Secoo Holding Limited (NASDAQ:SECO) Q4 2019 Earnings Conference Call April 30, 2020 8:00 AM ET
Jingbo Ma - IR
Richard Li - Founder, Chairman and CEO
Shaojun Chen - CFO
Conference Call Participants
Hugo Shen - Macquarie
Hello, ladies and gentlemen, thank you for standing by for Secoo Holding Limited's Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded.
I will now turn the call over to your host, Ms. Jingbo Ma, Board Secretary of the Company. Please go ahead, Jingbo.
Hello, everyone, and welcome to the Fourth Quarter and Full Year 2019 Earnings Conference Call of Secoo Holding Limited. The company's results were issued by the Newswire services earlier today and have been posted online. You can download the earnings press release and sent up to the company's e-mail votes by visiting the IR section of our website at ir.secoo.com.
Mr. Richard Li, our Founder, Chairman and 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 include discussions of unaudited GAAP financial information as well as audited non-GAAP financial measures. Secoo's earnings press release contains a reconciliation of the audited 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] Hello, everyone, and thank you for joining us today.
We are very pleased to complete robust 2019, presenting a solid start post 7 decades of operations. In 2019, we delivered solid growth across all key metrics. Notably, our full year GMV increased by 71.3% to RMB 13.785 billion, and the number of active customers increased 67.5% to 1.223 million.
In the fourth quarter, which is a traditionally strong season for online consumption, Secoo implemented a series of influential year-end consumer event during the shopping holidays. Such as Double-11, Black Friday and 1217 Luxury Festival, which means innovative marketing campaigns centering on our membership programs.
Supported by our AI-empowered officing platform and service system with promotional activities lifted our rapid growing active customer base to illustrate in the fourth quarter, the number of active customers realized more than 50% year-over-year increase and the number of the active customers enrolling your membership increased approximately 200% year-over-year.
This meaningful result illustrates a strong growth momentum of China's rural goods and service market. That also further validates the power of our leading position in the marketplace underpinned by a solid infrastructure build on supply chain, customer engagement strategy, AI technology advancement and the overall strength of our brand.
On the supply front, Secoo remains committed to a diversified growth strategy and optimizing our global supply chain network to enhance our competitive edge in the established product categories.
On the customer demand front, Secoo is dedicated to cultivate a membership ecosystem and increasing effective customer engagement. The efforts are being driven in combination with the variety of cutting-edge marketing events, featuring both online and off-line activities, designed to ramp up customer traction and paid conversion rate.
At the same time, Secoo's strategic focus remains on technology innovation and advancement across our platform in a continuous effort to optimize our platform and build on data analytics and insight capabilities. The - making that extract was a completely AI-empowered platform that fortified our core competitive strengths.
As of course, high-end brand image and the influence continues to grow, they have been establish - they have been able to quickly expand our cooperation with more global luxurious brand and high-quality suppliers.
Since the beginning of the growth quarter-to-date, they have killed direct cooperation partnership with a total of 69 new brands, including Zegna, Maserati, Lanvin and Anna Sui. I'm also pleased to announce that Valentino's official online flagship store in China was established on our platform in early March.
We continued our endeavors to expand Secoo livestream channel featuring trendy and the app scale of livestream shopping program, not only to cater to the most popular online shopping trend, but also to empower luxury fashion brands with new retail opportunities to reach larger base of customers in China.
Secoo's livestream features a wide range of engaging experiences, such as the broadcast programs in direct collaborations with brand livestreaming indoor shopping essentially show the stream and the fashion loving style livestream, which effectively have increased user traffic and rate to paid conversion rate.
I'd like to provide more color on our livestream strategy by giving some examples. To illustrate Secoo rollout, the brand authorized livestreaming room in direct collaboration with product and hosted livestreaming shopping program that features real time interaction with broadcaster in the Secoo [indiscernible] brand store.
These livestream programs are pretty attractive and engaging in the sense of those brands. Further, in late February, Secoo worked with a number of global fashion macrotrends, such Tod's, Versace and Lanvin to be livestream out their runway show during the Milan and Paris Fashion Weeks to our platform.
