LightInTheBox Holding Co., Ltd. (LITB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the First Quarter Of 2021 Earnings Conference Call for LightInTheBox Holding Company Limited. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Rene Vanguestaine for opening remarks and instructions. Please go ahead, sir.

Thank you, Annie. Hello, everyone, and welcome to LightInTheBox's First Quarter 2021 Earnings Conference Call. The company's earnings results were released earlier today and are available on the company's IR website as well as through PR Newswire. Today, you will hear from LightInTheBox CEO, Mr. Jian He, who will give an overview of the company's strategies and recent developments; followed by Ms. Yuan Jun Ye, the company's Chief Financial Officer, who will go over financial results. Together with them today is Wenyu Liu, the company's Chief Growth Officer. All will be available for Q&A at the end of this presentation. Before we proceed, I would like to remind you of our safe harbor statement. Please note that the discussion today may contain certain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to materially differ from those in the forward-looking statements, please refer to our Form 20-F filed with the Securities and Exchange Commission on April 21, 2021. We do not assume any obligation to update any forward-looking statements, except as required under applicable law. At this point, I'd like to turn the call over to Mr. He. Mr. He, please go ahead.

Thanks, Rene, and thank you, everyone, for joining us today. We had very solid first quarter, kickstarting the year with revenue of $112 million, up 118% from the same period of 2020, and in line with our prior guidance. As we continue to execute our established strategy, we are pleased to see the growth across all of our major operating regions. Our gross profit margin in Q1 was 46.6%, largely flat compared with the same period of 2020, while adjusted EBITDA grew by close to 60% year-over-year. Product sales increased 119% compared to Q1 last year, and the revenue from apparel increased 166%. Among all categories, apparel is still the largest, which contributed 53% of total product sales in Q1 compared to 43% in Q1 last year. This category has a full spectrum ranging from adult fashion, casual wear, sportswear, children's clothes and so on, which covers customers' daily needs for various occasions. We have been leveraging on technology to improve operation efficiencies and build strong foundation for cross-border e-commerce. R&D spending came to $4.9 million in Q1 2021 compared with $3.5 million in the same quarter last year. As we continue to invest in R&D, we have better insights in our customers' needs and wants, which drive the improvements of the supply chain, maintenance of product quality, design and production cycle. We can also be more proactive to the fast-changing and diversified consumer needs with the help of technology. For 2021, we will continue to implement strategies to achieve sustainable growth and enhance our platform to be more responsive and user friendly so that customers will enjoy the convenience of online shopping even more on all the websites and the mobile app. I will now hand the call over to Yuan Jun to go through the financial results.

Thank you, Mr. He, and thank you, everyone, for joining the call. I will now review our financial results for the first quarter. Let me remind you that all numbers quoted are in U.S. dollars. Total revenue was $112 million, up 117.5% year-over-year from $51.5 million. This was mainly driven by strong growth in product sales, which were $109.4 million versus $49.9 million in the same period in 2020, and growth in services and others, which was $2.6 million compared with $1.6 million in the same quarter of 2020. Included in product sales, revenue from apparel increased by 166% to $57.6 million in the first quarter of 2021 compared with $21.7 million in the first quarter of 2020. Gross profit was $52.3 million compared with $23.9 million during the same period last year. Gross margin was 46.6%, slightly higher than 46.4% in the same quarter of 2020, primarily due to our continued efforts to optimize the supply chain. Total operating expenses were $50.9 million compared with $27.1 million during the same quarter of 2020. The increase was mainly due to the increase in selling and marketing expenses. Of operating expenses, fulfillment expenses were $7.2 million compared with $5 million in the same quarter of 2020. As a percentage of total revenue, fulfillment expenses were 6.5% compared with 9.8% in the same quarter of 2020 and 6.7% in the fourth quarter of 2020. Selling and marketing expenses were $35.6 million compared with $14.8 million in the same quarter of 2020. As a percentage of total revenue, selling and marketing expenses were 31.8% compared with 28.7% in the same quarter of 2020 and 33.1% in the fourth quarter of 2020. G&A expenses were $8.4 million compared with $7.3 million in the same quarter of 2020. As a percentage of total revenue, G&A expenses were 7.5% compared with 14.1% in the same quarter of 2020 and 7.9% in the fourth quarter of 2020. Included in G&A expenses, R&D expenses were $4.9 million compared with $3.5 million in the same quarter of 2020 and $4.8 million in the fourth quarter of 2020. Adjusted EBITDA, which represents income from operations before share-based compensation expense, interest income, interest expense, income tax expense and depreciation and amortization expenses, was $2.3 million in the first quarter of 2021 compared with $1.4 million in the same quarter of 2020. Net income was $1.4 million compared with $0.7 million in the same quarter of 2020. Net income per ADS was $0.01 compared with $0.01 in the same quarter of 2020. As of March 31, 2021, we had cash and cash equivalent and restricted cash of $60.1 million compared with $65.5 million as of December 31, 2020. Finally, for the second quarter 2021 guidance, based on information currently available and business seasonality, we expect net revenues to be between $130 million and $145 million, representing a growth rate between 14% to 27% compared with the second quarter of 2020. Excluding the net revenues from sales of personal protective equipment, which are no longer sold in 2021, the year-over-year growth in net revenue for the second quarter of 2021 will be 48% to 65%. This concludes our prepared remarks. At this point, we are ready to take some questions. Operator?

