Q2 2022 Baozun Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good morning, ladies and gentlemen, and thank you for standing by for <unk> second quarter, two instruments to earnings conference call. At this time, all participants are in a listen only mode.
After management's prepared remarks, there'll be a question and answer session.
Mind that todays conference call is being recorded I will now turn the music exits your hosts for today's call Ms. Wendy Sun Senior director of corporate development and Investor Relations of Bowser. Please proceed Wendy.
Thank you operator.
Hello, everyone and thank you for joining us today.
Second quarter 2022 earnings release. It was stated earlier and is available on our IR website at IR, the Biogen dot com as well as on global Newswire services. They have also posted a powerpoint presentation that accompanies our comments to the same IR sites, where they are.
Both our download.
On the call today from <unk> thousand they have me still being sent you Chairman and Chief Executive Officer, Mr. Arthur Chief Financial Officer, and MS. Tracy Li our Vice President of strategic business development.
MS. Jill will review the business operations and the company highlights followed by Mr. Yu, who will discuss financials and guidance. They will 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 contains forward looking statements within the meaning of the Securities Exchange Act of 1934 and are you Watch private Securities Litigation Reform Act of 1995 six.
These forward looking statements are based upon management's current expectations and current market and operating conditions.
And relates to invest that involve known unknown risks uncertainties and other factors all stage are difficult to predict and many of which are beyond the company's can show, which may cause the company's actual results to differ materially from those in the forward looking statements.
Further information regarding these and other risks uncertainties or factors is included in the company's filings with the U S. SEC any announcement on the website of Hong Kong stock Exchange. The company does not take any obligation to update any forward looking statement, except as required.
And the applicable law. Finally, please note that unless otherwise stated all figures mentioned during this conference call are in RMB and compel ratios on year over year basis.
It is now my pleasure to introduce our chairman and Chief Executive Officer. Mr. Vincent You May. Please go ahead.
Thank you Wendy Hello, everyone and thank you all for joining us.
As you know your April into May 2022, there was strict COVID-19 Lockdown, you maybe key cities of China.
Including Shanghai Wearables and is headquartered.
In the face of Covid related logistics interruptions, our team quickly mobilized infrastructures to minimize disruptions and to maintain operations.
So all that's shown on slide number two our total net revenue declined by 8% year over year, while service revenues.
<unk>, 7%.
Demonstrating once again, our resiliency to macro uncertainties.
The pandemic has.
Celebrated the need to cope with drastic interruptions and the urgency of digital transformation.
Across a wide range of brands that we serve.
Please turn to slide number three.
The sailing churned in the rapid convergence between online to offline or <unk>.
I apologize omnichannel solutions enable <unk> by integrating Brennan partners through sources.
Including Digitalized.
Digitized retires of brick and motor stores.
<unk> sales associates and the sheer inches.
It has become the lifeline of E Commerce theater in the strict Covid lockdown.
We also benefited from the deployment of our intelligent customer service management system, Xiaomi, which can support remote execution enhance quality.
With Fannie stuffs looking consistent from anywhere in the system, we will keep monitoring real time data of customer service across channels.
With all of our Assembly integrated technology. We are pleased that Paul has it become brands de facto eight and relief when it comes to overcoming uncertainties and challenges like Covid lockdowns.
And as always we kept developing additional services for instance.
We updated upgraded digital content and enabled more virtual reality functions for one leading sportswear brand.
And also launched short video services, leveraging our multi regional service centers network.
All of these efforts helped in rich consumer experience and empower many of our brand partners to success.
During the 618 campaign.
Now please turn to slide number four to share more about our progress.
Business development.
During the quarter luxury and premium brands continue to search forward.
We also added more sub kafka.
Categories, including Al Dor, cosmetics, and a fast moving consumer goods, thereby enhancing our diversification.
Overall, we added a net of 10, new brand partners in the second quarter.
The total number of brand partners for store operations increased to 355.
Well, we prioritized the new partnerships, we inspire existing partners to launch more channels.
End of the second quarter, we operated.
Approximately 40% of our brand partners Omnichannel approach compared with about 33% a year ago.
Making milestone in our omni channel vision.
This August our capabilities and the track record helped us gain greater recognition in attention mini program E Commerce ecosystems.
We were honored to be accredited by pension as a partner of excellent category for E. Commerce, operator kind of independent of service vendor or IC.
For Tencent cloud more.
And all spending category or for business development partner.