Those front-row your time show from the prestigious fashion houses and Secoo platform attracts a massive number of new users. Also in March, Secoo creatively launched designating online campaigns that were fashionists to show off their stylish wearing that using the Secoo livestream platform and those receiving most good comments were awarded as our fashionable partners. These campaigns were well received by many celebrities, fashion designers also the respect of factionist.
We believe Secoo livestream platform will become a destination for more fashionable consumers towards sustainable fashion trend and fashion purchasing. Notably the pre-owned the rural transactions through Secoo livestream has covered thousands of first-class luxurious trends, such as [indiscernible] Audi, Gucci, Armani and Chanel. Secoo livestream are also devoted to present more in depth, active content centered on luxurious watch, jewelry and beauty categories, including luxurious goods authentication and maintenance, makeup week show and so on.
Recently, Secoo livestreamer also hosted livestream shopping event in several well-known off-line duty-free shops, which enrich customers' high-end shopping selection during this time period of curtailed public movement.
To harness the powerful livestreaming sales potential, they have been fortifying or livestreaming efforts by increasing the number and duration of lead broadcast. This initiative have capitalized Secoo's livestream platform as having high average transaction value and high repeated purchase rate. So average daily number of broadcast event on Secoo, this stream channel has surpassed 100 with average spending per customer more than RMB 5,000 and the 1 week repeated purchase rate reached 52%.
Through our unique value proposition bolstered by our integrated online and off-line platforms, they have been reaching our product offerings in collaboration with more premium original designer brands that help us better cater to the ever-widening spectrum of sale preferences of high-end consumers.
For example, we know China indie designer brand exception has opened online store on Secoo platform. In addition, the well-known Chinese Fashion Tree show Ontimeshow launched its inaugural online treat show exclusively on Secoo platform during its offline 2020 Autumn/Winter Season Show was canceled due to the coronavirus epidemic. They have a long-term partnership with Ontimeshow and ongoing collaborations happening in the indie design event to explore more of commercialization opportunities.
They enhanced the cooperation for the inaugural online trade show, enabling all indie designer brands and the brand shop sign up for the Ontimeshow, to sign up for online shop on Secoo and featuring Secoo livestream function to promote their sales.
In addition to advancing our supply chain capabilities, we continually strive to identify and create deeper and more meaningful engagements with high-end customers. Throughout 2019, we have been strategically upgrading our membership mechanism and cultivating our paying member ecosystem.
This is our big data analytics on the luxurious purchasing behavior, preferences, and they are integrating or proprietary know-how with the external premium resources to continue to identify, create and expand high-end lifestyle shopping recommendations for the prime users.
Furthermore, we are able to anticipate and address their high-profile shopping demand, optimizing their shopping experience. Moreover, during the Valentine's Day shopping festival this year, they upgraded our tiered membership program. This initiative coupled with our motion of campaigning on shopping festival and holidays has contributed to a real faster increase in number of paying users on our platform. Additionally, there's our dedication to ensuring our customer enjoying first-class shopping experience.
Despite the coronavirus epidemic this February, we officially launched express delivery service in Beijing, Shanghai, Xiamen and Qingdao. Customers who order products available to this express delivery service on Secoo [indiscernible] in these four cities will receive their merchandise in as quickly as two hours from the time of placing their order.
There is a keen focus on enhancing user experience. They accelerated our intelligent operating strategy by advancing and leveraging our capability in AI, big data and cloud computing. Specifically in the fourth quarter, they officially launched or unified the merchandise management system. This system enable automated pricing and the smart product recommendation, leveraging the AI-empowered identification, big data, analytics and cloud computing technology.
As a leader in the luxurious e-commerce sector, Secoo leverages a strong team of luxurious goods, authentication expert and a powerful product authentication database that incorporates blockchain technology to launch a unique online luxury authentication service, which means a sophisticated authentication institution to serve user online.
