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

Good day, and welcome to the Ever-Glory International Group Second Quarter 2021 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 Second Quarter 2021 Earnings Conference Call. The company distributed its earnings press release earlier today via newswire services. You can also it download from Ever-Glory's website at www.everglorygroup.com. With us today is Ever-Glory's, Chief Financial Officer, Mr. Jiansong Wang. A very important person, Mr. Yihua Kang, Ever-Glory's Chairman, President and Chief Executive Officer, is on business trip today, and he is 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 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 annual report on Form 10-Q for the second quarter ended June 30, 2021 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. I will now 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 second quarter 2021 earnings conference call. We are very pleased to announce the 2021 second quarter results with 20.9% quarter-on-quarter increase in total sales. Notably, we achieved quarter-on-quarter improvement in gross profit of 46.7% for our retail business. Our wholesale business decreased 17.5% in gross profit compared with the 3 months ended June 30, 2020. The decrease was mainly due to raw material price and higher [ offset ] production costs. 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 continually improved the balance between inventory turnover and our diligent cost control measures further strengthened the profitability of our business. We operate 52 stores and closed 57 stores in the first half year of 2021. As of June 30, 2021, we operated a nationwide network of 931 stores compared with 935 stores as of June 30, 2020. During 2021, we operated with a celebrity as a spokesperson of La go go. The effect of the celebrity will enhance our brand influence. While we still see strong demand for our products at our retail stores, we continue to see opportunities in the e-commerce area. Mobile platforms such 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 wholesales business is still affected by COVID-19 and the pressures of the economic downturn. We will actively respond to the changes in the external 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 trends, 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. This concludes Mr. Kang's comments. I will now walk through our financial results for the second quarter of 2021. Please note that all numbers discussed today are in U.S. dollars unless otherwise noted. Second quarter 2021 financial results. Total sales for the second quarter of 2021 was $60.6 million, an increase of 20.9% from $50.1 million in the second quarter of 2020. This increase was primarily driven by a 19.9% increase in our wholesale business and 21.7% increase in retail business. Sales for the company's launched such apparel retail division increased by 21.7% to $34.1 million for second quarter of 2021 compared with $28 million for the second quarter of 2020. This increase was primarily due to the increase in same-store sales. The company operated 931 retail stores as of June 30, 2021, compared with 935 retail stores as of June 30, 2020. Sales for the company's wholesale division increased by 19.9% to $26.4 million for the second quarter of 2021 compared with $22 million for the second quarter of 2020. This increase was primarily attributable to increased sales in Mainland China, Hong Kong, the United Kingdom and other European markets, partially offset for the decreased sales in Japan and the United States. Total gross profit for the second quarter of 2021 increased by 27.3% to $18.4 million compared with $14.4 million for the first quarter - for the second quarter of 2020. Total gross margin for the second quarter of 2021 increased to 30.4% from 28.8% for the second quarter of 2020. Gross profit for the retail business increased by 46.7% to $14.8 million for the second quarter of 2021 compared with $10.1 million for the second quarter of 2020. Gross margin for the second quarter of 2021 was 43.4% compared to 36.2% for the second quarter of 2020. Gross profit for the wholesale busines decreased by 17.5% to $3.6 million for the second quarter of 2021 compared with $4.4 million for the second quarter of 2020. Gross margin for the second quarter of 2021 decreased to 13.6% from 19.7% for the second quarter of 2020. Selling expenses for the second quarter of 2021 increased by 14.9% to $14.5 million or 24% of total sales compared with $12.6 million or 25.2% of total sales for the second quarter of 2020. The increase was attributable to the increased marketing expenses associated with the promotion of the retail brand. General and administrative expenses for second quarter of 2021 increased by 28.3% to $7.7 million or 12.7% of total sales compared with $6 million or 11.9% of total sales for the second quarter of 2020. The increase was attributable to the decreased business trip and the exemption of social benefits by PRC China government during the COVID-19 outbreak in China 2020. Loss from operations was $3.7 million for the second quarter of 2021 compared to $4.2 million for the second quarter of 2020. Net loss attributable to the company for the second quarter of 2021 was $1.8 million compared with $3.8 million for the second quarter of 2020. Basic and diluted loss per share was $0.12 for the second quarter of 2021 compared with $0.26 for the second quarter of 2020. As of June 30, 2021, Ever-Glory had approximate $64 million of the cash and cash equivalents compared with approximately $81.9 million as of December 31, 2020. Ever-Glory had working capital of approximately $48.9 million as of June 30, 2021 and outstanding bank loans of approximately $65.5 million as of June 30, 2021. Our relentless efforts has been paying off with 2021 second quarter results and we look forward to further strengthening the fundamentals and increasing operation leverage to support the long-term profitability of our business. Thank you for participating in Ever-Glory's 2021 second quarter's 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. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.