Call Start: 08:00 January 1, 0000 8:43 AM ET

Niu Technologies (NASDAQ:NIU)
Q1 2020 Earnings Conference Call
May 18, 2020 08:00 AM ET

Company Participants

Jason Yang - Investor Relations Manager
Yan Li - Chief Executive Officer
Hardy Zhang - Chief Financial Officer

Conference Call Participants

Vincent Yu - Needham & Company
Alexander Potter - Piper Sandler
Bin Wang - Credit Suisse

Operator

Good day, ladies and gentlemen, thank you for standing by. And welcome to the Niu Technologies First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today’s call. If you have any objections, you may disconnect at this time.

Now, I will turn the call over to Mr. Jason Yang, Investor Relations Manager of Niu Technologies. Mr. Yang, please go ahead.

Jason Yang

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies results for the first quarter 2020. The call is being webcast from company's IR website. An investor presentation and a replay of the call will be available soon at ir.niu.com.

Please note today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties, assumptions and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in the company's public filings with the Securities and the Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required by law. Our earnings press release and this call include discussions of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results.

On the call with me today are our CEO, Dr. Yan Li; and the CFO, Mr. Hardy Zhang.

Now, let me turn the call over to Yan. Yan?

Yan Li

All right. Thanks, Jason, and thanks, everyone for joining us on the call today. Now we’ve decline in sales in Q1 2020 due to the impact of COVID-19. On the performance, the sales volume has decreased by 39% in Q1 2020 and the revenue has decreased by 34%, respectively. We have maintained our gross margin by 23.6%, but suffer a net loss margin of 11.3% in Q1 2020 due to the decline in sales. All financial data were within our expectation.

So now first let me give you update on the impact of COVID-19. The impact on the business performance in Q1 was evident. So as mentioned in our last earnings call, in China most cities have shut down businesses for part or entire February. We started February with all of our stores closed, and ended with 65% of store opened for business.

Furthermore, as people were recommended to stay home and work-from-home, there were little retail traffic or retail demand. Since our sales heavily depended on offline retails, the shutdown of stores and stay-at-home quarantine policy have reduced our sales significantly.

During these times, we purposely direct our sales effort online both through our online shops on T Mall and the JD platform, as well as omni-channel approach. In other words, online purchase, offline delivery mode. Particularly on omni-channel approach, we train all our store operators to set up online virtual stores via WeChat and provide online sales consultations to potential customers.

We further provided tools for individual store sales reps to generate e-flyers with personal WeChat cum QR code to be distributed in various WeChat groups for potential customer acquisition.

Now, our e-commerce sales increased by 1.6x in March and 3x in April over the same time last year. And online to offline orders has increased by 2.5x, respectively. Now, we started to observe recovery as business started to get back in operation and nearly 100% of our stores open by end of March.

Although the retail traffic has not recovered to the same level of last year, our efforts of omni-channel has led to very positive results. The per store sales has improved by 12% year-over-year in the month of April. Now, heading into June, the China retail market will most likely continue to improve, as many cities like Beijing and Shanghai even suggested no masks necessary going outside. In addition, the need for personal commuting solution is very high. So we're quite confident and positive about the near future growth in China.

Now, our overseas sales has also been impacted in Q1 as mentioned last time. The overseas sales volume increased by 6% in Q1 was a very strong growth in January, February, but a sharp decline in March as the COVID-19 spread out to Europe and many other countries. Nearly all our dealer stores were temporarily closed globally and just started to open up in late April or early May as countries like Germany, France, Italy started to lift the lockdown.

Despite a lockdown similar to domestic market in China, we leverage our online capability to January customer lead or pre-sales. We launched the online pre-sales campaign in Europe on our newer models NGTS Sports model priced at €3,199 with more than 650 units orders. While the actual product won't be delivered until a few months later.

We're also about to kick off a online rental program across our dealerships network in Europe in June allowing users to rent our -- rent scooters from our dealerships on a monthly basis. Although our flagship store and premium store build out were temporarily stalled due to the lockdown, we continue to expand our market presence, entering market in South America like Peru, Guatemala.

In addition, as social distancing became a temporary social norm internationally, we did observe a demand of individual mobility solutions as people tended to stay away from the public transportations. This trend might increase the total addressable market in a permanent way when people try our electric scooters and started to enjoy the technology, the style and the freedom of products offer.

