Q2 2021 Vipshop Holdings Ltd Earnings Call
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Ladies and gentlemen, good day, everyone and welcome to Bp's Shop Holdings Limited second quarter 2021 earnings conference call. At this time I would like to turn the call to Ms. Jessie Zheng Bip shops head of Investor Relations. Please proceed.
Thank you operator, Hello, everyone and thank you for joining VIP shop second quarter.
This conference call.
Today, our Harrington, our co founder Chairman and CEO and David <unk>, Our CFO before management begins their prepared remarks, I would like to remind you that the discussion today will contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 99.
Fine.
Looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.
Risks and uncertainties include but are not limited to those outlined in our safe proper statement in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this call to the extent any forward looking statements may be made.
Please note that certain financial measures used on this call such as non-GAAP operating income non-GAAP net income and non-GAAP net income for a D. S are not presented in accordance with U S. GAAP. Please refer to our earnings release for details relating to the reconciliation of all non-GAAP measures to GAAP measures.
Is that I would now like to turn the call over to Mr. Erickson.
Good morning, and good evening, everyone welcome and thank you for joining our second quarter <unk> earnings Conference call.
In the second in the second quarter, we've kept up our solid business momentum with co operation operating metrics continue to trend that helps me.
Our user base maintained its strong lows driven a continue increase in total <unk>.
During the quarter, our total number two users grew by 32% year over year to 51 point to one media.
And our total <unk> increased by 25% year on year to RMB 48.1 billion.
Our most valuable user group shoe, the especially strong growth momentum with.
With cumulative Super VIP membership increased by nearly 50% year on year <unk>.
Contributing about as it stood oh, the total <unk> in the second quarter of 2021.
This encouraging development was the result of our relentless efforts to calibrate our strategic strategic focus and increase operational synergies.
In the second quarter, we continued to robust to execute on our merchandising.
Strategy.
Our by our teams successfully collaborated with in.
With the increasing number of suppliers and brand partners.
As a result, we have not only been able to attract.
The increasing amount of unique branded merchandise to be sold on our platform, but how being able to do so at VIP shop is favorably the discount price.
In addition to our traditional deeply discounted inventory covering tennis.
Tennessee range of brands. We now also carry a considerable proportion omega for VIP shop products.
These are products, especially customer mindset for VIP shop by our brand partners. We are committed to increase the breadth and the deep our merchandising portfolio.
To offer users a depreciates selection of high quality merchandise, while creeping down.
Dynamic price advantage fall where discount sales.
In the in the second quarter, we successfully institute refinement.
Operational level user experience is one that our clear priority.
To this end, we incremental several initiatives, including better matching our merchandising selection to target the users and the improving overall incentive for our most value users.
On top of this we also leverage effective marketing to attract more younger youth as younger shoppers to our platform.
Looking forward to the second half 2021 we remain committed to execution.
Our merchandising strategy.
We are dedicated to create value for our new and existing customers. While also increasing the value we add for our core brand. Upon us. We believe this will solidly solidify our leading position in China's discount retail market.
At this point, let me hand over the call to our CFO, David Sweet crude.
Who will go over our operational and financial results.
Eric and Hello, everyone. We are pleased to report a strong set of results for the second quarter of 2021 during the quarter, we delivered solid topline growth with total net revenue, reaching $29.6 billion RMB representing a year.
Over a year increase of 22, 8%.
We also witnessed the sustainable growth momentum.
Business development.
As evidenced by our number of active customers.
And total orders early and by 32% and 30% year over year, respectively.
Non-GAAP net income attributable to <unk> shareholders also increased by 11, 3% year over year to $1.5 billion RMB.
In the second quarter of 2021, when it was purchased.
Approximately 301 million U S dollars, thus far.
In accordance with the $500 million U S dollar share repurchase program adopted in March earlier this year, so both our confidence in <unk>.
So for our business model.
Our dedication to delivering long term value.
Our shareholders.
Before I get started though with detailed quarterly financial highlights.
I would like to clarify that all the financial numbers presented below are in RMB and all the percentage changes refer to year over year changes unless otherwise noted.
Total net revenue for the second quarter of 2021 increased by 22, 8% year over year tool $29.6 billion RMB from $24.1 billion RMB in the same period last year.
