Baozun Inc. (NASDAQ: BZUN) reported Q1 EPS of $0.06, $0.04 better than the analyst estimate of $0.02. Revenue for the quarter came in at $215.2 million versus the consensus estimate of $204.51 million.

First Quarter 2020 Financial Results

• Total net revenues were RMB1,523.6 million (US$215.2 million), an increase of 18.4% from RMB1,286.8 million in the same quarter of last year.
• Product sales revenue was RMB701.1 million (US$99.0 million), an increase of 13.5% from RMB617.6 million in the same quarter of last year. The increase was primarily attributable to the acquisition of new brand partners and the increased popularity of brand partners’ products.
• Services revenue was RMB822.5 million (US$116.2 million), an increase of 22.9% from RMB669.2 million in the same quarter of last year. The increase was primarily attributable to the growth of the Company’s consignment model and service fee model.
• Total operating expenses were RMB1,510.8 million (US$213.4 million), compared with RMB1,240.9 million in the same quarter of last year.
  • Cost of products was RMB590.1 million (US$83.3 million), compared with RMB508.8 million in the same quarter of last year. The increase was primarily due to higher costs associated with an increase in product sales revenue, especially for newly acquired brand partners.
  • Fulfillment expenses were RMB413.0 million (US$58.3 million), compared with RMB287.6 million in the same quarter of last year. The increase was primarily due to an increase in GMV contribution from the Company’s distribution and consignment model and incremental logistics costs associated with the outbreak of COVID-19 in China.
  • Sales and marketing expenses were RMB366.2 million (US$51.7 million), compared with RMB311.4 million in the same quarter of last year. The increase was in line with GMV growth.
  • Technology and content expenses were RMB95.9 million (US$13.5 million), compared with RMB87.9 million in the same quarter of last year. The increase was primarily due to growth in GMV and the Company’s ongoing investment in technological innovation and productization.
  • General and administrative expenses were RMB49.9 million (US$7.1 million), compared with RMB45.5 million in the same quarter of last year. The increase was primarily due to an increase in administrative, corporate strategy, and business planning staff.
• Income from operations was RMB12.8 million (US$1.8 million), compared with RMB45.8 million in the same quarter of last year. Operating margin was 0.8%, compared with 3.6% in the same quarter of last year.
• Non-GAAP income from operations was RMB36.8 million (US$5.2 million), compared with RMB64.7 million in the same quarter of last year. Non-GAAP operating margin was 2.4%, compared with 5.0% in the same quarter of last year.
• Net income attributable to ordinary shareholders of Baozun Inc. was RMB2.2 million (US$0.3 million), as compared with RMB34.0 million in the same quarter of last year. Basic and diluted net income attributable to ordinary shareholders of Baozun Inc. per ADS were RMB0.04 (US$0.01) and RMB0.04 (US$0.01), respectively, compared with RMB0.59 and RMB0.57, respectively, in the same quarter of last year.
• Non-GAAP net income attributable to ordinary shareholders of Baozun Inc. was RMB26.0 million (US$3.7 million), as compared with RMB52.6 million in the same quarter of last year. Basic and diluted non-GAAP net income attributable to ordinary shareholders of Baozun Inc. per ADS were RMB0.44 (US$0.06) and RMB0.44 (US$0.06), respectively, compared with RMB0.91 and RMB0.89, respectively, in the same quarter of last year.
• As of March 31, 2020, the Company had RMB1,660.6 million (US$234.5 million) in cash, cash equivalents and short-term investment, a decrease from RMB1,988.5 million as of December 31, 2019.

First Quarter 2020 Operational Highlights

• Total Gross Merchandise Volume (“GMV”)6 was RMB9,209.8 million, an increase of 17.6% year-over-year.
• Distribution GMV7 was RMB782.9 million, an increase of 10.4% year-over-year.
• Non-distribution GMV8 was RMB8,426.9 million, an increase of 18.3% year-over-year.
• Number of brand partners increased to 239 as of March 31, 2020, from 200 as of March 31, 2019.
• Number of GMV brand partners increased to 228 as of March 31, 2020, from 192 as of March 31, 2019.

Mr. Vincent Qiu, Chairman and Chief Executive Officer of Baozun, commented, “First, I’d like to sincerely thank all of our employees who have demonstrated incredible resilience and dedication to ensuring business continuity and growth momentum throughout this challenging period. I am very proud of the great tenacity and agility our organization and technology infrastructure were able to display during the pandemic. As China’s economic recovery strengthens in the second quarter, we believe the adoption of online retail will continue to accelerate going forward as brand partners increasingly prioritize their digital go-to-market strategies. This will create even more opportunities for us to drive mid-to-long-term sustainable growth.”

Mr. Robin Lu, Chief Financial Officer of Baozun, commented, “Despite increasing macroeconomic uncertainties during the quarter, our business demonstrated great resilience by achieving 17.6% and 18.4% year-over-year growth rate for GMV and net revenues, respectively. While we incurred incremental costs associated with the pandemic, we were able to reinforce our leading position in the market with a proven track record of empowering brand partners even during one of the toughest times. Since March, China’s e-commerce sector has begun steadily recovering while the logistics industry has normalized, we are confident that we remain on track with our high-quality growth strategy and will re-establish growth in our non-GAAP operating profits in the second quarter of 2020. As things stand now, provided the macroeconomic environment does not deteriorate any further, we anticipate that GMV for the second quarter of 2020 will grow by at least 25%.”

Business Outlook

Based on the market and operational conditions, provided that the macroeconomic environment does not deteriorate further, the Company expects total net revenues to be between RMB 2,050 million and RMB 2,100 million for the second quarter of 2020, which represents a year-over-year growth rate of 20% to 23%. The Company expects services revenue to grow at a faster rate than total net revenue during the second quarter of 2020. The above forecast reflects the Company’s current and preliminary view, which is subject to substantial uncertainty as the COVID-19 situation in China and other countries is evolving.

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