Hence, although international market will recover as fast as China market, we remain very positive about our overseas business performance this year. Now, despite the impact of COVID-19, we were able to quickly resume our product development and business operation and reduce the time delay in new product introductions this year. First, we launch our MQi2 on May 7, our flagship electric bicycle product for China market in 2020.

In 2016, we introduced our N1 model, which was the first mobility product that has won all seven major international design awards globally in the past 20 years, N1 was one of our hottest models since then, but due to China's new regulation on electric bicycle in 2019, we will have to stop production of the N1.

After more than 1-year of design and development, we were able to finally introduce the MQi2, which encourages the design of our signature N1 product with the sporty design, mountain suspension, all-in-one dashboard, and fully compliant with the new regulation in China.

On the technology side, the M2 product line encourages the new technology platform used on NGT included the Version 35 Cloud ECU with remote keyless ignition capability, automobile level lighting system and the new energy power through management with a driving range up to 75 kilometers. The M2 product comes with two specs, priced at RMB4599 and RMB5199, which we believe will set the technology and design standard for the China electric bicycle industry.

So we hope our M2 launch with the new format known as [indiscernible] or online live streaming at Taobao platform with Token Hu, our co-founder, and me as a sales rep. This new format started to become a very fashionable trend in China, partially driven by the lockdown. Our four hour live streaming attracted more than 3.5 million unique viewers from around China and racking up more than 3.7 million likes.

Together with the product launch, we started new product media campaign in China. We see more than 600 media article mentions, with 30 million reads, 10 million views on Weibo and 100 million views on Douyin and Kuaishou. So we believe the M2 product will help further expand our product adoption in China market, while also allowing existing customers to upgrade to this new model.

We also introduced our G0 product in our GOVA series just -- actually just yesterday. The G0 is also a beautifully designed and equipped with many practical features, such as a baby seat. It is the lithium battery based product, but with smart features as add-ons. The G0 comes with two models priced at RMB2,299 and RMB2,799. The G0 product is the product that will be our entry level product for the new family and will -- it will allow for new user -- a new customer segment to enter into the new ecosystem.

Second, we continue to expand our accessory lines to further enhance our lifestyle brand image. We rolled out a newly designed full coverage and half coverage helmets in April and the for that category achieved almost a 10x sales growth year-over-year. We also launched the battery warranty services together with the insurance companies and with around 2,000 users signed -- signing up for the supplementary services plan in the first month.

Now, besides the new product lunch, we continue to enhance our brand awareness through a viral marketing and targeted marketing. Now besides our new product lunch MQi2, we are leveraging our new product launch introduction, we had a famous Chinese drift sport figure [indiscernible] to introduce the MQi2 in his online sales channel in Douyin, resulting nearly a 7 million views. We continue to build our own site on short video platform like Douyin and Kuaishou with Douyin quarterly views doubling to 40 million views in Q1 2020.

Now, internationally, despite the impact of COVID-19 virus, we added three key QRs [ph] to our new crew team operators, the highlight was our blockbuster video of Niu with the PAC Tour shot at Zurich, Switzerland.

Now, I I'll turn the call over to Hardy to discuss our financial results. Hardy?

Hardy Zhang

Thank you, Yan, and hello, everyone. Our press release contains all the figures and the comparison you need. We have also uploaded Excel format figures to our IR website for easy reference. As I review our financial performance, keep in mind that we are referring to the first quarter figures unless, I say otherwise, and that all monetary figures are RMB unless otherwise noted.

Our Q1 sales volume reached 40,000 unit, decreased by 39% year-over-year. China sales volume decreased by 44% as a result of reverse impact from COVID-19. The decrease was mainly from our offline sales through the franchise stores because many of them were closed due to outbreak.

Our online sales, however, increased significantly in the first quarter, despite it is due a small portion of our total sales. Overseas sales volume increased by 6% year-over-year. We saw strong growth in January and February, but since March our overseas volume started to decrease as the COVID-19 spread out to Europe and many other countries.

Total revenues decreased by 34% to RMB233 million in line with the guidance we provided earlier. Revenue from scooters decreased by 40%, but revenues from accessories, spare parts and services increased by 5%, as a result of strong overseas sales and a larger user base in China. We are very pleased to see our customers like our accessories, spare parts and services. Even during such difficult time, our sales in this segment continues to grow.