Primarily driven by a large number of total active customers.
Drilling profit for second quarter of 2021 increased by 26% year over year to 6.0 billion RMB from $4.9 billion RMB in the same period last year.
Gross margin for the second quarter of 2021 was 21% compared with 25% for the same period in 2020.
Total operating expenses for the second quarter of 2021, or $4.8 billion RMB compared to $3.8 billion RMB in the second quarter of 2020.
As a percentage of total net revenue total operating expenses for the second quarter of 2020, while or 16, 4% compared with a 15, 8% in the second quarter of last year.
Fulfillment expenses for the second quarter of 2021, or two 1 billion RMB as compared with $1.7 billion RMB.
<unk> period in 2020.
As a percentage of our total net revenue fulfillment expenses for the second quarter of 2021 decreased 269% from seven zero percent in the second quarter of 2021.
In the second quarter of 'twenty.
Marketing expenses for the second quarter of 2021 were $1.4 billion RMB as compared with 1.0 billion RMB in the same period of 2020 as a percentage of the total net revenue marketing expenses for the second quarter.
<unk> of 2021, or four 8% compared to four 3% in the second quarter of 2020.
The increase was primarily due to higher investment in advertising activities relating to customer acquisition and retention.
Technology and content expenses for the second quarter of 2021.
$359.9 million RMB compared to 305.4 million RMB in the same quarter in 2020.
As a percentage of total net revenue technology and content expenses for the second quarter of 2021 decreased to one 2% from one 3% in the second quarter of 2020.
General.
Administrative expenses for the second quarter of 2021, or 1.0 billion RMB compared to $804.6 million RMB in the second quarter of last year.
As a percentage of the total net revenue general and administrative expenses for the second quarter of 2021 were three 4% as compared with three 3% in the same period of 2020.
Income from operations for the second quarter of 2021 increased by 18, 6% year over year to one 5 million RMB from one 2 billion RMB in the second quarter of 2020.
Operating margin for the second quarter of 2021.
<unk> five zero percent as compared with a five 1% in the same period last year.
Non-GAAP income from operations for the second quarter of 2021, which excluded share based compensation expenses and amortization of intangible assets, resulting from business.
Business acquisition increased by 16, 1% year over year to $1.7 billion RMB from $1.5 billion RMB in the second quarter of 2020.
Non-GAAP operating margin for the second quarter of 2021 was five 9% as compared with six 2% in the second quarter of 2020.
Net income attributable to <unk> shareholders for the second quarter of 2021 was $1.1 billion RMB compared to $1.5 billion RMB in the same period last year.
Net margin attributable to <unk> shareholders.
Second quarter of 2021.
<unk> three <unk>.
<unk>, 7% as compared with six 4% in the prior year period.
Net income attributable to <unk>.
Shareholders per diluted ads for the second quarter of 2021 decreased to one point.
<unk> six RMB from two to four <unk> in the second quarter of the previous year.
Non-GAAP net income attributable to VIP shops to shareholders for the second quarter of 2021 increased by 11, 3% year over year to $1.5 billion RMB from $1.3 billion RMB in the second quarter of 2020.
Please note that non-GAAP net income attributable to <unk> shareholders.
Closed.
A number of items the details of which can be found in our earnings release.
Non-GAAP net.
Non-GAAP net margin attributable to VIP shops to shareholder.
For the second quarter of 2021 was <unk> five zero percent as compared with five 5% in the same period last year non.
Non-GAAP net income attributable to <unk> shareholders per diluted ads for the second quarter of 2021 increased to 210 RMB from 192.
RMB in the second quarter of 2020.
As of June 32021, the company had cash and cash equivalents and restricted cash.
$16.5 billion RMB and short term investments of $3.6 billion RMB.
Looking forward to the third quarter of 2021.
In fact, our total net revenue to be between $24.3 billion, RMB and $25.5 billion RMB, representing a year over year growth rate.
Approximately 5% to 10%.
Please note that this forecast reflects our current and preliminary views of the market and operational condition.
Is subject to change.
With that I would like now to.
We will open the call to Q&A.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced.
We wish to cancel your request you can press the pound or how should we.
Once again it is star one to ask a question. Please note that there might be a slight pause actually.
Compile the Q&A roster.
