Q1 2022 Baozun Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, and thank you for standing by for about the first quarter 2022 earnings conference call. At this time all participants are in listen only mode. After management's prepared remarks, there will be much to answer session.
A reminder, today's conference call is being recorded.
I will now turn the meeting over to your host for today's call Ms. Wendy Sun Investor Relations Director. Please proceed Wendy.
Thank you operator, Hello, everyone and thank you for joining us today.
What's your 2022 earnings release was issued earlier today and is available on our IR website at IR.
<unk> thousand dot com as well as envelope newswire services.
We have also posted a powerpoint presentation that is common to the same IR website, where they are available for download.
On the call today from thousand they have me Celgene since you Chairman and Chief Executive Officer, Mr. Also Chief Financial Officer, and Mr. Tracy leave our vice President of strategy, but it's not the bottleneck.
Mr. Xu will review the business operations and company highlights followed by Mr. Yu, who will discuss financials and guidance.
We'll all be available to answer your questions during the Q&A session that follows.
Before we begin I would like to remind you that this conference call.
10-K forward looking statements within the meaning of the Securities Exchange Act of 1934, and the U S. Probably so I'll stick to what's your litigation Reform Act of 1995.
These forward looking statements are based upon management's current expectation and current market and operating conditions and relate to eat lunch that involve known unknown risk uncertainties and other factors all stage I'll, just say cold to predict and many of which are beyond the company's control which may cause.
Company's actual results to differ materially from those in the forward looking statements.
But the information regarding these and other risks and southern changed all factors is included in the company's following ways to you I see I see E knocked meant on those outside of Hong Kong stock exchange.
Company does not undertake any obligation to update any forward looking statements, except as required under applicable law.
Please note that unless otherwise stated all figures mentioned during this conference call are in RMB and U S.
Our ratios are all year over year basis.
It is now my pleasure to introduce our chairman and Chief Executive Officer, Mr. Vincent you. Besides please go ahead.
Yeah.
Well, thank you Hello, everyone and thank you all for joining us.
As you know Shanghai.
Hum.
Strict lockdown since the mid March 'twenty two.
Presented unprecedented challenges to business activities in China.
That's all for today I'm very glad to report that we were able to minimize disruptions.
Thanks to work hard working people.
E class technology, and the diversity of five regional service centers.
I'm very confident that we can support our brand partners.
Pretty much.
Let me start with sharing some progress.
In this quarter.
Please turn to slide number two.
822 has been quite a unique deal.
The COVID-19 lockdowns in a weak consumption sentiment in the market.
Environment.
However.
Our total GMB grew 28% to 17 billion driven.
Driven by strong growth in U S M C G and electronics.
Services revenues increased by 24%.
Product sales revenues declined by 30%.
As expected due to our ongoing portfolio optimization in recent quarters.
During the quarter, we made multiple correct progress independent insurance penetration.
Value added digital marketing solutions January due to high double digit growth.
We view this progress that's an important step you know offers many months mark who bought them.
Risks.
That's all kind of added coupon preparation with our brand partners.
Please turn to slide number three.
Our strategic business development efforts continue to bear fruits, which foster brand acquisitions and the accelerated progress in the emerging channels.
This first quarter, we won't over several new brands, especially in the luxury premium lifestyle centers.
Average you're on this momentum we have more flexibility to rationalize less.
Profitable businesses and the folks off hire been sufficiency.
Overall.
Andy the metal 12 fuel brand partners in the first quarter and the total number of brand partners, who install operations.
Increased to 345.
Looking at the channel breakdown this quarter lung chemo GMB accounted for 40% of total <unk>.
<unk>.
32% a year ago.
Notably JD Wechat and <unk> all.
All developers with triple digit growth rate.
And all of you.
Your channel strategies, if activity helped brands are cool user access and.
And the brand equity, which is critical for sustainable growth.
Our integrated digital operating platform, along with our ability to lead the brand partners, who said the high Omni channel right Omnichannel strategy.
Neighborhoods brand partners to expand their use.
But flexibility and to capture incremental business opportunities.
With our powerful omni channel capabilities, our brand can't seamlessly offer its products and services.
Further we channel consumers prefer to use.
Yeah.
Looking at our progress in JV during.
During the quarter, we launched a mini program integrated score.
And Italian luxury brand.
And open the factsheet scores for French luxury brand.
American premium fashion brand.
These cases have been wildly successful and they regarded as industry benchmark because its cases.
We continue to view will reach content initiatives under the live streaming is a powerful tool sets to leverage.
Its user experience.
Yeah.
Oh, we haven't established a three fold service metrics composed of failing install livestream content oriented digital marketing at the OEM partner business.