Which with this recognition we became the only service partner that's in pop listed impose.
That is published it in both Alibaba Tmall and Tencent Mini program E Commerce ecosystems.
There are no further collaborating with pension.
Several initiatives such as.
In traffic acquisition and the smart new retail.
Next our momentum towards our vision of technology empowers the future success.
We're seeing strong demand from our clients for technologies and solutions for managing not only retail, but also distribution network.
For example, our big successful project with some leading electronics giant.
Continuing to expand.
During the quarter.
Completed a nationwide integration mini program in the J D power Jack.
All of us over 3000 stores, enabling us to generate license revenue in recurrent stream.
We're now in the next phase of incorporating <unk> and maybe <unk> to this digital platform to fully integrate business flows from our factories to stores and to consumers.
Another example is one we were recently secured a.
Award, leading sports equipment retailer took OBO as digital operating platform.
Thus far we have established our business pipeline with over a dozen upfront partners and technology integrations, we believe as brand partners.
I'll leave it there.
First in digital transformation technology remains the backbone of our widening competitive advantages.
Now I'll move to move on to our progress in logistics and supply chain businesses.
Despite the disruptions in some areas during the Covid lockdown.
We not only were able to uphold the operations of our own warehouses.
But also guided our brand partners to quickly transit.
From a centralized warehouse into a grid management system.
We further deepened our cooperation with China.
To leverage its established infrastructure and network.
During the quarter, we started to manage plenty of warehouse in the us.
Apparel categories.
Some business referrals in luxury in the premium sector and launched more RFID based solutions for some of our key sportswear brands multi.
Motivated by this early synergies, we will appraise existing lines to further.
Streamline and advanced additional strategic objectives.
And during all of the external uncertainties.
To demonstrate the resiliency and accountability.
Meanwhile, we are executing our midterm plan with discipline.
And strategically investing in our business transformation.
Expand our total addressable market.
For example, please turn to slide number five.
In brand management, we see a natural move to expand upstream in the value chain.
Leveraging.
Our digitalization capabilities growing penetration of e-commerce, and the marketing insights, Brian the management the enhanced value proposition from <unk> solutions, which were also in turn.
As our strategic thinking and cultivate brand oriented service philosophy.
Since last year, we initiated our brand and management efforts of the year multiple approaches, including strategic alliance so minority investments in itself incubation.
We have assembled a diverse and attractive portfolio of southern brands, let's start with covering two major categories of apparel.
<unk>.
Accessories, and health and beauty.
We are happy to report that we have are empowered these brands to a mess of total GMB of.
Smoothly 80 million.
The first half of 'twenty two.
This translated to a year over year growth rate of over 50% strongly.
Performing the general retail.
Sorry.
Okay.
Finally, our ESG and the sustainable growth turning to slide number six.
We issued our second and your ESP ESG report this may and launched additional set of Green initiative.
Including the introduction of a carbon neutral.
Try to Pete.
What paper in June .
We are committed to reduce 50% of carbon emission by 2030 compared to the 2021 baseline.
And the carbon neutrality by 2050.
This quarter, we kicked off our public well frankly, Steve spy.
<unk>.
But used to show second lien program was one leading national sportswear brand.
As a leader E Commerce services, we will always there or might bear in mind to operate responsibly.
Comparable comfortably kind of sustainably.
We look forward to expanding with our brand partners to mutual success.
I will now pass the call core to author to go over our financials. Thank you.
Okay. Thank you Vince and Hello, everyone.
Now let me first do a quick review of financial second quarter in 2022.
Please turn to slide number seven.
During the quarter, our total <unk> increased by 47% to 23 billion.
The strong <unk> growth was mainly due to outstanding performance by one leading electronics brand.
Service fee model.
And excluding this particular brands.
Adjusted <unk> would have girl by two 4%.
Total revenues declined by 8% to $2 1 billion of weight product sales declined 29%.
Service revenue increased by 7% compared with the same period of last year.
Now, let's turn to slide number.
A breakdown of revenue.
During the quarter.
Revenue from our traditional e-commerce partner business.
A full 50% of total business.
Revenue for warehousing and logistics contributed 29%.
Digital marketing and IC solution contributed the remaining 21%.
The outbreak of Covid and subsequent strict lockdown in April and May has a general negative impact on our business.
We are delighted to see that our luxury category.
Double digit growth.
There was also more resiliency in value added services.