We have the first question this is coming from the line of.
Hey, Tom Zhang from CIC. Please go ahead.
Hi.
Atlanta.
<unk> from <unk>. Thanks for taking my question I have two questions. My first question is regarding to the competitive landscape. We observed some short video platforms are doing really well this year in their ecommerce business and some brands are exploring destocking at these channels, how should we think about the competitive landscape.
Feedstock industry going forward any color would be very helpful.
Second question is regarding to the third quarter guidance, how should we think about the third quarter guidance did we observe any impact from the pandemic in July and August So that's what we thought.
With us after we factored in our third quarter guidance should we expect a saturation in the fourth quarter, if the pandemic well campaign.
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Okay, Let me translate first.
Chris Great question.
King.
Our model.
There are a lot of platform that outstanding through live streaming.
Whether it's branded or.
No.
Now moving.
Now moving our inventory I think these platforms.
Primarily are capturing a lot of customer attention and no matter what.
The most important thing merchandising, whether pricing foundation brand and brand advantages.
That's the most important thing.
Customers.
For the IPO shop actually weak too.
Yes.
But what we focus.
It could creating differentiated value for customers in terms of solid brand Bren branded merchandise and.
And the pricing advantages so despite the fact that short video platform has some impact.
In terms of attracting a lot of time spend from customers that have just some some limited impact on our.
Phone business.
In terms of the.
Our Q3 guidance there are a few factors.
During Q3.
We've seen consumer sentiment is not that strong.
The current macro environment, which was partially related to some natural disaster.
<unk> and a resurgence of COVID-19 here in the air.
And you'll recall that we had of testing in the same quarter of last year as we did see some recovery from the end of COVID-19.
And also.
Q3, traditionally alive season in north of life for the apparel industry that.
Turning to Q4 typically Q4 is the peak season, we are apparent ticket sizes tend to be larger and we were around promotional events ever.
Everyone in.
In the fiscal Q4 should hold up relatively well as long as the COVID-19 pandemic.
At that time.
Thanks very helpful.
I would like to add something.
Eric just mentioned that.
Number one is that.
Remember last.
Q3.
We had a booming business post COVID-19, so we had a larger base.
Larger base for this year, so thats why.
We had.
A softer guidance for Q3 this year. So that's been the number one number two is that we should note is that our active customer base are actually growth.
Year over year, 32%, so that does provide a.
A foundation for us to drill our <unk> business and that's also a strong indicator of that.
Our business our business is healthy and then.
That should.
It will help with our future future growth.
Thanks.
I will tell you, though anytime you have a bunch of Acacia.
Thank you we have the next question is coming from the line of Eddie Wong from Morgan Stanley. Please go ahead.
Okay.
Okay.
Notwithstanding all of that and I hope that you and you might find yourself.
Jason.
You always ask you questions on concerns on just how much it sounds.
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I'll start.
Archibald.
And John I think so I'll have Sean thank you.
Hi, Michael.
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Do you feel like you can shop for adults.
And John.
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Thank you Michelle.
Patrick what's your telephone.
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George I don't want to get a whole lot since you kind of share on genetic by any chance.
Two questions first yes.
Jack.
Give us the breakdown.
By month in the us.
Second quarter, because we remember out in May.
During the first quarter earnings call you mentioned that your guidance for the second quarter actually has been a little bit conservative.
All expected.
We'll have a quite strong growth in.
In June.
Uh huh.
Seems like that such as yourself situation, yes.
Are you being weaker than expected.
Okay give us mark.
Color on that and second question, Yes, Ken.
I will also give us some color about how you know.
Apparel demand actually in July and so far in August the cost income.
Yes.
Retail sales.
Apparel, which show some weakness.
Our pilot demand, so I'm not sure whether or not this also impact our guidance for the third quarter. Thank you.
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Okay in terms of that Shannon, we have seen in June.
As you mentioned.
Our guidance of 20% to 25%.
Actually in June we've already seen a slower.
Due to.
The longer promotional event.
The whole e-commerce space.
In the past.
Please turn to <unk>.
Two eight day promotional events.
My long promotional events.
It's become less and less attractive to customers.
And that can kill we try to deliver.
Delivery from coupons to customers to encourage a there Ken.