Roto you can still use early phase of Brent ecommerce, we shut off for all four of our dedicated it though in sub ranch with over 200 stop currently serving several other in store, which.
With our omni channel, enabling corporations.
Our <unk> partner business has already achieved solid other ways.
Peru appliance and lifestyle categories.
Okay.
Let's share with you some trends on technology innovations.
Slide number four.
In recent quarters.
Clearly evolving e-commerce dynamics.
Pushed many brand partners who.
Elevate.
Our efforts in digital transformation.
In particular further the trend of Omnichannel brands, who want to master the digital convergence between.
Okay spaces as well.
As customer relationship management.
Tween reach lifetime values for example, a few months ago, we launched a dealer transformation program for one international electronics partner to a digital life business flows from factories to stores and what consumers are subsequently the brand expanded the program to incorporate more platform such as J D.
Hello, Joe and the BNP.
That's in the system and widened the deployment to over 3000 stores nationwide today and targeting to double the deployment by the end of this year.
Another typical trend, it's Brent afterwards, and setting up China for China.
Yes.
And one of our recent China for China project with a leading international sportswear brand.
Also lunched, a one team methodology by fully integrating our ecommerce apartment or.
Our I T team and our brand partners team.
You know we work together as.
That's what.
We focus not only on commercial and the merchandising, but also on consumer privacy protection and lifetime value creation.
Most of these two examples successfully demonstrated our technology offerings with great potential.
With the increasing importance of our online business to drive sales force in China, We anticipate.
Anticipate technology transformation will continue to play a critical role.
Our brand partners.
Looking ahead, although our strategic progress remains healthy we anticipate short term turbulence due to the recent pre he didn't see COVID-19 lockdown in China, continuing impact on consumer sentiment.
Let me share our prompt response to Covid does that mature its treated on slide number five.
As for our mission statement technology empowers future success with technology asset afford us a which extended the capability and flexibility to help all of our brand partners navigate external disruptions.
We leverage our why inventory system, and O'toole toolkits like a shocker to seamlessly integrate online and offline inventory.
Our service anywhere platform that's.
In New York than it has been a powerful backbone, enabling us to serve our brand partners from different locations with improved quality and efficiency through digitally intelligence.
Our regional service centers in month one.
Physically ensure flex flexible and reliable remote based services and we further expand our operations into nine additional cities across China.
Oh, you know logistics and supply chain, we worked with our brand partners to transition from centralized warehouses into our Greek management system.
And our operation team continuously Monty per platform policies adjust product and marketing strategies.
Train plan of care and are proud pride, alright, Tyson relationship management.
On top of minimizing disruptions are integrated the Wechat Mini program solutions helped the brand partners mitigate.
Migrant theyre all my answers to online resources.
This week.
You can read it.
Your offline inventories and sales stuff.
Mitigating the impact from shut down.
Many of you know broken them out power source during the Covid lockdown.
One of our luxury brand rolled out our first program first meaningful brand go over it offline stores and more than 20 cities and a sustained meaningful scale schools, even during the lockdown period.
Overall, ensuring smooth continuous ecommerce operations in your response to unpredictable Covid lockdown requires tremendous dedication and the coordination efforts.
Our ongoing efforts and category diversification portfolio optimization that technology innovations.
Great to be helped us to enhance resilience.
We will continue to execute on our sustainable growth strategy and to proactively explore additional growth drivers such as set forth in our medium term plan.
This March we established a subsidiary in Singapore, making a fundamental.
Based on a milestone for expansion into southeast Asia.
With that said despite the lockdown challenges, we will come back.
Our business always courage intelligence and agility to protect the interest of the company and all of our shoulders.
At the start of this year, we launched a comprehensive compensation restructuring initiative called <unk>, which stands for Baldwin business owner.
Cultivate and ownership oriented culture and organization.
Or b B O aims to tie the incentives more directly to individual contributions empower any more entrepreneurial zeal and efficiency.
Lastly, we would like to reiterate our commitment for sustainability.
Last week, we issued our second annual ESG report.
<unk>, a new set of additional green initiatives.
We are targeting our carbon emission reduction of 50% for 2013 compared.
Compared to the 2021 baseline on carbon.
Try to achieve by 2050.
In the longer term, we strongly believe our.
The resilient business.
And the technology investments, we will travel and earn its trust branding and unfortunate.
Arun I'll pass the call over to Arthur to go lower.
Our financials. Thank you.
Okay. Thank you Ethan and Hello, everyone.
Now let me provide you a quick review of <unk> financial.
The 2022.
Please turn to slide number six.
During the quarter, our total DMD mice.
I N C G.
<unk> increased by 28% to 17 billion.
But excluding electronics and the one I find the CG Brent.
