. Thank you for participating in Ever-Glory's 2020 fourth 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. Thank you.

Thank you, operator.

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

Thank you. See you next time. Goodbye.