Mecox Lane Limited (NASDAQ:MCOX)
Q1 2014 Earnings Conference Call
June 9, 2014 9:00 p.m. ET
Nicholas Manganaro – Ogilvy Financial
Ye Wang – CEO
Michael Liu – Vice President of Finance
Hello and thank you for standing by for Mecox Lane’s First Quarter 2014 Earnings Conference Call.
I will now turn the call over to your host for today’s conference, Mr. Nicholas Manganaro of Ogilvy Financial.
Hello and thank you for joining us today. The company’s first quarter earnings results were released earlier today and are available on the company’s IR website at ir.mecoxlane.com, as well as on the newswire services.
Today you will hear from Mecox Lane's Chief Executive Officer, Ms. Ye Wang, and Michael Liu, the company's Vice President of Finance. After their prepared remarks, they will be available to answer your questions.
Please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements involve inherent risks and uncertainties. As such, the company's future results may be materially different from the views expressed today. Potential risks and uncertainties include but are not limited to those outlined in the forward-looking statements section of the company's earnings release issued today.
Additional information regarding these and other risks and uncertainties is included in the Company’s Annual Report on Form 20-F as well as in its other filings with the U.S. Securities and Exchange Commission. Mecox Lane Limited does not assume any obligation to update any forward-looking statements except as required under applicable law.
The earnings release and this call includes a discussion of some unaudited non-GAAP financial measures. As explained in more detail in the company's earnings release, the non-GAAP measures mentioned in this call exclude share-based compensation expenses. The company's earnings release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.
As a reminder, this conference call is being recorded. In addition, a webcast of this conference call is available on Mecox Lane’s investor relations website ir.mecoxlane.com.
I will now turn the call over to the company's CEO, Ms. Ye Wang.
Thank you and hello to everyone on the call. As you may know from the company's recent announcement, Cnshangquan's acquired approximately 63% of Mecox Lane's issued and outstanding ordinary shares in a deal that closed less than three weeks ago. As a result, our new board of directors and management team have just assembled and are beginning to implement our new strategy for Mecox Lane.
Going forward we plan to focus on the company's health and beauty products business which have been Mecox Lane's strongest performing segment over the last five years by virtually all measures, including sales growth, gross margin and gross profit. With experienced marketing and customer service team the company already has in place, we will look to build our customer base and enhance product [ph] loyalty. We recognize great opportunities in this market space and our goal is to create full-service online platform for health, beauty and lifestyle resources that will feature our wide range of personalized service options, including expert advice from team of specialists.
Also, in order to maximize shareholder value and put the company in a stronger competitive position, we plan to dispose of the company's apparel and accessories business which have consistently underperformed. We are now working with our board of directors to identify a potential acquirer.
Our new board of directors and the management team bring a wealth of technical and functional expertise, especially -- particularly in areas of e-commerce, mobile application development, marketing, data mining and processing, system integration and finance. We are confident that we have the tools and the talent in place to grow the company in a new direction that will yield positive and sustainable results.
This is an exciting time for Mecox Lane and the start of a new chapter for the company. We look forward to sharing our plans with you in greater details in the weeks and months ahead.
I will now turn the call over to Michael Liu, our Vice President of Finance, who will discuss the company's first quarter numbers.
Thank you and hello everyone. Please note that due to the seasonal nature of our business, the company presents its financial results on a year-over-year basis.
Total net revenues were $19.2 million in the first quarter, representing a decrease of 8.5% from $21.0 million in the first quarter of 2013. The decrease was mainly due to the decrease in the net revenues from the company's e-commerce channel, as well as the decrease in net revenues from the company's franchised stores.
Net revenues from the company's e-commerce channel were $3.2 million, representing a decrease of 43.5% from $5.7 million in the first quarter of 2013. The decrease was mainly attributed to the continued decline in the company's sales on M18.com, along with increased competition from rival apparel brands.
Net revenues from the company's call center were $10.7 million in the first quarter, representing an increase of 9.9% from $9.7 million in the first quarter of 2013. The increase was mainly attributed to an increase in orders for health and beauty products.
Net revenues from directly operated stores were $4.5 million in the first quarter, representing an increase of 45.9% from $3.2 million in the first quarter of 2013. The increase was mainly due to an increase in average store sales, partially offset by a decrease in the number of directly operated stores from an average of 65 stores in the first quarter of 2013 to an average of 55 stores in the first quarter of 2014.
Net revenues from franchised stores were $0.7 million in the first quarter of 2014, representing a decrease of 70.3% from $2.4 million in the first quarter of 2013. The decrease in net revenues was mainly due to a decline in average store sales and a decrease in the number of franchised stores from an average of 263 stores in the first quarter of 2013 to an average of 152 stores in the first quarter of 2014.
Cost of goods sold was $11.0 million in the first quarter, representing a decrease of 14.6% from $12.9 million in the first quarter of 2013. The decrease is consistent with the overall decrease in revenues.
Gross profit was $8.2 million in the first quarter, representing an increase of 1.1% from $8.1 million in the first quarter of 2013. Gross margin was 42.7% in the first quarter of 2014, compared to 38.6% in the first quarter of 2013. The increase in gross margin was mainly due to an increase in the weighting of the call center in total net revenues, as the call center generated a higher gross margin compared to other segments.
Total operating expenses were $12.6 million in the first quarter, representing an increase of 7.9% from $11.7 million in the first quarter of 2013. The increase reflects a gain of $6.0 million in the first quarter of 2013 in connection with the partial disposal of the contributed intangible assets to its joint venture, Giosis Mecoxlane, and partially offset by a decrease in selling, general and administrative expenses.
Selling, general and administrative expenses were $11.7 million in the first quarter, representing a decrease of 27.9% from $16.3 million in the first quarter of 2013, primarily due to a decrease in headcount and labor costs.
Loss from operations was $4.5 million in the first quarter, compared to loss from operations of $3.6 million in the first quarter of 2013. Loss from equity in an affiliate, specifically Giosis Mecoxlane, was $1.1 million in the first quarter, compared to $0.9 million in the first quarter of 2013.
Net loss was $5.8 million in the first quarter, compared to net loss of $4.2 million in the first quarter of 2013. Non-GAAP net loss was $5.0 million in the first quarter of 2014, compared to non-GAAP net loss of $3.2 million in the first quarter of 2013. Basic and diluted loss per American depositary share attributable to Mecox Lane shareholders was $0.45 in the first quarter of 2014. One ADS represents thirty-five ordinary shares.
As of March 31st, Mecox Lane had cash and cash equivalents totaling $7.1 million, compared to $15.7 million as of December 31, 2013. Short-term investments on March 31st were $1.6 million, compared to nil as of December 31st, 2013, all of which were structured term bank deposits.
Now turning to our financial outlook. For second quarter of this year, we expect a decrease in net revenues of approximately 15% on a year-over-year basis. Please note this estimate is our preliminary view and is subject to change.
This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]
Assisting with the translation during the Q&A will be Mr. Mico Lan [ph] of Ogilvy Financial.
Thank you. As there are no questions on the line, I would now like to hand the conference back to today's presenters. Please continue.
Thank you. This concludes the company's earnings call. You may now disconnect.
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