The adjusted eight P. M B would have declined by around 10%.
Mainly due to the PCI and the weakening economy impact on sports and fashion apparel, Texas.
Although our non distribution <unk>.
G M B, a sunday by 33% to $16 2 billion.
All of these big deals and CMV declined by 9%.
265 million.
The reduction <unk> P. M. B was a reflection of our continuous progress in optimizing our brand portfolio will focus on high quality disciplined in the past few quarters.
Our total net revenues declined by 2%.
It should be there.
Due to a decline in product sales revenue.
Service revenue increased by 24%.
One 3 billion.
And then if I can from solid growth in <unk>.
Alright heckman.
As well as contribution from acquisitions in the past 12 months.
Turn to slide number seven.
We recently streamlined our organization into four business groups.
Accordingly, we don't provide a breakdown of our revenue stream.
I'll bring that program.
During the quarter revenue from our traditional online store operation business accounted for 55% of portal business.
Revenue for warehousing and fulfillment.
Digital marketing solution.
On page, 26% and 19%.
Back to you please.
In this quarter revenue from our e-commerce business declined by 19%.
Due to a reduction in low quality product sales business.
At the same time, we are glad to see our Baidu added.
It is.
<unk> achieved double digit growth year over year.
We believe this validates although progress in theory penetration and customer engagement.
And the way it will continue for alpha innovative products and services to expand voting share of wallet from our brand partners.
Now turning to slide number eight.
Ah you're in the quarter.
Our cost of goods sold increased by 28% from 596 media.
Wait was mainly due to a reduction in product sales.
In the second half of my country, partly true.
Is that had Shanghai experience I think slightly Colgate lockdown.
Resulting in a significant increase in ardent delivered schools.
It's starting to take orders.
We've reported.
The increase in cost of goods sold.
On a comparable basis.
Even that.
Second quarter to date remain in lockdown.
We anticipate to see a similar trend in the <unk>.
Second quarter.
Yeah.
As a result of Covid lockdown impact.
Our gross profit margin, both east Yorkshire, modal reduced to 12 point high coupon.
And they do for a change in pricing strategy.
Adjustments in category mix.
And the increasing cost related to default.
Product.
But if we take into account the service revenue.
Our overall gross margin improved by 11% to seven 4%.
Mainly fuel.
Mainly driven by higher revenue.
We generate a healthy margin.
Now, let's turn to operating cost and expenses.
On slide number nine.
Please note that the breakdown of operating expenses.
Organic business and I Monday on this slide.
Hey, accompany management's hookup.
Who human expenses.
629 million.
I can create a plentiful.
This was primarily attributable to the incremental fulfillment cost.
117 unit related to our true acquired logistics business last year.
I clothing, the impact from acquisition.
<unk> expenses from organic business.
452 million.
Oh yeah.
Hum.
Sales and marketing expenses were $616 million.
An increase of 1%.
The increase was mainly due to increased BD related staff costs.
With wife Girl.
And expansion in digital marketing services.
Wait was partially offset by efficiency improvements.
Technology and content expenses were $100 5 million.
The inquiries.
Perfect.
The increase was mainly driven by growth in CMV and the Companys ongoing efforts.
Product innovation and commercialization during the quarter.
Which was partially offset by companies.
Oh initiative.
The improvement.
G&A expenses increased to 19 1 million.
An increase of 14%.
This increase was mainly due right.
<unk> related expenses.
<unk> acquired.
Yes.
Now, let's turn to slide number 10.
Based on the above mentioned items, our non-GAAP income from operations was $4 5 million during the quarter.
And Oh.
<unk> margin was 0.2 per ton.
Once again, we have had with a photograph we take in our analysis of how our topline and bottom line year over year.
As a reminder, this analysis is an oddity in the short and should solely U S.
Support numbers.
Action.
But on slide number 11.
What's her whole diagram shows our revenue walk from Q1, 2021 Q1, 'twenty 'twenty true yes.
Right you can see not distribution losses.
And suppose flyer and fashion apparel was the biggest surprise this quarter.
Meanwhile, digital marketing luxury IP solutions, and the others, what the positive growth contributor.
Turning to slide number 12.
We also provide.
non-GAAP income from operations and caused the strength.
As shown in Blue.
We have positive contributions from digital marketing solution.
Right the overall macro weakness dropped down the profitability of <unk>.
Operation business.
Q2 smaller economies of scale.
Well I mandate this quarter, there was a non operating loss.
Yes.
It was mainly related to Bobby BOP ice.
Business was significantly impacted by the Covid lockdown.
And Additionally, we continue to write in people and infrastructure.
Contributing to the rise in backend and strategic investments.