Not it did not temporarily also we actually.
Had some can tell overall Martin.
And entering into the first half.
First.
On Wednesday.
And a half months in the third quarter, we did see some weakness in the apparel category.
It's not as strong as we had anticipated but it also.
So not as bad as well.
Probably have imagine.
We think that.
Finally, due to the restriction of the.
COVID-19 here and there and we are seeing the trend moving slower than before but at the same time waters branded merchandize merchandize actually they have very good inventory.
Hum.
The offline.
I'm not very.
Not a very good.
Due to the COVID-19, so actually they have increased inventory online.
So we have to see.
A couple of months to see how.
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Okay.
Thank you. The next question from Ronald Keung from Goldman Sachs. Please go ahead.
Thank you. Thank you David.
So just two questions I'll translate to mandate. The first question is on also on our third quarter revenue guidance of 5% to 10% just wanted to know how that we used to have growth in app, who is kind of.
Within this ballpark I just wanted to see whether our user growth remains quite strong.
Maintaining the trends in the second quarter or.
And would that imply kind of a pool.
Would decline, but on a year on year basis, and how do we see that into the fourth quarter as what we talked about at the peak season.
And then my second would be our marketing spending that we will spend around 30, 37% more than.
And marketing spend in the quarter, you mentioned about some control during June and couponing, but this is still quite an increase and so are we expecting more spending as we head into the second half and how how should we think of sales and marketing as a percentage of revenue which is.
One of the metrics, which has been around four 8% of revenues in the second quarter.
No if I use how do you guys can use that money to undertake a sense.
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Okay.
I take on the second question regarding the marketing expenses.
So with respect to marketing expenses. This is the probably 80.
The.
The.
Area that we have more of this question.
The marketing expenses with Blizzard.
Between.
New user acquisition and <unk>.
Existing user.
Retention. So we have more discretion in terms of how we allocated the spending and then.
As you can see in the second quarter.
Grow our active customer base by 32%, we would expect that we will continue to grow our customer base and in terms of the strategy, we will be carefully evaluating how to execute.
In terms of the marketing strategies and.
The objective for us is to.
To maintain our marketing.
Expenditure at a stable level not too in terms of the percentage of our revenue.
We expected that number should remain stable, we would we would try to improve our efficiencies.
Fees in terms of how we spend that dollar.
Okay back to your question.
As.
As you may have noticed that our offer for the second quarter decreased by 7% year year. Therefore, Q3 and Q4, we don't expect sooner.
The reason we think.
Yep.
The decline in much moderated.
We haven't spent a lot of time and reacting.
Activating our own customers as well as attracting new customers and I recall in the second quarter of last year, we actually stopped spending money on.
New customers so when entering into this year, we saw an increasing number of new customers, who may need some time to ramp up.
So which is still impacting overall hospital, but with things that the general churn if all African had it will be.
Stabilized.
We're confident because.
Very strong growth in Super VIP membership for.
About 50% year over year in the second quarter and we have found that they have been very long here and spending much more than the average customer actually.
Our Super VIP members spend almost 10 times.
Got it.
An average customer so as long as we can grow our super VIP members.
That's awesome.
Improve overtime.
Yeah.
Thank you Thank you management.
Thank you we have the next question is coming from the line of Thomas Chong from Jefferies. Please go ahead.
The Admiral management I'll ask questions on behalf of tunnels.
I have two questions.
First question is about can management share some color about the outlook for it.
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Keith.
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Gross profit margin and net profit margin.
I had a question.
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And in terms of first a question on the outlook of the second half and beyond.
We think this is actually Arthur.
And long term business and many consumers have a mindshare or discounted sale.
Our customer base continuing.
And we are very optimistic that we're going to have a relatively stable growth outlook and in terms of net margin we've mentioned.
Many times when you will continue to balance our topline growth and profitability and we've been very profitable for many quarters and in the future. We will continue to maintain a solid level of profit.
The facility.
And I'll have Craig.
Second question.
New customer acquisition, we have a.
There are various customer acquisition channels.
In the past or what had been leveraging a lot of traditional channels like digital advertising.
Younger shoppers fashion.
Fashion later.
After 2000, we had been seeing.
Very decent ramp up.
In the contribution of <unk>.
