What happened

Shares of Baozun (BZUN 2.97%) were moving backward today after the Chinese e-commerce services provider posted disappointing results in its second-quarter earnings report this morning. 

As a result, the stock was trading down 9.8% as of 1 p.m. EDT.

The word "Baozun" made up of the company's clients.

Image source: Baozun.

So what

Revenue in the quarter was up just 7.1% to $356.9, which badly missed estimates at $381.7 million as management cited the impact of the Better Cotton Initiative on its apparel partners. Gross merchandise volume growth was up 23%, showing solid growth in its consignment business model, but the rest of the business was sluggish. Operating margins also fell sharply from the year-ago quarter from 7.5% to 4.6%, and operating income came in at $16.5 million.

On an adjusted basis, earnings per share fell from $0.38 to $0.31, missing estimates at $0.35.

CEO Vincent Qiu said, "Whilst the impact of the Better Cotton Initiative continues to sweep through the industry, especially affecting our international brand partners in apparel, we have continued to execute on our strategic medium-term plan to deliver sustainable growth." 

Baozun also announced a strategic partnership with Cainiao, Alibaba's logistics arm, and said it acquired eFashion, a provider of e-commerce solutions for fashion brands in China, at the end of June.

Now what

Baozun did not provide guidance for the current quarter, but Chinese stocks have been spiraling in recent weeks following a crackdown on the education sector and rumbling of restrictions in the tech industry.

Against that backdrop, Baozun shares are now down 43% year to date. With its top-line growth falling to just single digits, the stock is facing a lot of red flags.