Now turning to slide number 13.
In light of the current challenging situation.
Mine uncertainties.
Our financial management and priority, we will focus on three areas.
Improving operating efficiency.
Continued our portfolio optimization to improve working capital efficiency.
And finally heightening overhead cost controls.
Firstly, the regional service Center.
I see it as a key component of our.
Our multilocation strategy.
Improve quality minimize the three mm.
And reduces operating costs.
During the quarter.
Yeah, Rick more functions.
Including operation.
Into the regional service centers.
We have migrated over 50% of our customer services from Shanghai for Regional service Center in non home on a fluffy.
I see.
We anticipate generating even more economies of scale.
We also began allocating more medium sized brand to our business operations Center.
As for library shattered mechanism to improve efficiency.
This integrated platform.
Multi brand partners.
Looking to optimize LOE.
Business.
And further streamline our overall business.
For full year 2022.
Anticipated cost savings of approximately one 3 million from the initiatives.
And secondly, we will continue our excellent.
In.
In portfolio optimization.
And one thing, although working capital efficiency.
In light of the current micro environment.
Hi efficiency enhancement, it's more critical.
We will evaluate patients and low margin brand partners.
To optimize and to minimize the rate.
We have established a dedicated product team.
Or bidding processes.
In order to improve our accounts receivable and inventory management system.
Certainly.
We aim to further optimize our headquarter cost saves.
Improved bypass processes.
By implementing more claims initiatives.
I expect notable process improvement and cost reduction.
Now I'll turn to slide number 14 about our cash flow.
I, so much but he plus 2022.
Our cash position.
And the restricted cash reached three points Obelia.
A decrease of $1 3 billion from the previous quarter.
The decrease was mainly attributable to repurchases or compressible senior note.
And our share buybacks.
Wage totaled 1.2 billion.
We estimate a total savings of approximately $10 million from the retirement of convertible senior notes.
And the associated interest expense during the quarter.
Yeah. He patients as you may have noticed from our announcements.
We have fully completed the repurchase of all workable senior note.
2024.
'twenty 'twenty four ways total principal amount of 275 million.
All of it.
Well they may.
Making our balance sheet cleanup.
Lastly.
An update on our buyback initiatives.
During the quarter.
We repurchased approximately two 3 million ADR.
So approximately $20 million.
Meanwhile, our board of directors also authorized an additional $18 million share repurchase program in this market.
Making our remaining authorized a $17 million I felt much less people plenty of country true.
Overall, despite some turbulence in micro environment.
We are continuing to increase the resiliency and sustainability of the company.
We aim to further lower the cost.
And the target positive free cash flow for the full year.
We consolidated balance sheet.
Strong brand pipeline.
We are confident that baudrons business model will deliver shareholder value in the long term.
And this is my financial review section that concludes our prepared remarks.
Thank you.
Operator, we're now ready to begin the Q&A session.
Thank you to ask a question you will need to press star one on your telephone.
To withdraw your question press the pound key.
Please stay while we compile the Q&A roster.
Our first question is from Thomas Chong with Jefferies. Your line is open.
Yeah.
Thank you management for taking my call.
I have two question can management comment about that.
Michael.
Okay.
It's Tom.
In April .
Uh huh.
Uh huh.
Most of the REIT that might also get impacted.
Impact.
Second question is.
If the patient.
Can you share.
Thanks TJ.
Awesome.
Thank you.
Okay. Thank you for the questions maybe for Tracy to get some.
Some color about it yeah, yeah sure sure. So does this trigger speaking I think the the new wave also harmonic has posed a great impact on China's economy, and we see from the public information. The total retail smelting Alcoa has dropped 11 person like almost a some level up.
For two years with all right and and does some of our observations on Belgium, B I, the 11th and caliber categories have shows over a 20% decline jewelry Dunbar.
15th through May 15.
It is to get them trained and the quantity of the consumer buying groups and also I think that the trend is quite similar among category like our polo sport footwear cosmetics.
But you can stop jet boat shoe category. One. So first one is the old dog and also the luxury part so I will give more details about luxury later, but in terms of the I mean, the the consumer demands and the spending behavior in recent two months, we do see the purchase intention recover from the first week of May and.
You can see actually does because by tropical in China like Shanghai buyer.
Actually they they'd be significantly dropped during the past two months.
Rebounded bank from the second wake up on me, but a judge on the Chancellor has to recover Pixie dust, Shanghai and other province, like Shandong Guangzhou is not impacted by the pandemic.
And I think in March on our lives, we see that buyer amount has recovered and within two weeks almost reached the same level up that first wake up in March.
I think the transition he will still catching up lately are we right now actually.