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6% year over year in the second quarter.
In the future we will try to.
To be more active exploring more innovative customer acquisition channels, such as live streaming.
Sure.
Sure.
Okay.
Creasing number younger shoppers to our platform.
Oh, thank you.
Omar.
Okay.
Thank you shall we move to the next question.
Okay.
The next question comes from the line of Nelson Cheung from Citi. Please go ahead.
Yes.
Hi management. Thanks for taking my question. So I have two follow up questions.
The first question is.
Regarding your guidance and your outlook, so looking beyond the third.
Third quarter revenue guidance and your expectation for <unk>.
Do you have any preliminary view on next year or medium term.
The growth of the discount merchandising industry and do you expect.
Kathy shop to grow faster.
The industry growth in future. So my second question is also regarding the new user profiles. So wondering if management can provide more quantitative color.
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Okay.
Okay in terms of the industry outlook.
Our VIP shop.
You should think of it.
Now that we are a fundamentally solid business.
And welcome.
Compared to traditional E Commerce platform, we mind Matt.
We might face greater competition.
Competition, but he looked at the <unk>.
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And we are the number one in this town yeah, we are very confident that our core competency and discounts.
Hey, other carriers.
Particular segment.
You may now.
The the general e-commerce industry to grow like 20.
10, 8% year over year.
But we are looking for a relatively steady growth.
For the long term future.
In terms of our users spend and user behavior across different tiers of cities, we have been very stable and in terms of <unk> contribution.
Acquisition will opt for it there is not so much changing.
And the behavior is the behavior different.
Tiers of cities.
Yeah.
Let me add on something on this so I think we want to the first phase ourselves with other E. Commerce platform in terms of debt, we only focusing on apparel related categories and well the other ecommerce platforms make Harry.
And many more other.
Categories. So we are confident that we have the maybe the leading.
Leaders in terms of how we process.
Apparel.
Sales in inventory, so we should outperform.
In these categories as compared to our other <unk>.
Commerce platforms.
Thank you very much.
Okay.
Thank you.
Our next question is coming from the line of NAFTA legal from Haitong International. Please go ahead.
Yes.
Hi, Good evening management. Thanks for taking my question and I'm asking the question on behalf of Natalie are my first questions are concerned about new initiatives of the company.
Can management share any color to help us understand are there any new initiatives or businesses that we are now taking a trial in and can we share about their recent development.
My second question is more.
Sorry about all our our user engagement and user experience just now I think management mentioned that there were some refinements in our second quarter about improving the user experience on the platform.
Just wondering what specifically were those refinements and are there any operating metrics that could help us understand the improvement in our user engagement I'll pick up on anything.
Now or should that not necessarily a one that goes to other one here Steve is Yoshi Guangxi albums.
Well for me in the job for sure, but anytime that you commented in Chicago.
The one thing like a woman.
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Sure.
Yeah, Oh, okay.
When you talk about what you're talking about for next year on the lumbar woman.
Sure Nate.
Well sure.
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Sure.
I ask something on this.
As I mentioned earlier.
As of the end of Q2, our paid the Super VIP throw by nearly 50%. So simple their team members tend to spend a lot more than an average customer.
No.
It's already contemplated the one third one third of our total G&A.
So in Q2, we actually further increased our incentives.
Our Super VIP members.
An extra 5% off on.
Selected merchandise, we provided a better targeted a product tool super VIP members and to improve our services.
So in May we also added a certain life of privilege privileges for Super VIP members.
In the future, we will continue to provide more attractive and membership.
Privileges it'll improve their shopping experience and hopefully that will translate.
Two more active.
More active customers into.
Super VIP member.
On the memberships.
Okay back half first and second question on the first question is on the new business development activity.
Have been very focused on our core business. We have made it clear that will reinforce our execution of our merchandising strategy and everything we do is centered on that strategy. We're focused on discount scale and enhance our buyer capabilities to that end, we are trying to optimize our brand pop.
Earlier, and cabinet acquisition with rent to income.
Hence, our competitiveness and thereby consolidating our long term core competency in.
<unk> retail market.
So 99% of our management focus is on discount retail and the execution of merchandising strategy of course, we are trying a lot of adverse innovated are areas, we've been investing to fulfill.
Our.
Innovation.
