Secoo Holding Limited

Hello, ladies and gentlemen. Thank you for standing by for SECU Holdings Limited's Third Quarter 2020 Earnings Conference Call. At this time, all participants are in the listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Jingle Ma, Board Secretary of the company. Please go ahead, Jingle. Hello.

Hello, everyone, and welcome to the first quarter 2020 Earnings Conference Call of School Holding Limited. The company's results were issued with their services earlier today and have been posted online. You can download the earnings press release and sign up to the company's email alerts by visiting the IR section of our website at ir.school.com. Mr. Richard Lee, our founder, chairman, and chief executive officer, and Mr. Xiaojun Chen, our chief banisher 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. Privileges Curator's Litigation Reform Act of 1995. Forward-looking data involved inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's registration statement I'm from and from as well as the and the Exchange Commission. The company does not assume any obligation to update any forward-looking statement except as required under applicable law. Please also note that schools' earnings press release and this conference call include discussions of audited gap financial information as well as audited non-gap financial matters. School's early schedule contains a reconciliation of the audited non-GAAP merits to the audited most directly comparable GAAP merits. I will now turn the call over to our Chairman and the CEO, Mr. Richard Li. Please go ahead.

Hello, everyone, and thank you for joining us today. We are very happy that the third quarter of 2020 seems to have maintained a steady growth. The GMA has increased by 12.5 to 41.2 billion yuan, which is superior to the leading technology and global supply chain layout such as cloud services. We are in the post-pandemic era, and online shopping is gradually increasing in scale and penetration rate. On the one hand, it helps more high-end domestic and foreign brands accelerate their rapid transformation. On the other hand, it provides a rich and reliable online shopping experience for Chinese consumers who are increasingly seeking high-end consumption and distribution methods, especially as we strengthen the strategy of key brand precision operation. Not only does it strengthen the smartness of Siku in the field of head design and e-commerce, but it also further enhances the standard price of Siku platforms.

We are pleased to have maintained robust operational growth in the third quarter of 2020, highlighted by GMB increase of 12.5% year-over-year to R&D 4.12 billing. Supported by our exceptional technology capacity in AI big data and cloud services, as well as a well-established high-end supply chain system across the globe, they found themselves uniquely positioned to capture the booming retail market opportunities stemming from the rising adoption of online shopping in the aftermath of the pandemic. As a go-to luxury e-commerce platform in China, they are not just facilitating the digital transformation for domestic and foreign brands, but also providing numerous reliable online shopping options for a growing number of Chinese consumers who are pursuing the lifestyle that features a range of high-end goods and premium services. Our ongoing efforts to place strategic focus on key brands, not only allow us to generate universal brand awareness in the labor e-commerce space, but increases the average spending per customer.

Since the third quarter, Siku has continued to create large online shopping festivals, including 707 Siku's anniversary, August 7th Festival, and September Aolai Festival. These discount holidays use the individualization of smart technology to optimize marketing methods, strengthen technology innovation and high-end fashion use strategy, and promote the operation of key brands, attracting a large number of loyal old customers to continue trading, effectively promoting the growth of three-season trading. Through the prediction of burst products and lost products, the creation of key brand days, and the 1-to-1 service launched by high-end VIP members on the chain, It seems that it has also achieved good results in the Chinese traditional e-commerce sales festival, which just ended. Big products and scarce products are expected to increase by 40% by the same ratio. By operating a key brand every day, the traditional brands such as Chanel and Hermes have increased by more than 100%, and Dior and Moncler have increased by more than 30%. Since the beginning of the third quarter, we continue our efforts to roll out a series of online shopping festivals, including school anniversary sales festival on July 7th,

the Chinese Valentine's Day campaign in August, and the Outlet Offering promotional campaign in September. This festival featured personalized and efficient AI-driven marketing approaches alongside our technological innovation and upscale fashion content initiatives, which also focusing on operation of key brands. All these efforts have contributed to the loyalty of our existing customers and motivated them to purchase repeatedly on our platform, effectively boosting the GMV in the third quarter. In addition, Suku maintained momentum in the Chinese Traditional Ecommerce Promotion Event , shot up by Brazil of top-selling all the highly sought-after products. heightened effort to host the Elite Brand Day campaigns and the offering of one-on-one services to our VIP customers. During the event, the GMV from pre-sales of top-selling or highly sought-after products increased by 40% year-over-year. Meanwhile, through Brand Day campaigns, Chanel and Erasmus each grow their sales more than 100% year-over-year, while sales for Burberry, Biag, and Montclair grow over 30% each. Meanwhile, we built on our intelligence-empowered pricing strategy and advanced customer services to promote customers with higher spending power to place orders and increase average transaction value per order.

