Shares popped following the release of first-quarter earnings results that topped the market's expectations and evidenced progress in the company's transition to a more-profitable business model. The Chinese e-commerce stock continued to move higher through the remainder of the month on the strength of the results.
Baozun published first-quarter earnings results on May 17 that were substantially above the market's expectations. The company posted 14.5% year-over-year sales growth in the March-ended quarter to reach $146.9 million. That was the company's lowest quarterly revenue growth since 2014, but shareholders still had plenty to celebrate.
The company is shifting away from warehousing products and fulfilling orders for its brand partners, and toward a model that sees most of its sales coming from online-store services. This pivot means that Baozun brings in less revenue from the gross merchandise volume conducted through its platform, but faces less risk -- paving the way for substantially better margins. Revenue for this segment of the business grew 50% year over year to account for half the company's sales, and helped drive operating income for the quarter to $4.5 million -- an 85% increase over the prior-year period.
Management attributed the comparatively low sales growth last quarter to the transition of one of its major brand partners to the new service package. Sales growth will likely continue to be below historical levels in the near term as more partners make similar transitions. But Baozun still has avenues to topline growth over the long term as it adds more customers, and the stores on its platform benefit from e-commerce tailwinds.
Last year, China's online-retail sales grew 32% to reached $1.15 trillion -- making it the world's largest e-commerce market by far. And it looks like more rapid growth is in the cards.For risk-tolerant investors, Baozun stock looks like a compelling vehicle for capitalizing on the country's expanding online-retail market and broader economic development.