We are working closely with our partner to mobilize me. So lets call 618 as you mentioned actually are I think we still lost in the past two months.
Most of our brand.
<unk> partners are export.
I expect the sign of the times I'm showing a recovery in the six to 18 and right. Now we are actually we are trying to mobilize neutralize thought where results are merchants and these calls and also Martin. Please spell there's probably lots of true most are way up twenties, you'll hit the target, but it's too hard to say how much.
We make up for that.
After a loss of two months given some of the brand is still troubled by the domestic and overseas logistics. So I think for the six to 18 months is very unique right now because most of US are working remotely at home and I think sums to our regional service centers in language on the wholesale and also our rest of the day any way up.
Platforms, any well that go to work from different locations with different that with I think some some level of the quality and the efficiency and in terms of the category. You mentioned about the luxury are I think the definitely the best category slowed if gloves rage, and that's showing that tape.
In April .
From me actually we see the sales has returned to the World Wildlife Fund to the actually some big campaigns, such as Super brand day isn't the he box.
We work with the top ranking in this category.
And also I think in the past two weeks, we actively adjusting our paid media on the content marketing direction, you're obviously to lead the polishing off the other city, besides Shanghai and the Beijing and the two that oversee teeth and you can see actually all or a portion of the a middle tier it off the C D.
Lift 20% higher than before and then also I think for the luxury part do we see some positive quote glass progress on their digital transformation because of the lockdown actually Hum accelerates their local license strategy like motif modes logistic solution why inventory for.
Offline to online and also the fiance some update so we're working closely with our partner to capture the changes and we believe our technology assets has a fold off with extended capability on the flexibility.
I hope this stop you a problem. Thank you.
Probably I wouldn't yes, I wouldn't I would maybe just I know a few more points on top of what Tracy answer. So basically that's a lot of uncertainty and from a business point of view during the uncertain Haywood puts cash.
I have very high priority. Therefore, our business is more focus on protecting the cash flow and improving working capital efficiency and we also and.
Looking into optimizing our portfolio to reduce the potential risk.
Our existing business.
And secondly, we think rates are actually a good opportunity to prove baudrons differentiation comparable with our peers, because we can provide a stable salaries.
Our focus on all of us take for the cost on the salary cuts for the I T.
During the last month with our crew would have that capability and where do we see some really good feedback from some of our largest brand partner.
And finally, given the situation in China. We're also looking at overseas expansion.
It's hard to say, but.
Yes.
Okay. Thank you.
Yeah.
Thank you. Our next question from Vicki way with Citi. Your line is open.
Hi, Good evening management, Thanks for taking my questions I have two small Christian so would you. Please update us about the cooperation with China, and then thoughts on warehouse and logistics system.
And second would you. Please provide examples of growth and attrition of non chemo channels is it fair to assume that the muscle so video platforms, which are more resilient than tmall.
Are you seeing similar witnessing spending across all channels. Thank you.
Okay.
Okay I will answer the first question and then Oh, maybe Tracy add some thoughts on the second one.
So in this quarter. So you last quarter, we completed our deal with China.
And this quarter, we made good progress in terms of integration, that's routine and stopped working together.
In the last time, we introduced the strategy of one class I I E. Using both from a longtime capability E sports and apparel category.
We're bringing new categories into Baltimore way tiny house.
So basically.
We have made good progress from a tiny all perspective, what's hanging out at around eight.
True about whom I.
It's long dated potential handle customers, which gave us a lot of opportunity to do business do you find them.
And secondly, a tie.
Daniel has a larger scale of economy. They have a country wide nice work in terms of so the warehousing and logistics network, which will utilize.
And during the last two months.
We're able to use that capability to reduce the impact to our customer by using Chinese national nightclub.
And then thirdly tiny all has a lot of economies of scale wage I'm, bringing down our procurement cost.
Well, Mike we were able to tap into the procurement pros has always hi, Neil I'm the material on the wire Hockey Kirkman Lake Wales trunk line, bringing the savings too.
At home.
So that's on the training front.
Unfortunately.
We also can help this mantra.
Because fortunately because cogent customer, we're actually moving into the I'm trying to salaries.
I know salaries wage logistics.
Important part of that we can sell with a full end to end solution, which brings the Baltimore office each of that play.
And secondly, it's our technology capability wage along ways tiny house capability, we can make a stronger technology enable our football to them.
I put St Paul will prioritize and to improve our service quality.
So that's how we are making progress in China, and we expect we will when we will have more progress in this year.
Okay, I will pass over to Tracey for yeah.
Yeah, Nicole recycling question is regarding to the dynamic of change on the market place.
I think the Rhino is very is still very early to say, but conclusion on those because actually the but they thought it's not that comprehensive and the other platform right now.