Revenue per scooter or ASP, increased by 8%, mainly because of strong sales from accessories, spare parts and the services as just mentioned. In Q1, for every scooter we sold, we also sold RMB1,168 accessories, spare parts and services, increase of 74% compared with the same time last year.

Excluding the revenue from accessories, spare parts and services, the scooter ASP itself decreased by 1%, mainly because of change in product mix. In Q1, our N and M Series accounted for around 50% of total volume compared with 17% in Q1 last year. This change was mainly caused by the implementation of new national standards since April last year.

However, quarter-over-quarter basis, the proportion of N and M Series increased from 40% in Q4 last year to 50% in Q1 this year, mainly because of a higher proportion of overseas sales and online sales.

Gross margin was 23.6%, 2.3 percentage points better than this time last year. The margin expansion was mainly helped by the increased proportion of sales in higher margin product lines, mainly the overseas scooter and accessories, spare parts and services.

In Q1, the overseas scooter sales accounted for 29% of total scooter revenue compared with 19% same time last year. The accessories, spare parts and services accounted for 20% compared with 13% last year. Such favorable change in product mix helps our margin expansion by around 5% in total.

In Q1, our gross margin was negatively affected by the low utilization of our manufacturing facility. We estimate the impact on gross margin was close to 3%. In the following quarters, higher production volume and cost savings on raw materials and components will contribute to our continued margin expansion. However, unfavorable change in product mix, especially lower sales of scooter and spare parts from overseas market in the second quarter will negatively affect our gross margin.

Our total operating expense, excluding share based compensation were RMB83.5 million, increased by 29% year-over-year. The increase was mainly caused by higher sales and marketing expense as well as R&D expense.

Sales and marketing expense increased by RMB13 million, out of which RMB8 million was attributed to branding activities, including new product launch during the CES in January and the placement of advertisement near Chinese TV series called [indiscernible].

Another RMB2.5 million was due to higher G&A expense of our retail stores as a result of larger retail sales network. The remaining RMB2.5 million mainly related to branding and the marketing activities to encourage individual riding for daily commute during the outbreak.

For the R&D expense the increase was mainly caused by higher staff costs as we hired more designers and engineers to expand our R&D capability. With regards to government grants, we received a one-off grant of RMB7 million in the first quarter mainly related to our foreign capital investment in Changzhou.

Our GAAP net loss was RMB26.4 million and adjusted net loss was RMB18.6 million. The loss was mainly due to the lower sales volume and higher sales and marketing expense as mentioned above. With our sales volume recovering in the second quarter, we expect to return to profitability in Q2.

Turning to our balance sheet and cash flow. We ended the quarter with RMB725 million in cash, term deposits and short-term investments. Our operating cash flow was negative RMB24.5 million mainly because we supported our distributors and the dealers to manage their working capital.

Our CapEx was RMB22 million mainly for settling the payables of new factory and retail stores carried forward on last year. With strong cash position, we were paid RMB28 million backlog in January and another RMB48 million in April. We are in the process of refinancing another bank loan maturing in June so as to benefit from the current low interest rate environment. We also plan to acquire another piece of land during the second quarter and start to prepare for continued capacity expansion.

Now, let's turn to guidance. We expect second quarter revenue to be in the range of RMB585 million to RMB 655 million, a increase of 10% to 23% year-over-year. However, China revenues expect to grow at a much higher growth rate year-over-year as a result of general demand recovery and our new product launch.

Overseas revenue, however, will decrease as the COVID-19 continues to affect local retail and distributors during the second quarter. Some overseas distributors and dealers began to resume their operations in May. We are closely monitoring China recover, and we'll provide more updates once available.

With that, let's now open the call for any question that you may have for us. Operator, please go ahead.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Vincent Yu from Needham & Company. Please ask your question.

Vincent Yu

Thanks, management for taking my question. My two questions are about margin. The first question is about the offline sales channel. So in current macro environment, do we have to or are we going to give some -- make some concessions to sales channels to support our offline business partners? My second question is about the raw materials, parts and inventories. Are we -- do we have concern all over future costs or the pricing out into parts due to potential low inventory level or similar reason after the lockdown and so opening -- reopening of economy? Thank you.

