Q1 2022 Vipshop Holdings Ltd Earnings Call
Yeah.
Yeah.
The German good day, everyone and welcome to VIP Shop Holdings Limited first quarter 2022 earnings conference call.
At this time I would like to turn the call to.
Ms Jessie young VIP shops head of Investor Relations. Please proceed.
Thank you operator, Hello, everyone and thank you for joining VIP shop first quarter 2022 earnings conference call with US today are Eric Chen our co founder Chairman and CEO and David <unk> our CFO.
Paul mentioned picking your prepared remarks.
I'd like to remind you that a discussion today will contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act up 1995.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.
Potential risks and uncertainties include but are not limited to those outlined in our safe Harbor 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 this is fun.
Financial measures used on this call such as non-GAAP operating income non-GAAP net income and non-GAAP net income for it yet.
Not presented in accordance with U S GAAP.
Please refer to our earnings release for detail relating to the reconciliation of our non-GAAP measures to get married.
With that I would now like to turn the call over to Mr. Erickson.
Okay.
Good morning, and good evening, everyone welcome and thank you for joining our first quarter 2022 earnings conference call.
We had a slower than expected quarter due to the.
So COVID-19 cases in China on top of the already challenging micro environment, which.
Yeah.
General customer sentiment.
Starting much with Titan and tightening the controls and the city Lockdowns Manny please.
Oh, well, we're hosting and the logistic capacity has been undergoing sea to believe or destruction.
This has had on the minded our fulfillment efficiency and the further discarding consumers from spending, especially on these questions.
Questions.
Despite great pressure on sales and the consumption we remain on track to execute on our merchandising strategy to further strengthening our competitiveness for the long term.
We are delighted to see that our proven business model enabled us to start paying a healthy level of profits and achieve the resilient margins.
<unk>.
<unk> operations.
In the first quarter, we continued to provide support for co brand.
Offering them more leverage to improve sell through or upgrades merchant platform.
We also brought in many new and <unk> been in reach and product selection on our platform.
Furthermore, we expanded our high value customers.
Our equity was super VIP customer grows by seven.
37% year over year and contributed about just stood the 8% online <unk> in the first quarter.
With the COVID-19 outbreak development.
We have responded quickly to changing consumer demand.
By leveraging our merchandising capabilities.
Ed is a range of product offerings in non apparel categories, including product for everyday use.
This helped in part offset the softer demand in our Palo categories.
While we remain cautious ahead and made ongoing COVID-19 desktops, we are.
Are strongly committed to our strategic position and this concept phone full branded product.
We will take this opportunity to look to create exceptional value for our brand partners and the consumers.
At this point, let me hand over the call to our CFO , David <unk>, who will go over our financial results.
Thanks, Eric and Hello, everyone.
First quarter.
Off the top line performance due to macro headwinds.
Our margins held up relatively well, thanks to our initiatives to manage costs and expenses with greater discipline.
Our gross margin.
Sure.
After we implemented a number of cost saving measures. For example, we were able to effectively improve the margin profile of many product categories.
So we became more focused shifting traffic and Bruce versus who corporate.
Deep archives of low quality products.
Low quality brands.
None.
Margin also grew well above 5%.
We became more efficient in marketing spend.
Looking ahead, we will continue to optimize operational efficiency and make.
To deliver healthy and sustainable profitability.
In addition, during the quarter, we had fully utilized the 500 million dollar share buyback program.
<unk> announced the last year.
March 31 this year.
Announced another 1 billion U S dollar share buyback program.
We may execute from time to time over a period of 24 months.
This demonstrates our confidence in our business potential.
And our commitment to creating shareholder value.
The long term.
Now moving moving to our detailed quarterly financial highlights.
Before I get started.
I would like to clarify that all financial numbers are presented below are Ian I mean b.
And all the percentage changes are year over year changes unless otherwise noted.
Okay.
Total net revenues for the first quarter of 2022 or $24 2 billion RMB as compared with $28 4 billion RMB in the prior year, primarily attributable to soft consumer demand for discretionary.
Categories worst impact on warehousing and logistics networks caused by COVID-19 with surgeons in China.
Gross profit.
Was $5 <unk> billion, RMB as compared with $5 6 billion RMB.
In the prior year period.
Gross margin increased to 19, 8% from 19, 7% in the prior year.
Total operating expenses decreased by 11%.
Year over year to 3.9.
I'm feeling RMB from four 4 billion.
RMB in the prior year period.
As a percentage of the total net revenues total operating expenses.
15, 4%, which stayed flat as compared with the corresponding period in 2021.
Fulfillment expenses decreased by five 5% year over year to $1 7 billion RMB from $1 8 billion RMB in the prior year.
As a percentage of the total net revenues.
Fulfillment expenses was six 7% as compared with six 3% in the prior year.
Marketing expenses decreased by 41, 3% year over year to $739 3 million RMB.
One 3 million RMB in the prior year period, primarily attributable to more prudent marketing strategy.