But in the past the two miles gave him our b I track without we do see the new channels seems to have more resilience in terms of the demand.
I think we saw many category is still growing week by week in the past two months, even apparel footwear bags, both kind of a category. They are harmed by the pandemic, but it is the only lots of two weeks the category quickly catch up into lots of we call. It April unless the past us I felt from me so.
I think the advantage I'll Dodge as they are are they all know their Moldova tier cities focus and much younger consumers and on the other hand, I think majority of all of their players right. Now is it's more brains and even know brands. They are flexibility in terms of the manufacturing the logistics husky.
Laughing pack vital I'll stop them, but I think on the other hand, we should see that dynamic changing how many to the compensation has become much first and other advantage I'll first comfort when almost the past so the real stopped I mean, the brand equity has become more and more important so we.
Do you see other pop them like including Tyndall and quite a show all points and they are quite aggressive to to actually connecting the brands also and we also have February important pilots well hopping does two seasons. So I think to bring to mitigate the lost off guard transition is important.
To find a portfolio is the level of certainty on ally is important to them. So that is exactly how long as sandy I'm. The only channel strategy. So as Lincoln National Depot. So our I think our strategy is to enable the Brent Palmer leaves, our powerful capability and the only channel to see that too.
Provide best in class offer where the products and the survey can capture the channel consumer prefer to use no matter, where it is yeah.
Thank you.
Thank you our next.
Our next question, how do I do with Bank of America. Your line is open.
Hi, Good evening management, Thanks for taking my questions I have two questions. The first question is on this.
This quarter is the first quarter.
<unk> started to have a separate disclosure of digital marketing and Ikea solutions segments are providing more transparency in terms of the service revenue and also profit I'm just try to understand more about this business. How we internally look at it could you actually share more colors in terms of our.
Our strategic plan on this revenue line and the business and how we should expect this to grow in the future and my second question as we all know the pandemic actually has a lot of impact on consumer demand. However, a pass on the demand from the brand perspective in terms of.
It's like you know our industry competition.
How we actually see the competitive landscape of our business has changed.
Due to the pandemic any like you know we have been walking application a price war.
We see in a more stable life or like you know small players like kind of Hum.
Just squeeze out from the market could you shed some color. Thanks.
Okay. Thank you.
I mean I'll quickly answer the first one and leave them. Since two are you talking about the T. P are kind of the overall company agents situation yeah.
I think that's the first time we.
Oh, we split that.
<unk> revenue, but that's also a key focus of the strategy all states yeah. So basically.
In the last few quarter.
I've seen the growth momentum.
Momentum from the traditional business either traditional style operations start to slow down.
Ohio from the customer and from our brand partners without looking for ways and value added service and help them sell more.
More online wage we are internally, we have this capability from digital marketing solution.
Solution will help the brand partners.
Ah well achieve that result.
And also that expanded Oh, sorry.
Two era whereabouts and has a very unique proposition I E. All the technology capability, the digital marketing I used to around data and technology, it's a wrong.
And your technology, you can stop trying to products we have made.
<unk> significantly United meant over the last I feel yes.
And by focusing on those two categories, we were able to utilize all what you might spend I'm quite well generate more.
Our marketing business from our brand partners. So that's our thoughts and that's how we organize our business and that's how we're going to achieve our strategy yeah, no ipod and convince them when the time.
Question.
Sure. Thanks, a lot Sir.
Yes, I think during the lockdown.
A lot of things have changed and also it is just like examination.
For all the players no mother different brands different.
Service providers in the market.
I'm.
Glad to see that.
You know even during this kind of pandemic and lockdown.
Our capability helped the brand partners to two.
Be very resilient.
The change and too.
To stabilize the business. So it is not easy.
I think it's three points are quite important in the personal lines that.
During the Lockdown, we can see that apologies the technology.
And also logistics, a multi city our warehousing.
Danny Omni.
Omnichannel capability all of this helped a lot of our friends to sustain their business and some of the brands that you can high school during the lockdown. So it is.
Cost of doing.
During the past several years, we continue with the U S into logistics and also <unk> capabilities digital marketing.
So you know we can help support them not only in the common data, but also the pandemic appeared so today's achievement is all about you know.
The west all of these capabilities before.
So that is number one that's why even though the biggest brands.
Supposedly the propulsion powered or the volume that we are that most of the trust department to them.
The second one is that you know in the past 15 years, we kept learning from the past the brands are learning out there you know the retailing.
Also the distribution logistics due to the marketing branding or are these kind of things and we generally are cultivated these kinds of knowledge into solutions.
Well, we mentioned shopped, our sharp cuts in logistics ups and all these kind of solutions are good the response to the brand.
