Earnings Transcript for DXF - Q1 Fiscal Year 2015

Executives: Chee Jiong - CFO Qiming Xu - Chairman & CEO

Analysts:

Operator: Welcome everyone to the China Xiniya Fashion Limited’s 2015 Q1 Earnings Conference Call. [Operator Instructions]. I would now like to introduce Mr. Ng Chee Jiong, Chief Financial Officer. You may now begin.

Chee Jiong: Thank you. Good morning and good evening to all participants and welcome to Xiniya’s first quarter 2015 earnings conference call. You may find a copy of our earning press release that was issued last night in the IR section of our IR website or through PRNewswire. Joining me on the call today is Xiniya’s Chairman and CEO, Mr. Qiming Xu and myself, Xiniya’s CFO. Please note that we will be making a number of forward-looking statements today and all such statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the most recently filed Form 20-F with the U.S. Securities and Exchange Commission. Let me turn the call over to Chairman Xu, who would like to make some introductory comments. I will translate for him. Mr. Xu, please go ahead.

Qiming Xu: Good morning and good evening to everyone and thank you for joining us for this call. Sentiments among our distributors and authorized retailers has improved significantly following the completion of the first phase of our inventory buyback last quarter. The first phase provides support to our distributors and authorized retailers by reducing inventory and working capital pressure. We’re now implementing the next phase of our plan which involve stabilizing our retail network and enhancing our retail channels to reduced inventory by devising promotion and discounting initiative during holiday seasons. During this time we are focusing on the structure [ph] challenges of preserving cash, implementing cost cutting initiative and installing an ERP system in the second half of this year to effectively monitor the inventory in this retail channels. With this short term initiative in place and our potential capital positions we’re well-prepared for the consolidation of the men's wear industry. We believe that numerous opportunity will present themselves in mid to long-term as the market increasing becomes concentrated amongst our few big brands. 2013 and 2014 were the years where the smallest company we will be forced out of the market. We believe in 2015 we will see the start of the medium sized brands leaving the market. With this in mind we’re working to reduce the layers of our business model in status [ph] to enhance our competitiveness. This being done by converting distributors to the city retailers in status [ph] while at the same time lowering our ERP system, this will allow us to effectively monitor our retail network and improve our competitiveness in phases [ph]. I'm confident that the changes we have made for our business model will further strengthen in the position of our brand during the next phase [ph] of industrial consolidation. With that I would like to turn the call over to Chee Jiong, who will go through our financial review. Thank you.

Chee Jiong: Thank you Mr. Xu. As Mr. Xu has mentioned we completed the first phase of our inventory buyback last quarter. So I will jump straight into the financial result for the first quarter. During the first quarter Xiniya had revenue of RMB108 million compared to RMB205 million during the same period of last year. The company delivered approximately 556,000 units in the first quarter's of 2015 compared with 1 million units delivered during the first quarter's of 2014. Xiniya's network of authorized retailers had a total reduction of 294 retail outlets in the first quarter of 2015. The total number of authorized retail outlets was 604 as of March 31, 2015. As part of our second phase of our plan, selling and distribution expenses were cut significantly equating to RMB7.2 million in the first quarter's of 2015 from RMB30 million during the same period last year. Administrative expenses decreased to 6.7 million in the first quarter of 2015 from RMB9.1 million during the same period last year. Net income in the first quarter was RMB16 million as compared to 26.6 million during the same period last year. This translate into earnings per ADS of $0.19 as compared to earnings per ADS of $0.30 during the same period last year. Now moving onto our financial position, as of March 31, 2015 the company had cash and cash equivalent of RMB782 million and time deposits held at banks with maturities of three months of 350 million. This concludes our prepared remarks. We’re now ready to take your questions. Operator?

Operator: [Operator Instructions]. The first question we have is from Peter Cyrus from [indiscernible]. Please go ahead, Peter.

Unidentified Analyst: I would like to understand little bit better about the consolidation. First, are you seeing brands go out of business, are you seeing other people closing stores like you but at a faster rate. Tell me the timing of the consolidation and how you see it moving ahead? And the second part of the question is you have gigantic amount of cash and I see the ERP system and some other things but can you go over, you talk about preserving cash, you’ve a huge amount of cash so how are you going to use the cash to capitalize on the consolidation? Thank you.

Qiming Xu: The industry has noticed that there is obvious status whereby the small brand going out of market during the 2013 and 2014 and for 2015 we notice that the medium sized brand are going to either closing substantially are experiencing difficulty in operations. Many listed companies in China are going through substantial gain in their share price and we believe that [Technical Difficulty] the market will be concentrated in few big brands with those listed company background and their assess to [indiscernible] market. This gives them a tremendous opportunity during the consolidation space to assess certain brands with our capital positions. This gives us also huge opportunity during the consolidation phase to look for opportunities. With our -- cap position that we have the initiative is to reduce layers in our business models to remove away the [indiscernible] and moving them into city retailers. The key is to control the retail channels with using the tools like ERP. So that would consume some of the cap resources that we have. Also give us the consolidations in the men's wear industry, this give us tremendous opportunity in buying good brand with low price and with our compressed business models in place and ERP and we can quickly expand those acquired brands throughout the China market.

Unidentified Analyst: Okay, so if I understand your strategy is build your ERP system, buy distressed brands and is your strategy -- one thing I'm just confused, is your strategy also to own more of your own stores and own more of your distributors that’s a one thing I'm confused about.

Qiming Xu: We’re removing the layers so by removing the distributors there will be a negotiation process.

Operator: [Operator Instructions]. And we have a follow-up question from Peter. Please go ahead, sir.

Unidentified Analyst: So in the April sales there you said that sales were down 20%, which is obviously much better than it has been. So I’ve two questions about this. First when would you expect that sales would start to go up? [Technical Difficulty]. What did you say?

Chee Jiong: You mentioned you’ve two questions, the first question is when we expect the sales numbers to go up and your second question is?

Unidentified Analyst: And my second question is the -- will you continue to do things like buyback inventory, what are the other things you’re going to do to strengthen your store network?

Qiming Xu: For the sales result which is less than 20% reductions as compared to last year, if you notice that during the sales [indiscernible] distributors and authorized retailers have their confidence has comeback some of the inventory buyback that we did in last quarter's. You also notice that with the [indiscernible] store, the remaining stores performance have stabilized and that order for store actually has stabilized after this inventory buyback. As of our retail networks we’re researching [ph] the layers of our business models by reducing the layers of our business models there are means we have direct interaction with the authorized retailers and information flow is more efficient and effective. With that information improve we can develop better products, we can understand the market better by developing product that really suit the consumers and then with the ERP implementation we can rapidly know what kind of inventory information at the retail channels and we can also know what are the sought out products and we believe introduce more new products during the season of the year. This will help improve the incomes of the retailers.

Operator: [Operator Instructions]. There are currently no questions in the queue. I would like to hand back to the speakers for any closing remarks.

Chee Jiong: Thank you. In closing, on behalf of the entire senior management team we would like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting the company in China please let us know. Thank you for joining us today. This concludes our call.

Operator: Thank you for your participation in Xiniya's conference. There will be a webcast replay within an hour. Please visit www.xiniya.com, under the investor relation section. You may now disconnect. Goodbye.