Plant warehouse and fulfillment service revenue increased by 20 per ton.
And digital marketing and it solutions declined only 4%.
And due to Covid lockdown the impact product sales revenue declined by 29%.
<unk>, a general weak sentiment in product sales as.
As well as our proactive measures to optimize working capital efficiency.
And given the current uncertainty.
Political in <unk> and.
And the macro environment.
We believe it is critical to continuing to focus on high quality revenue stream for minimize III in the coming quarters.
And I thought we had put more now.
Non distribution model for Kearl revenue from value added services, while deemphasizing distribution model and product sales.
Now I'll turn to slide number nine.
During the quarter, our call so product decreased by 26% for 600 $802 million.
Due to a reduction in product sales.
Our gross profit margin for product sales was 13, 2% for the quarter, mostly deal for a change in pricing strategy.
Adjustments in category mix.
The increase in cost related to a default and in perfect product.
But if we take into account service revenue.
Our apparel.
The overall gross margin improved 7% to 72%.
Driven by higher revenue stream contribution.
Generates a higher market.
Now, let's turn to operating cost and expenses on slide number 10.
Fulfillment expenses were 700 $825 million.
An increase of 29%.
Lastly, huge for the revenue growth in warehouse and logistics services.
And some incremental costs related Colgate protection.
<unk> had fulfillment staff.
We are delighted to see our regional service center ramp up.
And the efficiency of customer survey.
<unk> improved to a point that such costs declined by 2% year over year.
Our sales and marketing expenses were $668 million, an increase of 3%.
Mainly due to increased business development related staff costs.
<unk> business apparel and offset by efficiency improvements.
Technology and content expenses were $112 million a decrease of three per ton.
Decrease was mainly driven by the continent cost control initiatives and efficiency improvement.
<unk> was partially offset by continent ongoing investment in technology innovation and product innovation.
G&A expenses totaled 92 million a.
A decrease of 6%.
The decrease was primarily attributable to the company's cost control initiatives and the efficiency improvement.
At a higher pace from dual running cure rate for the continent, New headquarters in the same carrier of last year.
Now turn to slide number 11.
Based on the above mentioned items.
Our non-GAAP income from operation.
<unk> 7 million during the quarter and non-GAAP operating profit margin was two 2%.
Once again we.
Pat waterfall diagram.
Taking all of our analysis of how our topline and bottomline evolved year over year.
As a reminder, this analysis unaudited uninsured solely used supporting number eight discussion.
First on slide number 12.
I think what's helpful diagram shows our revenue walk from Q1 2008, one to one to Q2 'twenty to 'twenty two.
Uh huh.
In Red you got it.
The biggest item impacting our revenue this quarter with product sales.
As mentioned earlier.
Two major factors contributing to this drop.
Our continuous efforts in brand the optimization.
And the weak product sales due to Covid lockdown.
Mainly from one key brands in personal care categories.
Revenue from <unk>.
Revenue from digital marketing services.
We view.
Sorry is it declined slightly this quarter by 4%.
This slight decline in digital marketing and revenue also attributable to the Covid Lockdown, that's negatively impact several new product launch from brand partner.
On a positive note. This initiative in value added services led to better profitability and please follow me to slide number 13.
The indicative walk of non-GAAP operating profit and of course the screen.
Our strong non-GAAP operating profit from digital marketing and it improved by 19%.
We also generated a positive saving of 15 million from cost optimization.
At the same time, we kept investing in new opportunities.
We spent 14 million on brand management.
I'll, let the expansion and Colgate protection and the wildfire for employees during the lockdown.
For our traditional store operation business on the warehouse and fulfillment business the <unk>.
<unk> external environment and dragged down the overall top line will also take us higher operating expenses during Covid lockdown.
Please turn to slide number 14.
To counter these headwinds caused by Covid Lockdown, we continued our cost transformation and the optimization of iPad.
Mainly focus on for Iran.
Firstly, we proactively minimize the risk.
By diversifying regional service center function.
Including Star Operation Nissan feature.
Digital marketing and technology capabilities.
Following our success with regional service center in Nantong and the buffet.
We have selected small cities over the next phase of expansion, including Jinan, Chengdu and Chongqing.
Secondly, we continue to reengineer, our business processes by centralizing all of our operating capabilities.
We used one team to sell.
Multi brands wave seamless hot.
We also introduced a couple of new automation and intelligence tools.
To increase productivity and reduce labor costs.