During the COVID-19 epidemic, we canceled various of the offline events and maintained only basic operations in our physical store in response to central and local government's quarantine and containment narrative.
In addition, due to the macroeconomic slowdown and overall conservative consumption sentiment, they expect some short-term impact to our business. They have taken some action in adjusting our operations and mobilizing our advantages as one of the leading high-end e-commerce platform in China to fill the consumers' high-end shopping demand during this period of curtailed public movement.
As the coronavirus moved towards a state of containment, we remain confident in the long-term prospect of our development and continue to implement upgrades to our platform operations to further enrich user experience.
In 2019, they accomplished a great deal. In constant, we optimize our global supply chain system, implemented the smart recommendation initiative to help the customer engagement along with upgraded Pace membership program and ramp up our data-driven services marketing platform. All these efforts are well aligned with our goal to develop a solid infrastructure to support sustainable growth for our hires, partners and high-end consumers.
In 2020, in addition to continuing the activities I just mentioned, we will also invest in strengthening our fashion clothing category and livestream channels in large scale of preowned luxurious conductions, further expand our cooperation with more off-line, high-end strategic partners, deepen our collaboration with secular brands and bring schools influence in upscale fashion space to max the panel.
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.
Since that, our financial performance in 2019 continued to demonstrate our solid execution of our strategy. We delivered total revenue of RMB 6.9 billion in 2019, up 27.5%. We will continue to pursue solid organic growth pathway and explore valuable partnerships that enhance our suite of offerings and strengthen our brand leadership in the market. Our core capability, which we believe will support us to achieve our long-term company goal and maximize shareholder value.
Now I'd like to walk you through our detailed financial results in the fourth quarter of 2019. GMV increased by 51.9% to RMB 4.68 billion for the fourth quarter of 2019 from RMB 3.08 billion for the fourth quarter of 2018.
Total number of others increased by 48.4% to RMB 1.403 million for the fourth quarter of 2019 from RMB 945,000 for the fourth quarter of 2018. Total revenue for the fourth quarter of 2019 increased by 13.8% to RMB 2.04 billion from RMB 1.79 billion for the fourth quarter of 2018, primarily attributable to the continuous expansion of our operation.
Our large offerings of merchandise and services, SKU combined with our creative and effective marketing opportunities, driving the rapid growth in our total active customers and the total number of orders served during the period.
Cost of revenue increased by 19.6% to RMB 1.74 billion for the fourth quarter of 2019 from RMB 1.46 billion for the fourth quarter of 2018, primarily due to the increase of total revenue.
Operating expense decreased by 7.5% to RMB 246 million for the fourth quarter of 2019 from RMB 265 million for the fourth quarter of 2018. Now I'd like to walk you through the company's expense items in detail.
Our fulfillment expense increased by 24.7% to RMB 50.1 million for the fourth quarter of 2019 from RMB 40.1 million for the fourth quarter of 2018. The increase was primarily attributable to the increase of shipping expense and third-party payment commissions as well as the increased staff cost during the period.
Our marketing expense decreased by 30.9% to RMB 106 million for the fourth quarter of 2019 from RMB 154 million for the fourth quarter of 2018, primarily due to reduced online and offline advertising expense.
Technology and content development expense increased by 27.3% to RMB 27.1 million for the fourth quarter of 2019 from RMB 21.3 million for the fourth quarter of 2018. The increase was primarily due to the continuous investment in technology department in order to strengthen the driving force of technology for operations.
Our general and administrative expense increased by 23.7% to RMB 62.2 million for the fourth quarter of 2019 from RMB 50.3 million for the fourth quarter of 2018. The increase was primarily attributable to rising rents associated with relocation of office and provision for doubtful debts.
Our income from operations was RMB 50 million for the fourth quarter of 2019 compared with RMB 69.1 million for the fourth quarter of 2018.
We recorded net income of RMB 43.7 million for the fourth quarter of 2019 compared with RMB 48.3 million for the fourth quarter of 2018.
