Secoo Holding Limited

Hello, everyone, and welcome to the First Quarter 2020 Earnings Conference Call of Secoo Holding Limited. The company's results were issued via Newswire services earlier today and have been posted online.

You can download the earnings press release and sign up to the company's e-mail alerts by visiting the IR section of our website at ir.secoo.com.

Mr. Richard Li, our Founder, Chairman and the Chief Executive Officer; and Mr.

Shaojun Chen, our Chief Financial Officer, will start the call with their prepared remarks, followed by a question-and-answer session.

Before we continue, please note that today's discussion 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 be materially different from the views expressed today.

Further information regarding this and other risks and uncertainties is included in the company's registration statement on Form F-1 and Form 20-F as filed with the U.S. Securities and Exchange Commission.

The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Please also note that Secoo's earnings press release and this conference call includes discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Secoo's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the audited most directly comparable GAAP measures.

I will now turn the call over to our Chairman and CEO, Mr. Richard Li.

Please go ahead.

[Foreign Language]

[Interpreted] Hello, everyone, and thank you for joining us today.

[Foreign Language]

[Interpreted] In the first quarter of 2020, despite the coronavirus outbreak, which shocked the economy and posed certain impacts on the company's operations, we achieved solid performance with a GMV of RMB 2.476 billion, an increase of 12.2% year-over-year. We are also pleased that number of active customers increased by 11.5% year-over-year.

Notwithstanding the challenges presented by the pandemic, it is fairly encouraging to see new opportunities looming in the new normal after the coronavirus. To illustrate, the travel restrictions imposed during the pandemic have sharply reduced the channels of shopping abroad for Chinese.

Meanwhile, the consumer buying behavior have also been profoundly impacted due to the pandemic, as evidenced by the fact that people still refrain from going out and staying inside postpandemic. And that online shopping habit have been further reinforced.

All this has contributed to a robust increase in the online penetration of high-end products and services allowing us to gain the ever broader recognition as to the go-to luxury e-commerce platform in China. Drawing on our well placed strategies, strong execution abilities and the technology-driven innovation capabilities, we will give full play to our strength as a e-commerce platform in user traffic, brand stature and technology to have more high-end brands in the brick-and-mortar retail stores accelerate their digital transformation.

Furthermore, we will continue providing consumers who are in favor of high-end consumption and vessels with the wide range premium products and their service offerings, which is our core competitive strength and position as well to see the new opportunities while enriching the great potential in China's luxury e-commerce industry.

[Foreign Language]

[Interpreted] I'm sure that most of you are aware of our previous announcement that Secoo has recently received a USD 100 million equity investment from Qudian. They have also formed a strategic partnership that aim at exploring enormous opportunities in the online luxury e-commerce business space by leveraging respective industry-leading expertise and competitive advantages.

This strategic partnership is set to build synergies between both companies' assets, core capacity and competitive strength to drive organic growth. Secoo will utilize the proceeds to further strengthen the supply chain, enhance the customer satisfaction whereas to further capture the rising demand for high-end products and services in China.

[Foreign Language]

[Interpreted] Since the beginning of the first quarter, Secoo has hosted a number of large shopping festivals supported by a variety of AI-driven marketing approaches leading to a solid expansion of our paying customer base. To name a couple of them, in May, we held the Brands & Quality Online Shopping Festival, which featuring more than 200 livestream selling sessions in collaboration with 13 top-tier international luxury brands, including Prada, Versace, Ferragamo, Tod's, Roger Vivier, Armani and covering more than 40,000 products.

During the latest year sale campaign, the June 18 shopping festival, we took a more proactive approach with sales strategy, laser-focused on the high-ranking fashion brands in combination with more targeted marketing solution, supporting us to successfully achieving our sales target. In particular, our strategic focus on optimizing the shopping experience for our existing customers helped us achieve a 34% year-over-year increase in the average transaction value per order by repeated customers.

[Foreign Language]

[Interpreted] We remain dedicated to expanding and deepening brand relations. We have to enhance the company's presence in the luxurious sector and market fashion consumers.

From the first quarter of 2020 to date, they have added a total of 158 brands to our platform, including IDo, Ebohr, Ted Baker, Jeff Banks and St John.

[Foreign Language]

[Interpreted] We formed a clearer livestream business strategy dedicated to developing transaction and upscale livestream shopping fashion. In this state, we continued endeavors related to our characteristic livestream channel by featuring the engaging livestreaming programs with a tag of luxury, such as livestream in-store shopping worldwide, 24 hours global duty-free product livestream and the brand-authorized livestream room.

To illustrate a bit more on the in-store shopping industry, in addition to our efforts to expand the number of participating stores, we further enhance the program by expanding in shopping location from stores to shopping malls and even in shopping districts. Excitingly, they have performed more than 200 livestream sessions in 18 shopping malls and district in the Tier 1 and Tier 2 cities.

Also, our brand authorized the livestreaming room, attracting new fashion brands and the livestream company is not only focused on livestream sales, but also accommodate the runway show and new addition launch. For example, on our platform, Mulberry held its first livestream session to present its bags.