[Operator Instructions] Our first question comes from the line of Matthew of National Securities.

A great quarter, certainly on the top line. That's the third, fourth quarter in a row where you have all shown tremendous growth on the top line. I got a question for you, though. The profitability is not at the same level as your top line growth. Last quarter, you actually had a small loss, even though you were up 100% or something plus. And then this quarter, you have a small profit and a small increase in EBITDA. Can you give me a reason for that, please?

Thank you for the question. Because -- actually the first quarter, we have this Chinese New Year. So due to some seasonality issue, we had slightly lower profit in terms of the percentage.

I am sorry, I missed that. You're saying that this first quarter, you actually had a slightly smaller gross profit or what have you. I didn't catch that because it look like you came in at $0.01 like last year, but your EBITDA was slightly higher, too many changes in one...

Okay. Sorry. Let me rephrase my -- yes, let me rephrase my answer. Due to Chinese New Year, seasonality issue. In terms of the supply chain efficiency, it's slightly lower as compared to last year quarter 4. So yes, that is the reason why the bottom line didn't really grow as the top line.

All right. Is there -- what is your strategy, your game plan to increase the bottom line? Or are you just reinvesting most of your revenue gains back into the company? You have a very nice balance sheet, a little -- the cash was slightly lower than last quarter, but you're an e-commerce company, and you're trading well below 1x of sales, which is quite unusual. So there's a big opportunity here for investors, like myself, to be able to invest in a company whose business model has changed the last few years, your product mix and what have you, so that if you can see some money falling to the bottom line, this stock could be worth several times what it is currently. But obviously, at the end of the day, you got to make some money, or if not, if you could explain the strategy as to, one, just focusing on growth versus profitability? Or is profitability going to come in the near term?

Okay. As you have been seeing for the past 2 years, we have already stabilized the overall efficiency, and we have a better bottom line performance over the past 2 years. And in this coming year, even the few years, so going forward, definitely, our priority will be, first off all, the revenue growth; second will be the cash flow; thirdly, it comes to the profit. So as an e-commerce company, we can't only have good profit without any revenue growth. So I believe, we are trying to have a healthy and sustainable growth followed by a good cash flow, followed by the bottom line performance.

I see. So you expect for the year -- seasonally, your first quarter is not your strongest. So that's what made this quarter very exciting as far as your performance. Do you expect to be profitable for the year on a net income basis?

That's a good question. I can't make any conclusion right now. I can't really give you any guidance. I'm not any fortuneteller. But definitely, we are running this company, and we hope we can have a sustainable growth so as the profit performance. So what we are trying to do, as you can see, for the past 2 years, we are trying to stabilize the operational efficiency in order to reduce the overall cost. And this coming year, even though we are going to have better revenue growth, but at the same time, we are still looking closely at all the cost factors, and we try to stabilize the bottom line as well.

All right. I mean as long as, ultimately, that's your goal, if I look back at, say, you and Amazon, for many, many years they were not profitable, and it was part of their strategy to grow and to reinvest any cash flows they had back into the company. So it was not falling to the bottom line. They were not profitable. However, they were growing dramatically. And I'm hoping that you all have a similar strategy because, for many years, your company did not grow, but you've had really explosive, really strong growth over the last year. And presumably, you have a lot larger customer base that are repeat customers. And that, on a run rate right now, you -- it looks like you'll do $500 million at least this year, assuming that this is the seasonally weakest quarter. And for a company whose market capitalization is significantly [Audio Gap] as an investor, I would expect to see dramatic growth in your share price. So hopefully, that's the goal of your company to see a higher share price.

Okay. I think I'm going to address this concerning few -- I mean, few points. First of all, as an online retail e-commerce platform, cash flow is very important. Even though Amazon was not profitable at all, but it has positive cash flow. So that's why we are also emphasizing on our cash flow. We -- I believe, for a healthy retail company, cash flow -- positive cash flow is pretty important. Secondly, as you have mentioned, we have a big customer base. So for the past few years -- so past 2 years, we have tried our best to improve the supply chain, try to provide our customers with better quality products at lower cost. So we need some time to have a stronger customer base so that we can have more returning customers and reduced marketing spending.

[Operator Instructions] As there are no questions on queue, I'd now like to hand the conference back to Mr. Rene Vanguestaine for closing remarks. Please go ahead.

Thank you, Annie. This concludes our first quarter 2021 results. [Technical Difficulty]

Thank you. And this concludes today's conference call. Thank you for participating. You may now disconnect.