Hardy Zhang

Yes. Thanks, Vincent. Let me answer your questions, first. For your first question about the concession or rebates to our sales channel. In the first quarter, we did give additional rebates to distributors and dealers, despite some of them did not meet the target we set for them early in this year. But from -- since the second quarter, we began to see the China sales volume recovered, therefore we do not see that we need to keep additional rebate in the second quarter. So that -- for us, it's not a big concern. We already -- subsidized some of them already in Q1. So the Q1 margin reflected that.

For your second question regarding the procurement cost of raw materials component, we do see continued decline of procurement costs of raw material and component, and we began to see the decline since March. So for the rest of the -- this year, we believe the continued decline of this cost will be positive to our gross margin. However, as I mentioned, we will see some unfavorable change in our product mix, especially because the COVID-19 affect our overseas sales. But if you purely focusing on the raw material and other components, we do see there is continued cost of decline during this year. So that's my answer to your questions.

Vincent Yu

Okay. Thanks. Thank you very much.

Operator

Your next question comes from the line of Alex Potter from Piper Sandler. Please ask your question.

Alexander Potter

Great. Thank you. Maybe a follow-up question there. I don't know if it's possible. You mentioned some of these offsetting impacts on gross margin. First, you have better factory utilization, higher volumes and lower raw materials costs. So those are all positive for gross margin. But then you have a lower mix with presumably European and U.S. sales, probably a very low percentage of overall revenue. Is there any way to guess whether you think next quarter gross margin will be comparable to this quarter? Those two factors will offset each other or maybe slightly negative or slightly positive, any way to guess?

Hardy Zhang

Yes, sure. I think for the first quarter and the favorable change in overseas revenue and also from accessories, spare parts, they contribute to around 5%. So for a very simple calculation, you can assume that 5% may not be here for next quarter, i.e. minus 5%. But we also mentioned, because of the low utilization in the first quarter, we have a marking down around 3% from this. So this will be something positive. So on a net basis, you can assume at least the 2% will be gone for the second quarter. However, and still, there's uncertainty around our overseas sales in the second quarter. We're closely monitoring how much order is coming in, and that may have some impact on the margins. For our sales, we are still targeting to achieve a gross margin above 20%. So this is the answer for your first question.

Alexander Potter

Okay. Yes, that's perfect. Very helpful. Thank you. Maybe then comment also on different OpEx line items. What is your expectation regarding spending levels, presumably in some of those line items? In Q1, you were spending less than you otherwise would have planned to spend due to COVID-19. Where do you expect higher level spending versus flat level spending into Q2 and the remainder of the year?

Hardy Zhang

Sure. In the OpEx, we have three key lines. The first on the sales and marketing. Sales and marketing expense was relatively high in the first quarter because we are already committed to some of the branding activities before the COVID-19 happened. For example, we attended the CES show in the U.S in January. We also committed to advertisement of a TV -- Chinese TV show also currently account for around RMB8 million. And that's why you see quite a high sales and marketing expenses. This is kind of a one-off expense in the first quarter. The spending R&D is quite normal as we continue to invest in our design and also continue to hire engineers and designers. The only thing we’ve cut is in the G&A expenses. As you can see, the absolute terms excluding share based compensation, our G&A actually decreased by around 6% in absolute terms. So we saved travel, we saved professional services, etcetera, etcetera. In the second quarter, we do expect our sales and marketing as a percentage of revenue should fall back to the normal level as what we see last year. Last year ours, -- I think was normally around 15%, so anywhere between 14%, 16% between -- dependent on quarters. But from Q2 this year, we think we will go back to a similar level as what you see before. Q1 is kind of an exception because some of these one-off activities, also because of the lower revenue we have in the Q1. So I hope this answers your question.

Alexander Potter

Yes, very, very helpful again. Last question on online versus offline. I was wondering, how does it work from a business model standpoint, if you have an online order that you ship into a certain region, is the dealer or distributor always involved? You mentioned this omni-channel versus maybe a pure online sale. Are there situations in which the dealer or distributor maybe feels -- I don't know that they push back against you selling direct, or do you always include a dealer or distributor in those sales? Thanks.

