Baozun Inc. (NASDAQ: BZUN) reported Q2 EPS of $0.34, $0.11 better than the analyst estimate of $0.23. Revenue for the quarter came in at $304.6 million versus the consensus estimate of $299.13 million.

Second Quarter 2020 Financial Results

• Total net revenues were RMB2,152.1 million (US$304.6 million), an increase of 26.3% from RMB1,704.2 million in the same quarter of last year.
• Product sales revenue was RMB927.8 million (US$131.3 million), an increase of 9.3% from RMB849.1 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, partially offset by slower growth in personal-care products in appliances category.
• Services revenue was RMB1,224.3 million (US$173.3 million), an increase of 43.2% from RMB855.1 million in the same quarter of last year. The increase was primarily attributable to the rapid growth of the Company’s consignment model and service fee model.
• Total operating expenses were RMB1,991.4 million (US$281.9 million), compared with RMB1,618.4 million in the same quarter of last year.
  • Cost of products was RMB775.8 million (US$109.8 million), compared with RMB679.2 million in the same quarter of last year. The increase was primarily due to higher costs associated with an increase in product sales revenue.
  • Fulfillment expenses were RMB575.3 million (US$81.4 million), compared with RMB391.9 million in the same quarter of last year. The increase was primarily due to a rise in GMV contribution from the Company’s distribution and consignment model, and an increase in warehouse rental expenses associated with expanded warehouse capacity to address additional growth opportunities, both of which were partially offset by efficiency improvements.
  • Sales and marketing expenses were RMB522.0 million (US$73.9 million), compared with RMB413.2 million in the same quarter of last year. The increase was in line with GMV growth and an increase in digital marketing services, which was partially offset by efficiency improvements.
  • Technology and content expenses were flat at RMB102.3 million (US$14.5 million) compared the same quarter of last year, which was mainly attributable to the Company’s cost control initiatives and efficiency improvements.
  • General and administrative expenses were RMB53.9 million (US$7.6 million), compared with RMB51.7 million in the same quarter of last year. The increase was primarily due to a rise in administrative, corporate strategy, and business planning staff, which were partially offset by cost control initiatives.
• Income from operations was RMB160.6 million (US$22.7 million), an increase of 87.2% compared with RMB85.8 million in the same quarter of last year. Operating margin was 7.5%, compared with 5.0% in the same quarter of last year.
• Non-GAAP income from operations was RMB187.1 million (US$26.5 million), an increase of 81.4% compared with RMB103.1 million in the same quarter of last year. Non-GAAP operating margin was 8.7%, compared with 6.1% in the same quarter of last year.
• Net income attributable to ordinary shareholders of Baozun Inc. was RMB119.8 million (US$17.0 million), an increase of 78.6% from the same quarter of last year. Basic and diluted net income attributable to ordinary shareholders of Baozun Inc. per ADS were RMB2.04 (US$0.29) and RMB2.00 (US$0.28), respectively, compared with RMB1.16 and RMB1.13, respectively, in the same period of 2019.
• Non-GAAP net income attributable to ordinary shareholders of Baozun Inc. was RMB146.0 million (US$20.7 million), an increase of 73.4% from the same quarter of last year. Basic and diluted non-GAAP net income attributable to ordinary shareholders of Baozun Inc. per ADS were RMB2.48 (US$0.35) and RMB2.43 (US$0.34), respectively, compared with RMB1.45 and RMB1.41, respectively, in the same period of 2019.
• As of June 30, 2020, the Company had RMB2,330.8 million (US$329.9 million) in cash, cash equivalents and short-term investments, an increase from RMB1,988.5 million as of December 31, 2019.

Mr. Vincent Qiu, Chairman and Chief Executive Officer of Baozun, commented, “Strong recovery in e-commerce, our unique value proposition to brand partners and the tenacity of our team underpinned a solid set of results in the second quarter of 2020, with strong top line growth and remarkably improved profitability. COVID-19, while an impediment to growth for many companies, created an opportunity for us to empower our brand partners as they bolstered their online go-to-market strategies and integrated omni-channel initiatives. Over the past three years, we have centralized and continuously strengthened our technology footprint around cloud infrastructure and AI technology in our integrated digital operating platform to drive efficiency and enhance intelligence for our brand partners. We believe digitalization and innovation will continue to be key components of our strategy that will strengthen our competitive moat and drive our long-term sustainable growth.”

Mr. Robin Lu, Chief Financial Officer of Baozun, commented, “In the past few quarters, while we have continued to push through various cost control initiatives, we have stepped up our efforts to optimize category mix, accelerate new brands engagement, and enhance operating leverage and synergies through digitization and innovation. All these initiatives have contributed to a remarkable margin expansion, with non-GAAP operating profit growing by over 81% year-over-year, a solid milestone in delivering on our high-quality growth strategy. Looking into the third quarter, despite the pandemic, we will continue to forge ahead with our optimization of category mix and high-quality growth strategy. While we are experiencing stronger seasonality and continued macro uncertainties, we anticipate that GMV for the third quarter of 2020 will grow by at least 15% year-over-year. We are very confident we will deliver strong year-over-year growth in our non-GAAP operating profits in the third quarter of 2020.”

Business Outlook

Based on current market and operational conditions and assuming that the macroeconomic environment does not deteriorate further, the Company expects total net revenues to be between RMB1,750 million and RMB1,800 million for the third quarter of 2020, which represents a year-over-year growth rate of 16% to 20%. The above forecast reflects the Company’s current and preliminary view, which is subject to substantial macro uncertainty related to the global COVID-19 pandemic.

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