Non-GAAP net income, which excludes share-based compensation expense for the fourth quarter of 2019 was RMB 43.5 million compared with a RMB 54.8 million for the fourth quarter of 2018.
As of December 31, 2019, the company had cash and restricted cash of RMB 954 million. To be mindful of the event of our earnings call for the fiscal year of 2019 financial results, I will encourage listeners to refer to our earnings press release for further details.
Now for our outlook. COVID-19 has brought the unprecedentedly level of macroeconomic disruption and uncertainty across the globe. At present, many aspects of daily life in China starting to return to more normal regions. However, the situation in Europe and certain countries is still evolving and the operations of European and overseas suppliers and merchants have been either interrupted or operating in reduced capacity.
As a result, the company expects a softer performance in the first quarter of 2020. Secoo has been adjusting its business strategy to realize COVID-19 impact on this operation. However, due to uncertainties of the pandemic impact, particularly in Europe, the full extent to reach COVID-19 or its impact on our financial results and business operations will depend on future developments, which cannot be predicted.
This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.
[Operator Instructions] We have our first question from the line of Hugo Shen of Macquarie.
[Foreign Language] I have two questions. My first question is, what is the impact of COVID-19 on consumer behavior? And my second question is, how will the company tackle the competition from peers like Tmall and JD.com, especially on competing for the cooperation with luxury brands this year?
[Foreign Language] Since the beginning of this year, the COVID-19 has spread throughout China and continuing to spread in other parts of the world. Chinese government took a number of measures to contain the outbreak but inevitably, it will cast the macroeconomic slowdown and overall conservative consumption sentiment and expected to have some short-term impact to our business as well as our global partners and suppliers. Because of the travel ban, global travel is less now and consumer retail industry sector will be more affected.
With that, the challenge brought by the COVID-19 outbreak, I believe that it also brings some opportunities for Secoo, which are unique online and offline integrated model and supply chain system across the globe. Given the current situation, offline high-end shops become more difficult and that online shopping platform, which provides fast, convenient and reliable service are now the first choice for many consumers.
More demands are fulfilled through online channels. And they expect a much higher proportion of superior luxurious shopping to happen online going forward even after the epidemic. In addition, due to the decline in the off-line sales, more luxurious brands will choose to cooperate with online platform as Secoo as a strong and reliable partner for them.
However, due to the uncertainty of the pandemic impact, particularly in Europe, the full extent to which COVID-19 will impact the whole industry will depend on future development, which cannot be predicted.
Since this is February, based on the evolving market environment, we launched the livestreaming and self-delivery service. They have hold the lead broadcast events in direct collaboration with brands and a bigger brand base to connect the brands with consumers and patients. At the same time, we also accelerated the process to approve patients of zero digital accounts of good platform from the offline merchants who are unable to operate as usual due to the COVID-19 epidemic. In this way, that enable to extend our collaboration with more off-line brands and shopping centers.
During this period of curtailed public movement, consumer are less likely to go outside and shop as usual. And our express delivery service has greatly improved the satisfaction level of consumers who shop on our platform. More than 90% of customers are pleased with our express delivery service in Beijing.
For your second question, Secoo has a advantage in expanding cooperations with global luxurious brands and high-quality suppliers. Since the beginning of the fourth quarter to date, they have still direct cooperation partnerships with a total of 69 brands, including the [technical difficulty] and Valentino official online flagship store in China also was launched on Secoo platform in early March.
In order to extend cooperation with luxurious brands to continue its endeavors in helping them to promote their seasons and sales through and customer like marketing events, utilizing big data and AI to identify target consumers, integrating online and off-line activities as well as hosting the rebroadcast event in direct collaboration with brand and fashion show livestream. Thank you.
Ladies and gentlemen, that concludes our question-and-answer session for today. And I'd like to turn the call back over to the management, to Ms. Jingbo for closing remarks. Please go ahead.
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 or the Piacente Group Investor Relations whose information is also on our website.
Thank you. Ladies and gentlemen, that concludes our conference for today, and thank you for participating. You may now all disconnect.