As a percentage of our total net revenues marketing expenses decreased to 230% from four 6% in the prior year.
Yeah.
Technology and content expenses increased to 394 million RMB from $337 5 million.
RMB in the prior year period.
As a percentage of the total net revenues.
Technology and content expenses increased to one 5% from one 2% in the prior year period.
General and administrative expenses.
One 1 billion RMB.
As compared with $956 7 million RMB in the prior year period.
As a percentage of total net revenues.
General and administrative expenses was four 2% as.
As compared with three 4%.
In the prior year period.
Income from operations was.
One 3 billion RMB as compared with $1 5 billion RMB in the prior year period.
Operating margin was five 1% as compared with five 3% in the prior year period.
non-GAAP net non-GAAP income from operations was $1 5 billion RMB as compared with $1 7 billion RMB.
In the prior year period non.
non-GAAP operating margin was six 3% as compared with six 1% in the prior year period.
Net income attributable to the IPO shops shareholders.
One 1 billion RMB as compared with $1 5 billion RMB.
In the prior year period.
Net margin attributable to VIP shops shareholders.
Four 3% as compared with.
Five 4% in the prior year period.
Net income attributable to VIP shop shareholders per diluted ads.
Yes.
161, RMB as compared with 2.18.
RMB in the prior year period.
non-GAAP net income attributable to react to sharp shareholders was $1 4 billion RMB.
As compared with $1 7 billion RMB in the prior year period non.
non-GAAP net margin attributable to the IPO shops shareholders.
Five 6% as compared with $6 zero percent in the prior year period.
non-GAAP net income attributable to VIP shops shareholders per diluted ads was 2.09, RMB as compared with two point.
For one RMB in the prior year period.
As of March 31, 2022, the company had cash and cash equivalents and restricted cash of.
$14 3 million.
And short term investments of five zero billion RMB.
Looking forward to the second quarter of 2022 we expect that our total net revenue to be between.
Q2, 2 billion RMB.
$23 7 billion RMB.
Presenting on a year over year decrease street.
Approximately 25% to 20%.
Please note that this forecast reflects.
Our current and pro.
Luminary view of the market.
Operational condition, which is subject to change.
With that I will.
Now I would like to open the call to Q&A.
Thank you to ask a question you will need to press star one on your telephone.
So it's part of your question press the pound key.
Please stand by while we compile the Q&A roster.
Our first question from Thomas Chong with Jefferies. Your line is open.
Hi, Good evening, Thanks management for taking my questions.
My first question is about the second quarter guidance.
Can management comment about the impact of pandemic.
Our business performance in April and so far in the month of May and my second question is about the second half business momentum, Okay management comments about that.
There'll be a couple of real momentum that we should expect as well as at the margin outlook for the year.
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Okay.
The guidance for the second quarter actually reflects our current lack for the uncertainties.
From me.
Ongoing and potential restrictions.
The COVID-19 outbreak.
As well as the general weak consumer sentiment.
Entering.
Our business has actually been quite.
On a normal until.
In the middle of March.
When the omicron outbreak has significantly impacted.
Our warehousing and the logistics of capacity.
And with disrupted or delayed.
And Oh, the whole supply chain faced a lot of problems.
Some of our warehouses will cause Dom and.
Logistics.
<unk> got delayed and all of those suppliers.
<unk> also had a restrained.
In terms of shipping and handling I'll pass it on.
Entering into.
April .
And then T. Now may we actually had been facing continued pressure.
I think two today, we still have over 1 million orders that cannot be delivered.
It's helpful.
Including our suppliers of what they.
Actually in our respective regions.
That actually undermined.
Yeah.
So we expect parcel for May and June .
We haven't seen clear signs of recovery and we actually don't expect that the COVID-19 impact.
You know a disappear very soon.
Actually we have seen other.
Other places like Beijing.
Faced with restrictions or control.
So consumer sentiment.
Consumer confidence has not come back.
We are also seeing that the latest MBS data to I'm sorry.
Sluggish.
Performance for discretionary items, including <unk>.
So generally speaking we didn't.
Feel very optimistic for that momentum for the for the for the second half.
But we don't expect.
It will be significantly worse as well.
On the margin side.
Well, we are pretty confident in maintaining a healthy level of profit and margins.
While we face a lot of challenges.
Alan just non certainties.
We also remain maintain there.
Very high level of discipline in our operations, we manage our costs and expenses.
Much more carefully.
<unk> scaled back a lot of low ROI spending so we are pretty confident that we will deliver healthy and sustainable profitability profitability.
For this year.
Thank you.
Our next question is from Alicia Yap with Citigroup. Your line is open.
Hi, Thank you good evening management, thanks for taking my questions.
I have a question related to then the expansion into the non apparel product. So can management elaborate a little bit more detail the the various types of the products.
You know on this category.
And can you remind us.
Our strategy.
Study strategic change or the strategic business model shifts.
