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

Greetings, and welcome to the Ever-Glory International Group Third Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, [ Tin King Wu ]. Thank you. You may begin.

Okay. Thank you, operator. Hello, everyone, and welcome to Ever-Glory International Group Third Quarter 2022 Earnings Conference Call. The company distributed its earnings press release earlier today via Newswire service. You can download it from Ever-Glory's website at www.everglorygroup.com. With us today is Ever-Glory's Dandan Song; Mr. Jason Wang; Chief Financial Officer; Mr. Yihua Kang, Ever-Glory's Chairman, President and Chief Executive Officer, are on a business trip today and unable to join the call. Ms. Song 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 provision of the U.S. Private Securities Litigation Form Act of 1995. Forward-looking statements, which 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-Q for the third quarter ended September 30, 2022, and in other documents filed with the U.S. Securities and Exchange Commission. Ever-Glory does not assume any application to update any forward-looking statements, except as required on the 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 Ms. Song.

Thank you, Ms. Wu. Good morning to those in the U.S., and good evening to those participants in Asia. Thank you for joining our third quarter 2022 earnings conference call. We are very pleased to announce that the 2022 third quarter results with 12.7% quarter-on-quarter increase in total sales. Notably, we achieved quarter-on-quarter improvement in sales of 33% for our wholesale businesses, and our wholesale business increased 2.4% in gross profit compared with the 3 months ended September 30, 2021. The company's retail business is still affected by COVID-19 in China and the pressure of the economic downturn. On retail side, our brands continue to attract new customers and retain existing customers by focusing on design, quality and value. Our inventory management continually improved the balance between inventory turnover, and our diligent cost control measures further strengthened the profitability of our business. We opened 19 stores and closed 125 stores in 9 months of 2022. As of September 30, 2022, we operated a nationwide network of 774 stores compared with 893 stores as of September 30, 2021. While we still see strong demand for our products at our stores -- at our retail stores, we continue to see opportunities in the e-commerce area. Mobile platforms, such as our La go go stores, 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 inventories and create a unique and different customer experience to grow our loyal customer base. 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 the supply chain management expertise as well as network of high-quality, reliable and cost-efficient sourcing channels and menu factories. 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 design. Going forward, we still 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 third quarter of 2022. Please note that all numbers discussed today are in U.S. dollars, unless otherwise noted. Third quarter 2022 financial results. Total sales for the third quarter of 2022 were $106.4 million, an increase of 12.7% from $94.4 million in the third quarter of 2021. This increase was primarily driven by a 33% increase in our wholesale business, partially offset by a 26.4% decrease in retail business. Sales for the company's wholesale division increased by 33% to $82.7 million for the third quarter of 2022 compared with $62.2 million for the third quarter of 2021. This increase was primarily attributable to increased sales in Mainland China, Hong Kong, the United Kingdom and other European markets, partially offset for decreased sales in Japan and the United States. Sales for the company's branded fashion apparel retail division decreased by 26.4% to $23.7 million for the third quarter of 2022 compared with $32.2 million for the third quarter of 2021. This decrease was primarily due to a decrease in same-store sales. The company operated 774 retail stores as of September 30, 2022, compared with 893 retail stores as of September 30, 2021. Total gross profit for the third quarter of 2022 decreased by 30.9% to $16 million compared with $23.2 million for the third quarter of 2021. Total gross margin for the third quarter of 2022 decreased to 15.1% from 24.6% for the third quarter of 2021. Gross profit for the wholesale business increased by 2.4% to $10.5 million for the third quarter of 2022 compared with $10.2 million for the third quarter of 2021. Gross margin for the third quarter of 2022 decreased to 12.6% from 16.4% for the third quarter of 2021. Gross profit for the retail business decreased by 57% to $6 million for the third quarter of 2022 compared with $13 million for the third quarter of 2021. Gross margin for the third quarter of 2022 was 23.6% compared to 40.3% for the third quarter of 2021. Selling expenses for the third quarter of 2022 decreased by 11.4% to $12.8 million or 12% of total sales compared with $14.4 million or 15.3% of total sales for the third quarter of 2021. The decrease was attributable to the decreased average salaries and the decreased business trips. General and administrative expenses for the third quarter of 2022 decreased by 1.7% to $9.3 million or 8.7% of total sales compared with $9.5 million or 10% of total sales for the third quarter of 2021. The decrease was attributable to the decreased publicity expenses and the depreciation of RMB. Loss from operations was $6.1 million for the third quarter of 2022 compared to $0.7 million for the third quarter of 2021. Balance sheet as of September 30, 2022. Ever-Glory had approximately $32.2 million of cash and cash equivalents compared with approximately $56.6 million as of December 31, 2021. Ever-Glory had working capital of approximately $41.6 million as of September 30, 2022, and outstanding bank loans of approximately $63.4 million as of September 30, 2022. Our relentless efforts have been paying off with the 2022 third quarter results, and we look forward to further strengthening the fundamentals and the increasing operating leverage to support the long-term profitability of our business. Thank you for participating in Ever-Glory's 2022 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. Thank you, operator. Goodbye.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.