But that's not our current priority.
In terms of.
Hosting our user experience in Europe.
Some operational refinement.
You have to be aware of that Oh, the consumers are looking for good brands with good merchandise with good pricing and good quality and that should be nationally good services. So we've been.
Investing heavily in.
Bringing our user experience to the next level, including a hush must return Alex change leveraging our relationships with the Senegal acreage.
First delivery.
On the other hand, we have been increasing our accuracy.
Our front end and back end in terms of customer surveys.
We've seen that our core metrics evaluating customer service standards.
NPS.
Moving very significantly so in the future we'll continue to invest in are accurate.
I bring in.
Enhancing our customer surveys.
And enhancing our easy experience.
Thank you management.
Okay.
Thank you we have the next question from the line of Robyn <unk> from Daiwa. Please go ahead.
Hi, Thanks management for taking my question does this robyn asking on behalf of John Choi I have two questions off given that user growth is strong over the past four corners, but op risk still showing a year on year decline should we expect the ARPA to wrap up in 2020 to win.
New users normalized and are they spending from their older.
Users that we acquired this year to ramp up their spending or would it be first half next year or the second half of next year and should we expect should we expect to see less couponing by at that time and also the second question is on regulations are we seeing any positive or negative impact.
On our company.
Company.
I wanted to touch on what the team has.
You saw a woman Yong hoon sung jong tied or.
Or should the CECO team.
It's actually the opposite.
The South China Sea.
A woman quip equate on Dan the shallow contour how does it ramp up.
<unk> seen their own quota cut I'm sure.
I'm on the phone call and shall I saw a woman to again not that they're going to quit spending quite a ramp up.
I'll take a cut at them quite tight.
Our first half off saying Theyre now quite a huge second half off I was talking to a high of one month of couponing quite equate Oh, Dear Oh, Dear Oh and tissue a woman, you'll you'll kind of always said young man hazard for men Tugging Chung Ching Tang Quanta I meant some income tissue.
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<unk> estimate just but equally we'll miss was Lola talent machine cool cool I'll Cook He was a woman to Union bank.
The image on the law, because it's about kind of your usual leads to some out of court.
Switching mellema Nick.
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Seasonally our top concern.
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The revenue that will jump.
And we shouldn't that the SBA Peter shall so you do tend to elements of the <unk>, The <unk> Zealand seasonal with Nutrisystem.
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Women with patents used to the house.
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I think the most vocal cord Archie.
<unk> <unk>, who is with US which is also up.
Quick question.
So he's already use elements.
On your liquidity Judy.
Okay on your first question question on Apple Chen with <unk>.
Mention honestly is on the decline.
Second quarter, everybody is going to be at a moderate pace.
Quarters ahead, because it takes time for new customers as well as our own customers, which means.
Barclays spend money on capital by recently haven't Com.
So it takes time for these.
Two types of customers to run type of ad spending but quarter over quarter basis.
Very parents pick up in their spending.
Today, we are not too worried about that as long as we can grow our user base I believe is going to improve over time.
And then.
We've also mentioned that we're going to invest heavily in R&D.
Membership program.
We want to improve.
Please go ahead.
Yeah.
Theyre spending has contributed a third of our total net Jimmy.
We're going to.
It sounds like more a customer.
Customers into Sci team members.
That would help us to improve.
Over time.
On your question on regulation overall, we believe the recent developments.
<unk> Internet regulation, such as Amdocs.
Hum competition.
As a data security, especially the band of let's say exclusivity our merchants the web benefit the IPO shop to some extent and that means we will have a more open and transparent market with generic competition, we will have more opportunity to partner with an increasing number of brands, which will preserve rehab.
Brendan Merchandize selection Oh platform. So generally we are very well coming on.
Regulatory developments.
Because the IPO shopping school thing to benefit from.
On a more or less.
Yes.
Thank you.
Did you try and kind of think that concludes our Q&A session for today I would now like to hand, the conference back to Kathy for any ending remarks, please take over.
Thank you for taking the time to join US today, if you have any questions.
Follow up please don't hesitate to contact me, we look forward to speaking with you next quarter.
Okay.
Thank you, ladies and gentlemen that concludes our conference call for today. Thank you all for your participation you may disconnect your lines now.
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