Thirdly, we rationalized our compensation incentive.
Our frontline employees by introducing a volatile business.
The old contract.
<unk> was designed to motivate our employees to take ownership of their roles and also a more entrepreneurial incentives to reward performance.
And finally after moving into the new headquarter building, we were able to consolidate the office footprint across all departments into one place and further streamline supporting function.
Finance.
Administration and procurement for radio cost.
Now, let's turn to page 15 about half of cash flow.
As of June 30th 2022 of our cash and cash equivalents totaled $3 1 billion.
In light of the Marco uncertainties, we continue to prioritize working capital efficiency enhancement.
And launched new initiatives to further advance our bags and protest.
To improve inventory management.
And collection activities.
As a result, we are.
We're pleased to sustain a positive operating cash flow of four.
<unk> hundred dollars 5 million during the challenging period of Covid Lockdown.
Meanwhile, we moved forward with our share buyback, but unfortunately.
Convertible senior note, which totaled $992 million during the quarter.
And lastly, our board of directors has approved us to pursue the voluntary conversion to deal primary listing on the Hong Kong stock exchange.
As of today, we are happy to announce.
We have received the acknowledgement from Hong Kong stock exchange regarding the conversion to a dual primary lithium.
We expect the primary question to become effective on November .
2022.
After the primary conversion becomes if I could.
Voting will become a deal primary listed company on the NASDAQ Global select hit market.
And the main board of Hong Kong stock exchange.
I'd be coming primarily paid on both I changed it.
Anticipate expanding.
Sure a wider you might debate.
Overall.
Despite some turbulence in macro environment.
The ability to conduct business during the lockdown highlights the flexibility and resilience of our business model.
We will continue to prioritize resource allocation.
Cost of transformation and improve working capital efficiency.
We believe our solid balance sheet.
Our improved momentum in value added services.
And although while diversified brand partner portfolio.
Well not only prepared to cut through the tough market environments ahead.
Also enable us to be much as a stronger business.
Sustainable long term growth.
Well. This is my financial review section and that concludes our prepared remarks.
So everyone. Operator, we are now ready to begin the Q&A session.
Thank you.
As a reminder to ask a question you will need to press star one on one on your telephone.
Name to be announced.
Once again, if you would like to ask a question. Please press star one on one on your telephone keypad.
We will now take our first question.
Please standby.
And your first question today comes from the line of Alicia Yap from Citi. Please go ahead. Your line is open.
Hi, Thank you good evening management. Thanks for taking my question I have two questions. The first one is related to the progress and traction for.
The non tmall channels. It seems like this quarter the contribution declined from last year to 24% could management share more color at the reasons of this mix and how we should be thinking about the future growth opportunity for all of these alternative channels.
For this quarter, specifically should be is this suggesting the brands remain quite recent lens.
Oh actually returning module that came on channel and then the second question is can you update us on your relationship with I think.
How is the business cooperation with <unk>, so far is the.
Investment and strategic business collaboration are working as planned any color the management could provide will be appreciated. Thank you.
Okay Alethia.
I'll take your question. So this is also here.
So first of all on the non chemo.
The percentage so basically the number youll have seen based on.
Including a very strong performance of one major leading electronic front during the <unk> and.
And if we exclude these one leading electronic brand actually non chemo represent 48% of total AUM.
Our TMT this quarter compared to <unk> 43 per ton last year, we paid a <unk>, 5% year over year.
And this is actually demonstrated.
Ill.
Albany in channel strategy has continued to make the iPad.
So we'll see that.
It's more brand.
Thompson to utilizing the non chemo channel two girls.
To grow the e-commerce business.
And I will have.
I have mentioned earlier, we have made good progress in not only at Hudson, but also we've made some good progress in <unk> and other private home in China as well.
On your second question regarding the cooperation with I click so basically just a recap.
Main purpose of us, making the investment into sleep.
Enjoy the operational synergy by powertrain operating the bank kind of operation and I click heightening.
Hum.
Oh click having a firm hand.
Kind of system, which allow us to try and play Cid and Peach.
Customer.
So basically.
The integration of <unk>.
Fully completed and we have seen good progress in terms of the client BD.
As a result, you can see we mentioned earlier our Townsend.
Ecosystem had made major progress in this year.
Sure.
Rotate.
It's true.
<unk>, reaching one.
Into a category of one in the E Commerce operation our Townsend.
Jose some have made major progress in this year were both heat.