Since the first quarter, we have been working hard to expand and deepen the brand policy, strengthening our brand strength in the high-end fashion field. Since the third quarter of this year, we have established direct cooperation with 181 new brands, such as Guizhou Maopai and J&M Vital Loss. Moreover, we continue to strengthen the policy of key brands, such as co-creating brand day activities with brands, to fully utilize the size of the customer base, brand popularity, and technical advantages of Sikku, and provide diversified flow of support to help these brands quickly expand the online retail market. Our official partner, LogiWeiwei, has maintained high-end price online sales in Sikku's flagship stores, and simultaneously prices new products at the same time. Sikku's high-end customer base's strong demand for consumption supports the growth of the company's Q3 GMOV by 1.09%.

Furthermore, they have been constantly striving to extend and elevate our relations with brands, while fostering our core platform capacity in the high-end fashion space. Since the third quarter of this year, they have established a direct cooperation with a total of 181 new brands, such as Guizhou Mao Tai and Gianlito Rossi. Furthermore, they continue to strengthen relations with top brands through various collaborations, such as Brand Day event co-hosted by school and or brands. This event helped these brands extend their online retail market rapidly, especially benefiting from school's massive high-end customer base, reputable brand presence, advanced technology capacities and diverse traffic support. For example, our official brand partner, Roger Verlier, maintains a satisfying online sale performance with a high average spending per customer in its cool flagship store. Their in-season collections are available for purchase. The strong demand of Sku's high-end customers augmented sales of Roger Miller in the third quarter, resulting in a 109% year-over-year increase in GM base.

In September, Sku and China's most well-known high-end white-collar brand, Guizhou Maotai, reached a commercial cooperation. The 53-degree flying Maotai officially established the Sku platform. Guizhou Maotai and Sku are strongly linked. not only promoted Siku, but also promoted Maopai's online and offline marketing channels. In addition, more and more high-end maofen provided high-quality channels for purchase. In December, Siku and Guizhou Maopai launched the Sun Liang China Maopai fans event. Beijing, as the first branch of Sun Liang China, gathered maofen from many high-end members. Among the opinions of different types of maopai, to feel the history and culture of high-end white wine brands. The brand's mission is to create high-quality and high-quality life. In early 2018, Siku began to build a wine industry that covers all kinds of high-end wine, such as white wine, red wine, foreign wine, and wine. Siku's head wine-making frequency has created an important map.

In September, school formed a direct cooperation with Guizhou Maotai, China's most prestigious B coordinate, making the highly sought-after the 53-degree Maotai Flying Barrier available on school with collaboration. with respective advantages from Guizhou Maotai and Fuku will not only extend Guizhou Maotai's traditional sales and marketing channel to integrated online and offline platforms, but also provide a premium purchase channel to meet the premium demand from Maotai fans. Furthermore, in December, Fuku and Guizhou Maotai co-hosted an offline Maotai promotion event in Beijing which feature a theme of looking for the best liquor in China to attract and gather these lingerie brands' laurel ferns along with veggie school members. This event showcased a sampling of different series of Guizhou multi-liquor to allow participants to enjoy the lingerie and the distinct culture along with the famous Chinese beaker brand and experience multi-strand image mission and value of discovering a better high-quality life through this simulation. Since 2018, school has been expanding its high-end product portfolio to beverage and beaker and created a broad range of high-end beaker product offerings including Chinese beakers like wine, imported imported alcohol cocktails. Hosting multi-flying barries on our platform is a very significant supplement to our elite liquor product offering.

In this quarter, we have increased the operating capacity of our live-streaming products. We have fully utilized the advantages of our experience and supply chain in the field of luxury products. We have further upgraded our cooperation with head-to-head streaming platforms such as Quickhand and Douyin. to create their own live streaming ecosystem and lead the consumer trend of design products. In December, the design product live streaming base in Sukhumi was established in the Sukhumi headquarters. Thus, Sukhumi became the best design product e-commerce and live streaming partner, taking over the live streaming site of the MCM organization and the live stream of the live streamer and the live stream of the live streamer of the central and central and head network. including live broadcasts of up to 10 million live broadcasts of single-store GMVs. We have eight live broadcast sales branches in the live broadcast sales branch of Douyin. We started selling live broadcasts from second-hand luxury products to more new products in September, and we started to cooperate with the head of Douyin, for example, Zuo Yonghao. It is worth mentioning that we have allocated more than 1,000 samples for live broadcasts. We have a wide range of products in the fast-tracking and Douyin channels, and we update the live products every week and month. At the same time, we have a good performance in terms of the content of the four stores built in the whole network channel, including Douyin, fast-tracking, and Tencent video number. There are four videos with more than a million views per video. It has provided good support for live sales and brand promotion. This quarter, they stepped up efforts for the live streaming of Labrador retail, fully leveraging SKU's extensive experience in the Labrador's industry along with its supply chain advantages.