Yan Li

I think that's a good question. Let me address that. So in terms of online models, that's why we separate direct sales and omni-channel. In terms of -- if it's a direct sales, on our T Mall or JD platform, and then without direct-to-consumer and that order fulfillment will be -- basically shipping will be handled by, for example, SF Express or by [indiscernible] basically the shipping company actually would deliver -- actually deliver to your door and no dealer, or our franchise store involved in that process. However, they will need to provide after sales services as that’s actually a mandate for all our dealerships and the franchise stores. Now with omni-channel its slightly different. With omni-channel essentially what you do is actually we are -- our online platform is actually served as a -- you can think about serve as a lead -- as a customer lead generation for the dealers. So any consumer goes to online, pick the omni-channel and he actually can pick which store he is willing to pick up scooter at. And then we actually -- our online channel actually charge the store for a small percentage of fee as a service fee. Part of that fee actually we need to pay [ph] back to T Mall and JD.com because they are actually charging that sort of platform fee. In addition, we charge a very small service fee as we provide the lead generation. So on that note, they -- the dealers or the franchise stores have nothing against their sales because essentially we're actually -- because when they compare their user acquisition cost versus what we generate leads, they’re actually very happy to participate in this omni-channel approach.

Alexander Potter

Interesting. Okay. Thank you very much. I appreciate it.

Operator

[Operator Instructions] Your next question comes from the line of Bin Wang from Credit Suisse. Please ask your question. Bin Wang, your line is open. You can now ask your question.

Bin Wang

Sure, sure. Thank you. Actually, I got two questions. Number one is, what's the cost in the first two months this year? And what's the number in March and what’s number in April and first two weeks in May? I mean, the volume growth year-over-year. I want to feel growth recovery chain. Can you provide us full number? That’s number one question. Number two is about GOVA. Is this that GOVA is a division of GOVA -- G0 is the new product and provide a price. I actually searched on the website, I don’t see any stores or series number. And I didn't actually find GOVA's official website. Basically, I don't -- cannot find from Internet the GOVA's price. So what’s the stretch for GOVA? Is it really a big thing for you? There's just has been launched three products and you are also launching number four, right? Is four product already similar to the Niu brand? And now this year GOVA market -- such as your competitor, YADEA, share price has been reached a new high, naturally build dramatic volume, a few million in the first quarter. So can you elaborate a little bit about GOVA plan? Is that going to be a bigger business than Niu brand? Thank you.

Hardy Zhang

Yes. Let me answer your first question about the volume trend that we need to split or separate the China market and overseas markets in order for us to see the true picture. For the Chinese market, if you look at our own sales, our January and February sales was down almost 70%. The March, our volume was only down by around 30%. Our volume in April was up more than 50% and we see accelerating growth rate in May. That's how we see the China growth. And -- so this is our sales. In the meantime, we're also tracking our retail sales -- I mean, the sales from our retail stores to consumers. They actually follow very similar trend. That's why you see how we recover from this outbreak. That's the China market. If you look at the overseas market, our January and February volume growth of around 60%. But since March, our volume was down around 20% and in April around 30%, May and June based on orders we saw probably down 50% to 60%, based on order we already locked in. However, we do see some additional order coming in during last week and we also see some of our overseas distributor began to push us to accelerate some of the shipment to them. Therefore, we do believe the overseas market may also be open and also go back to the kind of growth rates probably in the third quarter. So that's how we see the growth in different markets in this year. So that’s answer to your first question. And for the second question, on GOVA, I will let Yan to comment on that.

Yan Li

Yes. I think on the GOVA question, so as the GOVA product, if you actually go to the niu.com website, you actually kind of see the GI, it's already listed. The G0 has not been listed, but it's actually listed on the JD.com as we start as a pre-sales. So with the pre-sale campaign, it's something that the customers at this point can go on the JD.com start shipping, basically put down RMB100 deposit, and then the actual product delivery will be close to end of May or early June. So it's actually well in line with the JD.com's 618 18 campaign. So the GOVA is actually we treat as a GOVA series as opposed to a separate brand. It's a lithium battery based. And the baseline version does not have the connectivity, but it's actually -- it's expandable to include the connectivity boxes such that people still can actually get connected to our app. So we treat that GOVA as part of -- as equivalent saying N and U both series and GOVA itself as just one series. And we do think that actually have a big addressable market, especially with the China new regulation coming in starting last year in cities, in top tier cities where the new regulations are being strictly enforced. There is a demand for a more practical -- still beautifully designed, but a more practical product models as entry models because we do -- there is quite a bit what you call market segment anywhere between the RMB2,500 to RMB3,500 range. That's where to segment that currently I think it's sort of the high-end of -- yes, the YADEA and the traditional players. And that's what we think our product lines can extend it to. But obviously anywhere lower than RMB2,000 that market consumer segment, which is actually where YADEA [indiscernible], all those guys reside in. That market actually, I don't think in the near future is a market that we have where -- I don't think that particular market is the market in the near future that we can enter. So we focus -- still focus on the mid to high-end lithium battery based electric scooters.