Perhaps brands reached a mountain in the past 50 years and the we also trend for them all these kind of.
Technology into each other.
I'll, just say a set of solutions, which we can use to surf.
More more and more brands in the future. So that's why we can see that the trend of the revenue from digital marketing it.
And also what logistics are very healthy.
So we benefit from this as well.
Thirdly I think.
What do you have kind of.
I'll, just say strategic planning.
Just like several quarters ago, we shared with you then.
Long term or medium term.
Planning of results. So by this way we can prepare more resources you know if you're in different kinds of market scenarios.
For example, today, we have Paul adequate.
Financial resources to support our company.
To do more M&A to do more investment during this period, although the market is not good but well see.
Talking about M&A and also investment it is actually a good care. So so in this case.
These three points.
Are integral parts of our strategy to support the company to grow and to deliver better and better service more valuable service to the industry.
Thank you.
Thanks, a lot one of colors.
Our next question comes Sofia Tan with Credit Suisse. Your line is open.
Hi, Thanks management for taking my question I have two questions on behalf of actually my first question is about the outlook for second quarter and next how far the base here.
Should we think about that potentially impact both topline and bottom line. They can come in and sit down and exploration and corresponding containment measures. My second question is about the cost optimization can management share with Amish, what's the majors, who have to take this year to cut costs in opec's, how would this imply to both gross margin and operating margin. Thank you.
Okay. Thank you for the question I think there's.
Theres a lot of uncertainty and there's a lot of potential scenarios could happen waste a car is locked down.
Currently we are Uh huh.
In terms of the whole yeah financial in himself the whole time.
But we do see all the gimbal you will continue to have a double digit girl, David and we have some really good brands, having drilled a solid brand in the electronics and also in the CPG sector.
Underlying we are concerned in terms of the apparel and.
Some quite some sites, which are impacted by the economy slowdown.
So therefore.
From a revenue perspective, we think we will see our weight class revenue comparable ways. The last outlook we have.
It's still too early to see how much impact that will be I think it's a good time for us to get back to the market will be after 618, then we're still cross our fingers and hope there will be a bump spiked in the 6008.
Just like what happened in 'twenty 'twenty, the first wave of the police.
In terms of the cost control initiatives.
Actually we made a lot of progress on that.
So first of all.
All the initiatives in terms of how to control our cost optimization.
Don Sinclair on cost cutting.
What we have done needs to do the process reengineering.
Time to use our strong eiichi capability, who use the system to drive automation.
So that's we have used all headquartered in Shanghai and also our regional shared service center in Antoine Fluffy.
So that significantly improve the operating efficiency I had to say.
I'm time after we moved about 50% of our customer service people from Shanghai and Hong Kong.
It also reduced our labor costs.
The locations are different.
And secondly, we.
We have done a reveal internally looking at all the high comp.
We have implemented a very strict.
Control mechanism.
The foundation of that he used to looking at the value creation of each role in each function.
And also we're looking at Uh Huh.
Appropriate contribution.
T from our frontline business.
Trying to differentiate wage resolved springs more proceeds to the company and trying to rationalize that.
And also we are.
Also during that reveal we have highlighted some low efficient Brandon we are currently operating.
And all the way to operate Hayes to wage the low property brand and replaced by some high proceeds new business.
I'd say for the D D.
And finally, and very simply is the overhead control and that's a culture of income so we tried to impairment.
We want to spend every single Penny.
For example, looking at both sites before we put that money on the table.
So that culture has deeply implementation in Irish people impulsion.
And we hope waste that culture, and with our process reengineering and see some automation capability, we will be able to control our cost.
A very difficult time this year.
Thank you.
Thank you.
Our next question comes Charlie Chen with China Renaissance Your line is open.
Okay.
Thanks for taking my questions I have two questions here. The first one is.
We all know that China's economy is particularly challenging for this year. So is there any noticeable change in use.
Amount of your brand partners in terms of their willingness to spend in marketing and as Gary any changes in terms of like the Chinese consumers' consumption downgrading instead of upgrading so all of those major changes how do you think.
How did those trends impact, Belgium decision, making process in terms of things like prioritization of your brand partners, our pricing strategies with your brand partners. So that's that's my first question and my second question is regarding the brand partners.
Especially the international brands at the same stuff they are actually losing market share in some particular.
Categories, such as apparel, so how do those international brands.
That's China South Korea.
Market going forward, but they continue to spend in China, how is that determined in Chinese market and also as well if that's the case, what's the progress of your Onboarding Chinese local brand partners. This year. Thank you.
Okay I may ask Tracy to answer the first one and you might intend to answer the second one if that's okay.
Okay.
Yep.
