E-Commerce China Dangdang Inc. (DANG) Q2 2012 Earnings Call August 16, 2012 8:00 AM ET Executives Maria Xin – IR Director Peggy Yu Yu – Co-Founder and Executive Chairwoman Susan Zhang – Financial Reporting Director Analysts Fawne Jiang – Brean, Murray Philip Wan – Morgan Stanley George Chang – Macquarie Emma Zhao – ROTH Capital Ida Yu – CICC Tian Hou – TH Capital Wallace Cheung – Credit Suisse Andy Yeung – Oppenheimer Andrew Marok – Cowen Group Alicia Yap – Barclays Muji Li – Citigroup Presentation Operator
I’d now like to turn the call over to our Executive Chairwoman, Peggy Yu Yu.Peggy Yu Yu Thank you, Maria. Good morning and good evening everyone. I’m pleased to report that during the second quarter, Dangdang delivered a solid performance. Our growth momentum is good. Net revenue growth of 53% was better than our guidance issued last quarter. Books and media grow 32%, general merchandise grow over 110% year-over-year and contributed one-third of revenue compared to one-fourth of revenue in the same period last year. Our gross margin of 13.1% in the second quarter was better than the second half of last year. Competition in this segment was also very intense. We benefit from the fast growth in marketplace, gross merchandise value transacted on our marketplace grow at much higher rate than Dangdang’s own general merchandise. At Dangdang, in the first half of 2012, we continue to progress in giving our customers the best possible shopping experience. As planned, we made our efforts in fulfillment, product selection and the pricing to optimize the shopping experience of our customers. In fulfillment, we enhanced service in both Dangdang merchandized products as well as that by marketplace vendors during the quarter. First, for procurement products we increased our monitoring levels in core cities and managed courier companies more closely to improve delivery speed and services. As a result, the customer satisfaction rate went up. We are now providing same day delivery in 20 cities. Furthermore, we increased our next-day-delivery by 10 cites to 150 cities to reach out to more customer in offering our next-day-delivery service. On the other level in marketplace we improved the services we offer our third-party merchants. The lower costs fulfillment capacities at Dangdang help our third party merchants have the long-term ability to serve our customers. Let me turn to product selection. In Sale Procurement, we improved the supply chain management. Dangdang’s merchandising department walked very closely with our suppliers during the past quarter. We came out with many joint promotions and a joint product launchings.
In our destination categories, we achieved bigger buying power than before. We also added premium brands are in the products exclusively available on Dangdang, always helped us with very good product mix. And there are traffic promotions throughout the quarters.As for market place, we started to shift certain products to our market place programs from previous self procurement programs, such as many consumer electronic products. One sports apparel and outdoor gear. Throughout the first half of this year, our market place programs has attracted high quality third party merchants, who have similar positioning as Dangdang does in customer targeting of mid to high end customer base. In terms of pricing, there were unprecedented competitions in the second quarter and our Dangdang team did it intelligently and with good result. Some players use irrational pricing tactics. As pricing levels dropped below procurement cost though access is of suppliers buying back their own products at a profit and the small retailers purchasing from certain new E-Commerce companies below their own procurement costs. The low quality of the sales either back to suppliers or to small shops make this unsustainable way of building long-term competitive strength in the market. At Dangdang, however, we have a disciplined way of dealing with this tactics. We plan and timed our product promotions to take place in different periods of the quarter than the other players. We made many efforts to make sure Dangdang’s existing customers not some suppliers or other retailers from our – benefit from our programs. The fact that we maintain our pricing lead played a important role in our achievement of quarterly growth rate of 53%. Let me now go over some other points regarding operations. Marketing, either in the highly competitive landscape, our new customers’ acquisition cost was only RMB22 in the second quarter. We had over 5.7 million active customers in the second quarter. We maintained a rational marketing strategy and prepare ourselves to make adjustments as required by changes in the competitive environment. Read the rest of this transcript for free on seekingalpha.com