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

Good day, and welcome to the Ever-Glory International Group Third 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.

Thank you, operator. Hello, everyone, and welcome to Ever-Glory International Group's third quarter 2021 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, in one word. With us today is Ever-Glory's Chief Financial Officer, Mr. Jiansong Wang. And 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 today. Mr. Wang will read the prepared remarks on behalf of Mr. Kang. Before we get started, I, Wilson Bow, 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 Annual Report on Form 10-Q for the third quarter ended September 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. Now, I will turn the call over to Mr. Wang.

Thank you, Wilson. Good morning to those in U.S. and good evening to those participants in Asia. Thank you for joining our third quarter 2021 earnings conference call. We are very pleased to announce the 2021 third quarter results with a 19.1% quarter-on-quarter increase in total sales. Notably, we achieved quarter-on-quarter improvement in gross profit of 11.2% for our wholesale business. But our retail business decreased 10.3% in gross profit compared with 3-months ended September 30, 2020. The decrease was mainly due to increased production cost and write-off of [indiscernible]. 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 opened 83 stores and closed 126 stores in 9 months of 2021. As of September 30, 2021, we operated a nationwide network of 893 stores compared with 923 stores as of September 30, 2020. During 2021, we operated with a [ feasibility proposal ] of La go go. The effect of the [ feasibility ] will enhance our brand in [indiscernible]. While we still see strong demand for our products at our retail stores, we continue to see opportunities in the e-commerce areas. Mobile platforms such as our La go go stores on Tmall and Dangdang.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 still affected by COVID-19 and the pressure of the economic downturn where we actively respond to the changes in the internal economic environment. As for our wholesale business, the company has enhanced its intensive product development and supply chain management expertise as well as network of high-quality, reliable and cost efficient 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 trends, new material development and new style designs. 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 brand both in Mainland China and worldwide. This concludes this Mr. Kang's comments. I will now walk through our financial results for the third quarter of 2021. Please note that all numbers discussed today are in U.S. dollars, unless otherwise noted. Total sales for the third quarter of 2021 were $94.4 million, an increase of 18.1% from $79.9 million in the third quarter of 2020. This increase was primarily driven by a 38% increase in our wholesale business, partially offset by a 7.6% decrease in retail business. Sales for the company's branded fashion apparel retail division decreased by 7.6% to $32.2 million for the third quarter of 2021 compared with $34.8 million for the third quarter of 2020. This decrease was primarily due to a decrease in the e-commerce sales. The company operated 893 retail stores as of September 30, 2021 compared with 923 retail stores as of September 30, 2020. Sales for the company's wholesale division increased by 38% to $62.2 million for the third quarter of 2021 compared with $45.1 million for the third quarter of 2020. This increase was primarily attributable to an increase in sales in Mainland China, Europe-Other, Japan and United States, partially offset by a decrease in sales in Hong Kong and United Kingdom. Total gross profit for the third quarter of 2021 decreased by 2% to $23.2 million compared with $23.7 million for the third quarter of 2020. Total gross margin for the third quarter of 2021 decreased to 24.6% from 29.6% for the third quarter of 2020. Gross profit for the retail business decreased by 10.3% to $13 million for the third quarter of 2021 compared with $14.5 million for the third quarter of 2020. Gross margin for the third quarter of 2021 was 40.3% compared to 41.6% for the third quarter of 2020. Gross profit for the wholesale business increased by 11.2% to $10.2 million for the third quarter of 2021 compared with $9.2 million for the third quarter of 2020. Gross margin for the third quarter of 2020 (sic) [ 2021 ] decreased to 16.4% from 20.4% for the third quarter of 2020. Selling expenses for the third quarter of 2021 increased by 11.1% to $14.4 million or 15.3% of total sales compared with $13 million or 16.3% of total sales for the third quarter of 2020. The increase was attributable to the higher travelling expenses. General and administrative expenses for the third quarter of 2021 increased by 21.1% to $9.5 million or 10% of total sales compared with $7.8 million or 9.8% of total sales for the third quarter of 2020. The increase was attributable to the increased salaries. Loss/income from operations was $0.7 million for the third quarter of 2021 compared with -- compared to $2.9 million for the third quarter of 2020. Net loss attributable to the company for the third quarter of 2021 was $3.2 million compared with $2.2 million for the third quarter of 2020. Basic and diluted loss per share was $0.22 for the third quarter of 2021 compared with $0.15 for the third quarter of 2020. As of September 30, 2021, Ever-Glory had approximately $48.3 million of cash and cash equivalents compared with approximately $81.9 million as of December 31, 2020. Ever-Glory had working capital of approximately $44.6 million as of September 30, 2021 and outstanding bank loans of approximately $67.8 million as of September 30, 2021. Our relentless efforts have been paying off with 2021 third quarter results and we look forward to further strengthening the fundamentals and increasing operating leverage and the support long-term profitability of our business. Thank you for participating in Ever-Glory's 2021 third 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. Good bye. Thank you.

Thank you. Operator, I think we can't have [indiscernible] to conclude today's conference call. Thank you, everybody. Thank you, operator. See you next time.

Thank you. This does conclude today's conference. We thank you for your participation.