I mean, we were awarded two.
Good reaching one.
Into category of one in the E Commerce operations and another in the ICD both of them is actually in the top category of the Tencent ecosystem.
And that.
Cannot be achieved without.
To support along with I click.
So after that.
Actually become.
The only one company in China to enjoin, the pulp leaching in Tmall, we face does that.
That takes time.
<unk> TP and also the pulp repaid in the.
In the trends in our system, making us the best service provider for both the public domain and private domain.
Is what we have seen.
The program.
The strategic kind of opportunity would opened along ways that you might move into <unk>.
Hi. This is very helpful. Thank you Oscar congrats on the solid achievement.
And Charlie you Sir Thank you.
Thank you.
We will now move to our next question.
Please standby.
The next question comes from Thomas Chong from Jefferies. Please go ahead. Your line is open.
Oh, no I try and for taking my questions I have two questions.
Can management comment about the impact of the macro.
And Oh, my sentiment to our overall business and also the timing of coupon category.
In July and August so far.
My second question is about <unk>.
Hi, Matt.
Some provide some update about the cooperation and yeah I'll talk about.
Okay.
Southeast Asia market.
Okay. So maybe Chris you commented on the first one then I will take the one about hanger. Thank you Geoffrey.
The first one so regarding the digital consumption actually with the monitor clothing.
Month after two months the rough time actually the accumulated consumer demands have had helped us to achieve that never successful fixating as Luca mentioned and I think.
Two months do we can see the traffic can GMB is up from July to August . So the the overall consumption has gradually recovered I really haven't been fully recovered to the same level compared with last year, but do we think the training skewed and that it is a very similar situation on the consumer sentiment here.
The markets are facing the challenge at all.
Kathy Shelton and the lower readout the conversation conversion and also the higher rates on canceling return cross categories and I think this is the shared landscape across different categories to 5% up and down across different categories, but and we can see the platform are taking many initiatives to upgrade the ADP.
Consumer parents like the the initiative the marquee delivery addressing one other in those two weeks.
We believe all of this investment will harvest the consumers preference longer term and from adult emphasized actually in the past the linked quarter, we put a lot of attention on the consumer experience to we're actually working with our brand partners to launch new features like to digitalize the poster sell a consumer care.
So they like can we have one of our clients.
222 to enable the cleaning and the maintaining surveys about over 1000 put out so that's out of our consumer can enable to enjoying the same premier service online and offline and also our design hub to launch the three D display monitoring service and also the wharf keep their cards and also.
Uh huh.
Exclusive capsule in Sydney, the pure rate. So all of this pack takes I think will help us to communicate with the young generation and how should also I think in the longer term, we'll leave a little bit with the common dosing in the consumer sentiment and the consumption.
Okay.
Tracy.
Answer.
The second question.
I think this question I actually have two parts.
On the cooperation with Ty Neal.
We are making good progress quarter on quarter, so basically.
We have cooperate mainly in three areas.
First one.
Have been trying to play.
In several luxury on primary apparel brand waste. Some good result, and we see that has one of the major opportunity.
<unk> in cooperation with China and.
And secondly, a bolton was able to utilize tying out national wide capability logistics and warehouse.
And that takes one eight.
We're able to use the channel capability to operate the great management system, which allows the delivery in the factor.
Faster speed to the customer so that's helped us too.
To achieve a good result in the <unk> campaign.
And thirdly.
So tiny and powertrain isolate technology very strong company. So basically in this quarter, we started cooperation under our.
Energy and we adopt that technology feel international sportswear brand.
To improve the efficiency and to improve the customer satisfaction. So we see a great future.
And continued success in working together with China.
Second part of the question in autonomy, so banding oversea market.
And basically things are already this year, we have started.
All the tour stop he is a true.
To expand outside of China. So so far we have offices in Singapore and also in <unk>.
<unk> seen from.
And we start to build our footprint in both Asia outside of China, and also Europe await additional people additional.
I'm kind of a nice work on the ground.
I hope this quarter.
I actually can't see about 200 million entry NV, which we are generating from outside of China, and this amount is actually growing and quarter by quarter.
Our international growth strategy is focused on replicating our China E Commerce subsides and take the learnings we have in China and adjusted for the local practices and also to utilize the local knowhow.
To make haste.
Second generation of e-commerce in each of the markets, we aim to operate.
And in our approach to grow internationally, we will consider both the autocad, Nick Earl and also organic growth.