Yeah Hello.
I think in terms of the environment in China, especially on the marketing parties, but I think right now it's too early to give a conclusion. They is there a similar.
Trunks to minimize their all reduce their your bathroom here, but.
But I think there were two about it points I can assure we are with you and the team and the first I think.
<unk> got the money in the given the also hitting the market to use the mountain investments.
March based off many of the direction you can also see the transform the the reasons are I mean, the policy Oh C. But regulation published by the like the top top talk from the Army Goodbye and lost a mouse right moving proactive in Chicago, Some channel, which lower Oh.
So this is also in because they have other brands part they will definitely see the culmination of the portfolio out there marketing investments between the they moved around the tungsten mountain and also the campaign together to see what is the right on the balance sheet a life on those and then secondly, I think it will actually accelerates.
There are there programs in China, we call about a localized solutions because actually given.
All of our brands and we've been working right now. So we're trying not then that's already take significant share in all the total global than this so I think the that part of the laser has come down the there.
They are in terms of the growth rate, but it's also true that there are some concerns around the strategy per se.
How big a job that's ready in China, and it turns out the merchant and the also the marketing Bachman.
Partially on the local ads that part and then also I mean, both decentralized a thought that the mix on the channel and that mix on the price level things to.
To come to you to wait a week will come out in the market.
So do I think about is the two points I would like to share and in terms of the Baldwin.
Hum.
I mean, where how do you see I worked infections and done that.
The $12 six.
I think quality definitely Congress no matter the channel choice all the Black Panther twice, so we always treat our actually our college he helped us so besides our first surprising and I think in terms of our collaboration with Glenn.
It provides our fastest so that's the best of our level of service to work with the Bachelor level best to turn off the rent on the also we will proactively to adjust what category. It makes a between the apparel and also the consumer goods and also our channel make between the two.
No problem and then you're right on the platform and also I think as I mentioned they found the quality here are what they are trying to actually make some our revenue passion. Besides the combination part, but also the marching them technology in the logistic part.
I hope this solved.
Most of your questions all my number one yeah.
Yeah.
Yeah.
Oh yeah.
Yeah.
Yes.
Two more points on the first one in terms of the selection.
We still like our brand partner Hum.
On the value creation, we have for the brand partner as well. So basically we are not the cheapest in the marketplace.
He provides a premium series.
Therefore, we hope we can charge a higher fee based on our premium service.
We have our standards in terms of from a commercial point of view, what's the margin are where you need to achieve all of those who decides whether or not we bring our brand partner on board. So that's the first one.
Second one is during this time, we particularly looking at the cash.
And especially with the payment terms and the inventory level.
So there are and that's we have rejected.
Good.
Oh, sorry, a famous brands waste a distribution business because of the Oh, it's not very good payment terms.
So in that way, we can protect all the inventory risk and to improve our working capital efficiency.
Well I think I would like.
Vincent please.
Thank you Arthur Synchrony.
Let me quickly cover the second question.
Given this lockdown I think a lot of fun.
In China today.
You.
Oh quite surprised especially in Shanghai, but I think from the headquarter or strategic perspective, all these fronts I think.
China market is still very important given the size.
And also just to two big I'm thinking over there.
So at least I think there should be more than neutral.
The Brent <unk>.
Active so we are quite ultimate optimized for the international brands in China.
After this largely a storm of Lockdown I think they will recover because we have a very very rich you know Brent Brenda S F.
Other than the other brands.
So so for us because we are a quest joining this one so so I think this will benefit us the second one for the domestic.
Domestic brands.
That's what I said in the past 50 years, we have already constructed reliable.
Our breadth of solutions, including digital marketing logistics recently, we also developed our ISC, which can provide.
You know a trustworthy customer service and also our personal services to them.
Brands. So these kinds of solutions right now is.
Open to the market and also especially to the domestic.
Domestic local brands. So we are seeing very solid progress.
Different functions, including digital marketing, we're serving more than more.
Local brands I T V. So we have a very big wins to logistics, we are serving some other.
You know very influential sportswear and also our power brands.
Local branch and also even for our sea we have some recent wins are.
They are in the local branch. So in this case I think we are making good progress for our local brands and we think we're also optimizing optimistic for the international group grants to recover so no matter for clients or shareholders. So I think the bigger.
If you could guys. Thank you.
Thank you I would now like to turn the call back over to Wendy Sun for closing remarks.
Thank you operator in closing on behalf of Jeff I was doing management team, we'd like to thank you for all your participation in today's call.
And they funded information feel free to reach out to us. Thank you for joining US today. This concludes the call.
This concludes today's conference call. Thank you for participating you may now disconnect.
Well, thank you everyone.
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Hum.
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