We also deepened our cooperation with the most popular social networking platforms such as Douyin and Kuaishou to forge our own lip-streaming ecosystem to support the laborers' consumption. In December, a lip-streaming production base for laborers' goods was established at Suku's Beijing headquarters, and that too with Suku becoming a partner of choices for the lip-streaming selling Through the live streaming base, they facilitated the daily broadcast session of MCA agencies and the broadcaster officially recommended by Douyin and Kuaishou, as well as live streaming hosted by the mid-tier and most popular KOLs, including a single live streaming event that generated almost RMB 10 million of GMV. At Douyin platform, KOO has been running live streaming and selling of activities through eight accounts so far. Also, since September, the company began to expand its live streaming and sales operations from pre-owned that were good to a wider range of product categories. They also explored cooperation with top KOLs at Douyin, such as Luo Yunhao or Lip Dreaming Land. It is worth noting that the school is offering a sample library of more than 1,000 Laguerre products for Lip Dreaming sessions, providing KOLs from Kaishou and Douyin with a wide selection of merchandise. and these libraries roll out new products on a running basis per week increments. Meanwhile, our effort to build Scrooge Library and fashion content marketing strategy across a full spectrum of online channels, including Douyin's Kaishou Tencent video account, is paid off with a growing fund base. Specifically, they have created a number of promotional videos and each was able to attract over a million views, a strong indicator of support for our live streaming sales and grant promotions. So far, 92.6% of active users of the School APP have watched our live streaming sessions. and these users exhibit strong willingness to buy and solid purchasing power.

Sifu will continue to increase the use of live broadcasts, optimize the live broadcast system, and strengthen the quality of live broadcast services. Sifu will also play an important role in the supply chain, key brand operations, skill and technology upgrade, and user operations, to strengthen the professional high-end platform development strategy. to help our international partners reach China's high-end consumers at a closer distance. In order to meet the high-quality consumption needs of China's growing economy, we need to bring more high-quality products of global fashion to the market. We need to take advantage of the new temperament of the Chinese high-end e-commerce industry and the huge market potential. Through the formation of a live streaming base for luxury goods, we can create our own exclusive base for luxury goods consumers. to attract more live streamers in the industry, to attract more and more traffic, so that consumers can enjoy high-end products and premium services even if they do not pay. At the same time, Siku will also invest in its own professional industry chain, including desserts, commercial operations, customer service, and sales. To provide professional and standardized services for consumers, live streamers, businessmen, and platforms,

Looking ahead, Suku will continue to enrich content, optimize forms, and enhance services quality of its web streaming business. Given our core capacity in supply chain, key brand relations, AI-powered technology advancement, and customer engagement capacity, The school aims to strengthen its strategy to build a go-to laboratory platform and benefit global partners by reaching more high-end Chinese consumers. The school will bring more laboratory and high-quality global goods to its platform to meet the growing demand for upscale products in the domestic market. saving new opportunities as it harnesses the massive potential of China's high-end e-commerce industry. In order to create the targeted shopping platform for laborious consumers, Fuku expect to leverage its live streaming production base for laborious e-commerce to attract more broadcasters to participate as well as increase user traffic which will finally allow the rural shopper to enjoy high-quality, high-end products and premium shopping services, even staying at home. In addition, schools will continue to invest in building a sophisticated value chain, spending product selection, merchandising operations, customer services, and up-to-sale services. This effort will enable schools to provide most valuable standardized services for consumers, broadcasters, brand partners, and live streaming platforms, while increasing efficiency and provide empowerment to the entire natural e-commerce sector.

Next, our CFO, Mr. Chen Xiaojun, will introduce the main operations and financial situation.

With that, I will now turn the call over to our CFO, Mr. Shao-Jing Chen, who will discuss our key operating metrics and financial results. Thank you, Richard, and hello, everyone.

The return on investment increased by 252.5%. On the other hand, we achieved a return on investment improvement in terms of profitability, which proved our resilience in the business model, allowing us to better deal with market changes. In the long term, we have a huge potential to grab the high-end consumer market on the online market, and we are full of confidence.

In the third quarter, amid a recovering COVID-19 environment in mainland China, we delivered net income of RMB 20.8 million, representing an increase of 252.5% quarter over quarter. Our sequential improvement in profitability demonstrates the resilience of our business model to navigate through market dynamics. Going forward, they remain confident to capture immense potential in China's online high-end consumer market in the long run.