Mentioned in the past as part of our M&A strategy.
And I'd say, it's about how OLED expansion.
Got it very helpful. Thank you.
Thank you.
Thank you.
We will now take our next question.
Please standby.
Your next question comes from the line of choice to Bank of America. Please go ahead. Your line is open.
Good evening, Thanks, Arthur and Wendy Thanks for taking my questions I have two questions. The first one is the big picture one as we all know there's actually a lot of change in macroeconomic conditions.
Regulation in regulatory requirements in industry dynamics and also the competitive market.
So once you know like you know front of management's perspective, what's the top priority of thoughts are right. Now is there any change in the company's strategic direction and my second question will be a regarding the upcoming Singles' day.
Promotion wondering like you know how is the preparation from a branch perspective have we made any plans start to in house them. All downturn look like at this time. Thank you.
Okay. Thank you Todd I think maybe Vincent you can share some high level thoughts on that first question and Tracey you may be able to how about the second one yeah. That's okay sure. Thank you.
Others. Thank you.
Thank you George for the question.
Yes talking about the priorities of our strategy.
Oh, <unk> I think.
The first one is of course, the China E Commerce market.
Which is our core business I think despite all of the.
All of the neck.
<unk> from different angles.
We still think our you know the Chinese e-commerce market will be quite robust and better slot still a lot of potential to grow in the future.
So are we.
We will focus there.
Focusing a lot in there.
This area.
To not only to have them more valuable customers, but also.
To make our operations and technologies.
More efficient to support the future growth.
That is number one number two is we think technology is always we keep investing in this area.
Right now, we think we're stronger and stronger in the industry.
And we are you know.
Want to touch the existing and potential new users.
Through this technology arm and we are.
We're seeing really good progress in the first half of this year as well.
And I think the.
Also the term between these two is that when this tool can be connect to each other or leverage to each other.
We see a very much much better.
Salt of effects of one plus one much bigger than two effect that means that when we talked to you know.
Potential technology clients are experiencing China E Commerce will help a lot.
And you know when we talk to E Commerce customers technology will also play a very important role. So I think the churn between as a tool is very important.
So a quick number three I think will be overseas expansion as you see we have a lot of progress too.
We use this business plus investments.
No.
<unk>, which.
Others have said organic I E organic together.
So.
We're confident that we can continuously.
Make a progress.
Second half of this year as well.
So I think this is quite important.
Priorities for today's work and it's quite in line with our midterm plan.
Yeah. So that is the first part of our thinking the second well above the double 11, and saying I think Tracey you can answer this.
Yeah sure. Thanks.
Vincent.
So actually talking about double 11, I think he's doing the early stage because we have been moving.
Real estate, you talk about the inventory and the name of <unk>.
The maximum level, but soon the top conversation with their leadership team on in Marquis rent I think they're ambitious excuse me or is it are they seek the bottlenecks.
Second half of the year I think most of our brands.
Are there new product launch plan and also the marketing investment is due at system level right now.
But from the other two parts right now they are sit on the fence.
So it's all of the brands I think.
We have the healthy <unk>.
<unk> situation based on the Omnichannel landscape and also their product a product one as part of our marketing investment in the South elaborate later be hired I mean preparing for the double 11, but we still post close and monitor all online account structures.
But at current stage I think when we see the demand I mean, the next maybe.
Three months later I think.
The most important thing is we need I think in the recovery. We are still in a recovery period actually from thousands of accretion plan point of view, we think we need to take at least six months.
Plan to to focus on two things first days to move the focus off of daily sales to margin Park and new product part.
<unk> discount concentrate and the second is on the I mean, the results compensation and the stock level and the Barclay parts throughput offers on the big promotion and the third parties to mitigate actually the I mean the impact.
The leasing of the top top kewell host and to build a matrix of small new lifestream.
System. So that is the top three including the daily sales in the Big promotion also the Lifestream Park, we will build into our six month plan to work with our brand partners to mitigate the impact of COVID-19, I Hope this will help to solve that problem and we keep close communicate with brand and share more information later.
Sure.
Okay. Thanks, a lot. Thank you.
Yes.
Thank you.
We will now take our next question.
Please standby.
And your next question comes from the line of Charlie Chen from China Renaissance. Please go ahead. Your line is open.
Hi.
Thanks for taking my questions I've got two questions here.