DVF has livestreamed for its runway show during Fashion Week, and Jenny Packham livestreamed its haute couture dress labels and jewelry series.

With accumulated experience, Secoo has greatly cultivated professional and proficient broadcaster team with expertise in this broadcasting newer products. At the same time, Secoo's strat for attracting new broadcaster in the higher -- in high-end consumers to join our platform by leveraging our advanced technology massive high-end customer base and the sophisticated livestream platform and services, building out a vibrant distinctive livestream ecosystem, which benefiting our stakeholders' dividends.

[Foreign Language]

[Interpreted] From May 1 to May 7 as the exclusive e-commerce partner of China Fashion Week, Secoo completed over 100 livestream sessions for China Fashion Week events, such as fashion show, brand presentations and See Now, Buy Now marketing campaigns for participating brands, which generated more than 1.5 million unique visits. Besides Secoo's membership enjoying the exclusive privilege for the live See Now, Buy Now sales campaign that joined the launched by some big brands from 15 countries.

Along with that, notably, Secoo hosted a fashion forum on the event, featuring a number of fashion industry influencers. This livestream forum generated 810,000 viewership, including many industry elite.

The livestream session during the China Fashion Week has successfully evoked that social attention and that topic as the volume of clicks on related discussion exceeded for many times within the first 4 days, which significantly increased Secoo's brand awareness and attract a large traffic.

[Foreign Language]

[Interpreted] Additionally, Secoo entered in collaboration with leading short video social networking platform that attracts a vast amount of user traffic, such as the Douyin and Kuaishou.

Through collaboration, we launched a series of cross-platform livestreaming events aiming to provide a wider range of consumers with fashion luxury goods supported by Secoo's high-quality supply chain. Pre-owned luxury category is entry point for us to get connected with Douyin.

And now Secoo has become the top online customer of Douyin preowned luxury livestreaming business. In terms of our collaboration with Kuaishou, I'd like to share a fashion livestream events that was jointly hosted on the June 7 by Secoo and Kuaishou.

This 5-hour livestreaming selling session is concentrated on luxury goods covering over a hundred selection of products from dozens of luxurious brands such as Hermes, LV, Armani and Gucci.

[Foreign Language]

[Interpreted] Building a comprehensive AI empowered platform has always been at the heart of our strategy. This quarter, we have made big strides towards applying big data analytics in search and personalized merchandise recommendations.

Based on the analysis of user behavior and order histories, our system can automatically tailor different recommendations within their different use scenario and user interface, such as home page, product page and the various activity page. In this way, it can help users to make decisions and to improve the fixed rebate.

Furthermore, they have also concluded the overall upgrade of livestream technology to be adapted to the increasingly rising midstream volume and ever changing customer needs, integrated presets of product technology from Alibaba Cloud, Chrome cloud, Qudian cloud. Our platform features all-around functions for post front, user front, assistance front and operation front, which not only improves user experience, but also ensures the rooms and the stability of the livestreaming.

[Foreign Language]

[Interpreted] With the resumption of production and the business operations stepping up, we believe that overall economy will gradually recover in the foreseeable future. It also impacts our strategic partnerships with Qudian to yield meaningful synergies as our cooperation deepens.

Looking ahead, Secoo will remain committed to piloting operations on a number of key brands, while strengthening the livestream channel, further expanding our cooperations with more qualified suppliers and high-end strategic customers in line with our luxury brands strategy, scaling up preowned luxury transactions, deepening of the cooperation with high-end brands, ultimately bringing Secoo's influence in optimal fashion space to the next level.

[Foreign Language]

With that, I will now turn the call over to our CFO, Mr. Shaojun Chen, who will discuss our key operating metrics and financial results.

[Foreign Language]

Thank you, Richard, and hello, everyone.

[Foreign Language]

[Interpreted] The outbreak of coronavirus has brought unprecedented impact on the luxury consumer industry in the first half of 2020. Our first quarter revenue performance was negatively impacted.

While it is encouraging for us to still achieve the double-digit year-over-year growth in our key operating metrics, this performance demonstrates the attractive needs of upscale platform and the robust demand for the high-profile products and services. We aim to continue investing in technology enhancements to further build our intelligent operating system in order to elevate the efficiency and to improve profitability.

Looking ahead, our core capacity and strengthened cash position set a solid financial condition, which we believe will support us to recover our growth momentum in the near future and capture the enormous potential in China's online luxury consumer market in the postpandemic world.

[Foreign Language]

[Interpreted] Now I'd like to walk you through our detailed financial results in the first quarter of 2020.

[Foreign Language]

[Interpreted] GMV increased by 12.2% to approximately RMB 2.48 billion for the first quarter of 2020 from RMB 2.21 billion for the first quarter of 2019.

[Foreign Language]

[Interpreted] Total number of orders increased by 11.6% to 723,000 for the first quarter of 2020 from $648,000 for the first quarter of 2019.