Now I'd like to walk you through our detailed financial results in the third quarter of 2020. GMB increased by 12.5% to approximate the RMB 4.12 selling for the third quarter of 2020 from RMB 3.66 selling for the third quarter of 2019. 2020年第三季度,总订单数为111万个,同比增长了7.1%,去年同期为104万个订单。 Total number of orders increased by 7.1% to approximately 1.11 million for the third quarter of 2020 from around 1.04 million for the third quarter of 2019. In the third quarter of 2020, our total revenue was RMB3.7 billion, and last year's total was RMB19.4 billion. This is mainly due to the increase in platform business value that we confirmed by the gain-on-revenue model, and due to the impact of the COVID-19 pandemic, the loss of goods and the decline in logistics efficiency.

Total revenue for the third quarter of 2018 was approximately RMB 1.37 billion compared to this RMB 1.94 billion in the third quarter of 2019, primarily attributable to the increase in proportion of business contribution from our market-based platform business that recognize revenue on a net business and shall supply of some WS Group and delayed logistic services due to the impact of COVID-19 pandemic. 2020年第三季度,我們的銷售成本皆為人民幣11.4億元,

Cost of revenue decreased by 29.1% to approximate the RMB 1.14 selling for the third quarter of 2020 from RMB 1.61 selling for the third quarter of 2019.

to the decrease in total revenues.

Gross profit

was approximately RMB 231 million for the third quarter of 2020, compared with RMB 329 million for the third quarter of 2019. This decrease was mainly due to the decrease in total revenue and the increase in discount on sales to boost customers' willingness to purchase during the pandemic.

2020年第三季度,我们的总运营费用为人民币1.82亿元,同比下降了22.3%,去年同期为人民币2.35亿元,各项费用支出继续如下。 Operating expense decreased by 22.3% to RMB 182 million for the third quarter of 2020,

from RMB $335 million for the third quarter of 2019. Now I'd like to walk you through the company's expense items in detail. 2020年第三季度,我们物流运营费用为人民币4150万元,同比下降了16.3%,去年同期为人民币4960万元,下降主要是由于物流和

Our marketing expense decreased by

to RMB 58.1 million for the third quarter of 2020, from RMB 111 million for the third quarter of 2019, primarily due to the reduced online and offline advertising expenses, as well as the decreased staff costs. 2020年第三季度

我们研发费用为人民币2850万元,同比增长8.8% 去年同期为人民币2620万元 增长主要归因于公司继续加大技术研发等的投入 以增强技术实力驱动运营 Technology and content development expense increased by 8.8%

to RMB is 28.5 million for the third quarter of 2020, from RMB is 26.2 million for the third quarter of 2019. The increase was primarily due to the continuous investment in the technology department in order to strengthen our technological capacity to improve operating efficiency.

Our management fee is RMB 54.1 million, which is 3.2% higher than before. Last year, the same period was RMB 47.8 million, mainly due to the increase in the number of people preparing for the bad war this quarter. The company considered many factors when evaluating the bad war preparation, mainly including the impact of the COVID-19 epidemic, the financial situation of the debtors, and other reasons.

Our general and administrative expense increased by 13.2% to RMB 54.1 million for the third quarter of 2020, from RMB 47.8 million for the third quarter of 2019. The increase was primarily attributable to the additional providers for Baghdad. Our income from operations was RMB 48.3 million for the 3rd quarter of 2020, compared with income from operations of RMB 94.9 million for the 3rd quarter of 2019. In the third quarter of 2020, under the U.S.

Comprehensive Stock Exchange Regulation, the operating profit of the U.S. Stock Exchange Regulation

and debt income from operations, which excludes the share-based compensation expense for the third quarter of 2010 with RMB 50.8 million, compared with RMB 97.5 million for the third quarter of 2019.

2020年第三季度,我们的净利润为人民币2,080万元,去年同期为人民币6,210万元。 They recorded net income of RMGE 28.8 million for the third quarter of 2020 compared with RMGE 62.1 million for the third quarter of 2019. 2020年第三季度, Then gap net income, which exceeds share-based compensation expense for the third quarter up to some $23.2 million.

compared with RMB 64.7 million for the third quarter of 2019.

As of September 30, 2020, the company had cash, cash equivalent, and the restricted cash of RMB This concludes our prepared remarks.

We will now open the call to questions. Operators, please go ahead.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. For the benefit of all participants on today's call, if you wish to ask your question to the company's management in Chinese, please immediately repeat your question in English. So there are no questions. I'd now like to turn the call back over to the company for the closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact Scrooge Investor Relations through the contact information provided on our website or the Pearson Group Investor Relations whose information is also on our website.

This concludes today's conference call. You may now disconnect your line. Thank you.