First one is about the performance of some international brand partners from some international apparel brands financial reports you can see their performance in China has been rather disappointing.
Biogen has been.
It's been a long term partner with.
Some of the key international apparel brands.
Is the management strategy cheap basically turnaround of its trend or is there any other brands that can compensate the revenue shortfall from the international apparel brands. So that's the first question and the second question.
As a follow up question so.
That's been the pattern of Internet marketing for a lot of brands for a long time.
So going forward I want to give some color on how to help us sustain the growth or even creates the second gross curve.
In particular.
And if further penetration that we can do with international brands in China or are we should bring some international brands into the Chinese market or on the other side is there is strong enough demand from domestic brands.
Internet, an internet marketing or do we have any plan to bring those domestic brands outside of China.
Overseas market. So I wanted to get some color on that thank you.
Okay. So on the first one maybe maybe I just.
Share some brief thoughts on tissue, Dan Kaufman, so given the current challenge, we actually looking at toys of come to the challenge at the moment number. One is you can see we put more advertised on the value added service the things like our digital marketing Oh.
Solution and also our logistics and warehouse services. These are value added salaries unhelpful that e-commerce operation.
On one hand, it's going to generate new revenue streams and also.
Our path for <unk> to get into.
A more penetration into a new customer base. So that's what secondly, we have made a lot of effort and my.
I have seen good progress in terms of the BD things of last year.
We now have established a central hub business development team across all the different categories.
And at this moment, we have created a long list of potential BD and which we have see good opportunity.
To go further in terms of getting them all brands on board with our capability offer so Mr. Tracy wants to add more.
Sure. Thanks, I think I can add more animals on the second point, because actually I think BD has been proving run off the keeping driving factor for all of our business right. Now we have three highlights in the first half of the year.
I think the first one is we have very solid programs on the timberland brand sites, many who one channel.
Actually we're going to have I think at least till 'twenty significant store opened by this year and is cross category.
In luxury beauty and esports category and also in this in and where you can see from the dealer channel action of these show relatively higher growth, especially in the six to 18 and their potential on sales haven't been fully on east considering most of the store early stage all the operation So it should contribute more in.
Other than this the landscape for Neste, a year and then secondly, I think as far as the product category parts. Besides apparel Thursday digital we also have very good progress in lifestyle related category to work with the higher quality brands actually is including bar in the local brands in food in the house.
Things really pizza, we are able to balance the category it makes them to seek sustainable growth.
Thank you Tracy.
And also I think for the second question on the.
On our second club in terms of the business I think that's a very good question. So people we talk about the second Cook actually the main priority for US is to make sure all our existing E Commerce business. It's girl in a very solid way, so basically as I mentioned.
We will proudly highest quality over about the kind of the pace of the girl, we will put high-power Martin and protect our cash flow and we hope that e-commerce, which as mentioned earlier.
Uh huh.
Still presents a quite a significant opportunity in the Chinese markets, we will tackle this market for our existing business and profitability.
Household nuts.
So we will focus on a few areas.
In line with what we intend just had our strategic priority. The first one is technology.
Technology and digital enhanced value added service.
This is the core capability of culture in which we have been building over the last 15 years.
That made a big investment and all of our capability is very unique and highly valued by the enterprise clients, which they need all the Oems and all are.
Kind of a backend system to integrate a photo e-commerce operation So payments today, many of our enterprise customer pushing into the D to C initiative and also driving that is a transformation happening in the market a growing demand for those kind of technologies.
Ocean wage Bolton and Barrie foods position to alpha so that's on the technology.
On top of the technology.
We combine the technology.
Kind of the transformation capability, we have and also the e-commerce.
E Commerce operation capability, we have we actually will be able to enter into the brand's management space by utilizing our digital capability to transform our brands and trend.
In the slides we have.
Yeah, the brand's Msas and we deeply managed Antoine has showed a over 50% year over year, which has quite a good result at the same time from the learning of managing upfront and plans, we will be able to build more.
Experiments and more learning, which we kind of come back so feedback to our existing <unk> customers for benefit so that's where we see the.
The second part of our.
And then finally I've.
I mentioned, the OLED expansion, so basically technology brand management and OSA expansion.
He will play a big part in our second hub off girl.
Thank you very much.
Okay. Thank you.
Thank you once again, if you would like to ask a question. Please press star one and one.
We'll now take our next question.
Please standby.
Your next question comes from the line of Lee from CLSA. Please go ahead. Your line is open.