[Foreign Language]

[Interpreted] Total revenue for the first quarter of 2020 was approximately RMB 1.01 billion compared with RMB 1.18 in the first quarter of 2019, primarily attributable to a slowdown in the amount of discretionary spending and delayed logistics service due to the impact of coronavirus pandemic.

[Foreign Language]

[Interpreted] Cost of revenue decreased by 8.9% to RMB 845 million for the first quarter of 2020 from RMB 927 million for the first quarter of 2019, primarily due to the decrease of total revenues.

[Foreign Language]

[Interpreted] Gross profit was approximately RMB 161 million for the first quarter of 2020 compared with RMB 248 million for the first quarter of 2020 compared with RMB 248 million for the first quarter of 2019. The decrease was mainly due to the increase in discount on sales to boost the customers' willingness to purchase during the pandemic.

[Foreign Language]

[Interpreted] Operating expense decreased by 21% to RMB 179 million for the first quarter of 2020 from RMB 227 million for the first quarter of 2019. Now I'd like to walk you through the company's expense items in detail.

[Foreign Language]

[Interpreted] Our fulfillment expense decreased by 7.4% to a RMB 42.3 million for the first quarter of 2020 from RMB 45.6 million for the first quarter 2019. The difference was primarily attributable to the decreased staff cost during the period.

[Foreign Language]

[Interpreted] Our marketing expense decreased by 37.9% to RMB 69.4 million for the first quarter of 2020 from RMB 111.9 million for the first quarter of 2019, primarily due to reduced online and off-line advertising expenses as well as the decreased the staff cost.

[Foreign Language]

[Interpreted] Technology and content development expenses increased by 19.8% to RMB 27.7 million for the first quarter of 2020 from RMB 23.1 million for the first quarter of 2019. The increase was primarily due to the continuous investment in the technology department in order to strengthen the driving force of technology for operations.

[Foreign Language]

[Interpreted] Our general and administrative expense decreased by 13.8% to RMB 39.9 million for the first quarter of 2020 from RMB 46.2 million for the first quarter of 2019. The decrease was strongly attributable to the decreased staff cost during the period, offset by the rising office rental expenses.

[Foreign Language]

[Interpreted] Our loss from operations was RMB 18.6 million for the first quarter of 2020 compared with income from operations of RMB 21.4 million for the first quarter of 2019.

[Foreign Language]

[Interpreted] Non-GAAP loss from operations, which excludes the share-based compensation expense for the first quarter of 2020 was RMB 15 million compared with non-GAAP income from operations of RMB 24.9 million for the first quarter of 2019.

[Foreign Language]

[Interpreted] The recorded a net loss of RMB 42.5 million for the first quarter of 2020 compared with net income of RMB 15.8 million for the first quarter of 2019.

[Foreign Language]

[Interpreted] Non-GAAP net loss, which excludes the share-based compensation expense for the first quarter of a 2020 was RMB 38.9 million compared with non-GAAP net income of RMB 19.3 million for the first quarter of 2019.

[Foreign Language]

[Interpreted] As of March 31, 2020, the company had cash, cash equivalent and restricted cash of RMB 733 million.

[Foreign Language]

[Interpreted] This concludes our prepared remarks. We will now open the call to questions.

Operator, please go ahead.

[Foreign Language] I will translate myself. I have two questions.

The first one is does the company have any plan to open duty-free shops in China? If there is one, is this allowed by the current policy?

My second question is that what is the sales performance and the pace of recovery after COVID for different product categories?

[Foreign Language]

According to our CEO, in 2020, the government stepped up the policy support to facilitate the development of the Hainan duty-free part, focusing on being the offshore duty-free business of Hainan followed by a series of preferential merits. Given that, we are also very optimistic about the immense potential of Hainan's duty-free market and tourism market in the foreseeable future and the premium lifestyle platform, who provides products and services to high-end customers, which has high consistency with the target group of Hainan free trade ports hence to further extend its segments sold in Hainan including duty-free business and duty-free shops.

Currently, we're in communication with the local government of Hainan province and other partners. Should there be any news in this regard, we will announce this officially through our Investor Relations channel.

[Foreign Language]

For your second question, according to our CFO, with the outbreak of coronavirus, the global travel transportation and logistics system has seen significant impacts due to a series of measures taken by numerous changes to prevent the pandemic. So far, the coronavirus pandemic has been effectively controlled in China, while it continues to spread in other countries.

However, we are pleased to see that China's high-end consumption market is recovering. In the first quarter of 2020, the clothing, bags, watches and jewelries, which are our 4 core categories, accounted for more than 72% of the total GMV, increased by around 6% compared to the first quarter of 2019.

At the same time, travel and lifestyle category was greatly affected by the pandemic with a 7% decrease year-over-year in GMV for the first quarter of 2020 and the pace of recovery was relatively slow as of now.

Thank you, once again for joining us today. If you have further questions, please feel free to contact Secoo's Investor Relations through the contact information provided on our website of The Piacente Group Investor Relations, whose information is also on our website.