Bin Wang

Okay. I just feel like a few people actually loved GOVA and understand GOVA, and this is very famous, everybody there liked. Is there any plan to put the GOVA brand to -- more people understand the brand, maybe more offline shops or GOVA specifically, not just combined with Niu?

Yan Li

No, we -- since we actually view as one of the Niu series, it actually will be sold through the Niu shop as supposed to be independent GOVA shops. And we're exploring different formats such that potentially set up what we call a store-in-store format in, even bigger multi-brand shops that particularly aesthetically GOVA -- what you call dedicated GOVA counters or regions. But it's still be branded as Niu as Niu GOVA series.

Bin Wang

Oh, I see. Last question. Actually I found the data shops actually has been declined. So it's the first time for the shop decline? So what’s that -- so what’s the future plan for the end of this year? How many number of shops will be? Thank you. Last question.

Yan Li

Right. So I think, yes, so there's -- we do have a -- there's a shop which -- let me see, there's a handful of shops were closed in Q1 this year, I think mainly because -- I mean, in every year we actually do that. We do that by, this is what we call the optimization. For example, actually, I think our shop in Lhasa just closed. I need to confirm that because I was asking the regions. But basically, every year, we close down few -- we close down a number of shops and we also open new shops. What happens this year in Q1 is basically every year, we do that. But this year in Q1 and especially even last in April is we're actually going on a normal business in terms of closing down the shop that actually are low performing shops. In all previous year's, in addition, especially in Q1, where the market is sort of a slow market, we actually open quite a bit new shops. So the net gain of shop -- the net shop numbers you always see increase. This year, what happened is actually we shut down the shops. But for our new shops, we set up locations, but they were not able to finish remodeling and renovations such that we were not able to open them in time. And so that creates a delay in terms of new shop openings. The delay almost we see a quarter or four months. But the shutdown shops didn't have that much delay. So that's why you actually see a decline in shops. I think our target this year is still to interim net adds is still to be around 300 shops over on the base of 1,000 shops from last year. But to the end of years, we look at both from the absolute number of shops, as well as what we call the sales square meter space. And we actually believe the sales square meters space is more important because the money in quite a few cities right now, for example, in Shanghai, we have about 80 plus shops. In Beijing, we have a 60 plus shops. So actually, it's difficult to actually add more shops, but it's actually essential to increase the -- basically the space, increase the size of the shop in those cities. That's why you see in Shanghai we start opening bigger shops and bigger shops, has more products coming online, used to be we only N and M and U, but now you see we have N, but in Shanghai, Beijing we have our M2, we have our U+, U, US, as well as the GOVA series. So even for a -- for cities with strictly regulations, we actually have five -- six to seven product lines that meet the China bicycle regulations. So that actually require the shop space to be a bit bigger. So our focus is actually adding -- our twofold at this point. One is actually adding the number of shops. Second, for the existing shops to actually increase the area or increase the space to make it bigger.

Hardy Zhang

Just to add to that, the lease agreement for certain shops may expires in Q1. So some of the dealers may also take the opportunity to temporarily close down the shop so as to avoid paying the rental. So that's another reason contributes to the temporary drop of our store numbers. But we already see the store number climb back to the normal level in -- by the end of April. So it's just like one quarter thing.

Bin Wang

Okay. Thank you. We understand. Thank you.

Operator

[Operator Instructions] Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks.

Yan Li

All right. Thank you, operator, and thank you all for participating in today’s call and for your support. So we appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.

Operator

Thank you all again. This concludes the call. You may now disconnect.