Hi, Good evening management, congratulations on the solid results. So I have a question on the margin outlook for the second half. So would we expect further margin improvement compared to what we have last year, where will we see any further benefits arising from our continuing.
Cost transformation efforts and also a small question now that use of cash so how should we think about the.
Capital expenditure in the second half thank you.
Okay.
Thank you for the question.
For the first half.
I mean for the first question on the margin, we will keep driving the cost of transformation.
And also we will prioritize.
Our cash flow.
Hum for the improvement in the second half of the year by impairments of the overall market dynamic there are still a lot of uncertainty which caused the by the potential COVID-19 Lockdown and also the slowdown of the overall economy, which has a knock on impact in.
To the product sales margin and also our.
The overall growth.
Wage I would just only to say, we will trial with ice to protect and improve our margin waste the initiatives we have on the ground.
In terms of the unresolved we'll.
We'll have to wait and see but we will keep the market updated when we have.
A little bit more.
Kind of coming in towards the later part of this quarter.
On the on the second one in terms of the cash.
So at this moment, we actually prioritize the cash above the growth. So basically during the period of uncertainty has faced a king.
So on one hand, we're improving our working capital.
To reduce the inventory level at the same time to increase the speeds of collection.
Trying to improve our operating cash flow at the same time in terms of the investment activities.
We put a higher quality for our investments in this year and also given the uncertainty into the Chinese market, we actually put some.
Activity, especially.
That kind of other consolidation.
Similar to key on hold in China, but outside of China, We do look at opportunities to further grow.
As we mentioned in terms of yourself that you might have men into the brand financial man.
Instruments into our overseas expansion the two directions that we will keep making the investment and finally.
We have always see ultra Nathan.
The company and the investments into the technology will be one of our priority on the way thing that will help us build a sustainable business into the future.
Yeah.
Okay.
Thank you.
I'm not sure what players still connected that will go to the next questions.
Please standby.
Okay.
I am doing next question comes from the line of Van <unk> from CIC. Please go ahead. Your line is open.
Hi, Good evening management. My question is also about Graham partners.
My car environment and weak did you lose any big brand partners this quarter Q2.
Those two operations by themselves all due to foreign branch closing of one store in China. Thank you.
Okay.
We'll share a little bit inside and would be treated more so basically what we have seen at this moment is the brand partner.
Subsequent to poach more cautious approach in terms of the e-commerce, how they run that e-commerce.
One hand, given they also focus on the efficiency over the girls and several of the brand partner has put a kind of quality over the growth speed, they're actually looking for a stable partner to work with them to develop a long term approach.
This is what we have seen the trend.
Has been reduced over the last couple of quarter, where you see uncertainty inquiry.
Secondly.
In the China E Commerce market.
Actually.
Thank you volkmann of this market.
I've changed my real quickly new channels coming out.
Several quarters, new ways of operating in that E Commerce has changed.
Changed over time and through time.
Fast paced, so yonder to catch the market.
The brand partner actually need.
The service provides a lifeboatman who has the capability to keep in the front of everything is happening on E. Commerce, we will be able to learn from the many different brands and we're bringing that the knowledge and also experiment from the E Commerce and Baidu.
Our brand partners, so that gave us a good advantage in terms of keeping and expanding our services into the brand partner. So that's some of the inside that I've seen.
Okay. So you won't ever.
There have been.
Yeah, I think exactly as the street is upon US right now the key is about the long term direction things, we're working with our brands to development I think at least 18 months the operation plan to conquer the impact of COVID-19 like this.
Two or three months is still quite pure rate how to recognize me bachman to understate. The state's efforts taste of the water that is achieved that for the master six months, who started recovering PRA.
I mentioned how to move the focus of the daily sales and also prepare for the big promotion and to mitigate the top kols leasing issues and then turning to the next or you're in the developing pure rate and how we can work with the grant system to use marquee how do you see values.
On the channel content marketing campaign to rebuild the brand equity and the recall of the consumer group and that is the key I think in the longer term.
We work with the brands to support the impact of the.
The COVID-19, yeah.
Thank you.
Very clear thank you.
Thank you.
Thank you.
Ill now hand, the call back to Andy for closing remarks.
Okay. Thank you operator in closing on behalf of the management team I'd like to thank you for all your participant today. So when do you for closing remarks to reach out to us. Thank you for joining us and this concludes the call.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect speakers. Please standby.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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