Or is this just a temporary approach.
So that we can navigate through this soft demand for the apparel business.
And then second question is any colors in home self so what are some of the current inventory level at.
For the apparel brands.
The can we get any kind of like labs H or is it just because consumption is still weak so even though there's a lot of inbound Charlie all we can do some promotion discount, but that's still lockup with Ya man. So any color you can share.
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Okay first.
Standardized products.
Actually I think as a company with your focus on apparel category.
Play with do you have 70%, Jamie from apparel and the rest 30% up from from standardized products.
Does the product a very good complement.
Our overall platform.
They can help us to cater to a diverse range of customer needs.
Which actually very very depending on.
And a lot of other factors.
For example in summer.
Typically customers will like to.
By a lot of our standardized products. In addition to the summer clumsy and also we approach standardized products very carefully.
For example, we want to make sure we have the unique supply from tougher and with.
With the very competitive pricing, we try to meet.
Our customer needs.
Especially when we when they shop for clothing, they will have something else to choose from and to provide them with a one stop shopping experience.
So this is our overall strategy on standardized products.
Given the.
The COVID-19 operating kind of single we are.
Proactively added some unknown apparel product offering, especially including.
Alex for everyday use.
Meet customer needs.
This is in line with our overall strategy to all standardized.
Standardized products, we will gradually.
The contribution from this thing.
It's a product to improve.
The overall customer experience on our platform.
And also to improve their overall.
Oh.
And Brent.
Brent inventory.
And printing machine, apparently a lot of our brand partners.
Very hard hit by the Covid stay at.
They they faced a lot of us saw disclosures and they have a lot of the supply Ah but.
Generally speaking I think we have the ability to secure a lot of quality inventory from Brent and help them to sell through these inventories are very.
Very efficiently.
But at the same time.
Some of the brands Hunter has done well.
Also facing continued pressure, especially when they are faced with restricted.
Regions, including Shanghai. So this is.
It is a positive.
These are positive too.
Our online business.
I think although the.
Generally speaking does the market is in a downturn, but it's not that bad as long as we can help our brands too.
To sell through their inventory.
Single.
Providing a value a valuable proposition for them.
Can I have a follow up quick follow up.
On the margin for the standardized product given the mix.
How should we think about the total gross margin trends.
You know going forward or in the New York hub.
Okay.
For this tender.
Items, we carefully tools.
What products that we will carry generally we will not accepted.
The product was very low margin.
So overall the impact of the margin is.
It's not that it's not that bad and also the apparel product is still represents a 70%.
Our total Terry and carrying so.
We are committed to the overall gross margin.
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The ability.
Okay. Thank you.
Yeah.
Our next question comes from Ronald <unk> with Goldman Sachs. Your line is open.
Thank you David.
Our team Oh, Yeah, Hello financing.
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Right.
So thank you management and my first question is on your second quarter revenue guidance, whether that assumed a similar growth rate for may and June of what we've seen in the April run rates and some expectations on our June 16th for us any expectations on that that we are assuming some of the stronger growth.
That's right.
The month of June and some of the cancellation rates that base that we are seeing second is on free cash flow has seen a reduction of that so when they hear.
What were the reasons behind and besides a buyback program that we've been lodged when they hear any dividend policies that any updates on any of those any.
Any potential and also for Hong Kong listing thank you.
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Okay on our second quarter guidance actually already factored in.
April and May and run rate.
I think it's a it's the latter.
Uh Huh off May I know wave from observation.
We have had similar you know a downside trend.
We saw in April .
In fact.
In June we all continued its momentum for sure it's going to be.
On a year over year basis.
And coupled with you know a COVID-19 case.
Cases Oh.
<unk>.
Fiction and controls are still going on and consumption.
Sentiment has not coming back come back yet.
So.
That's that's trading.
Reality for this quarter to date, so our second quarter guidance is just a reflection of that.
In reality.
In terms of stock loss cancellation rate absolutely.
Actually from Middle of March we've seen a cancellation of orders.
<unk> has been going up due to logistics Tonight.
And.
Our cancellation rate actually one six.
Six percentage points.
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Sector.
I think we for sure hope not.
Restrictions are gradually lifted.
We expect to cancellation rates should normalize.
Overtime.
Yes.
But we have been.
Profitable for.
Consequently.
Over 38 quarters. So we are confident that we will continue to making profit.
Even though we encounter a difficult time.
And the software business.
So in general.
Cash.
Free cash flow should mirror our profitability.
In Q1.
Operating cash flow turned negative because we made a lot of pain.
Payments to suppliers and for other miscellaneous expenses so.
The decrease in AR.
Accrued expenses and accounts payable.
Is the main reason for the negative.
Our cash flow.
In the long run.
Cash flow.
Our profitability.
And then in terms of the Hong Kong listing so that is still in our reader.
Our board.
The management team.
We are still evaluating.
The options and the <unk>.
We still got some time to execute the plan and execute their oncologists to class.
Okay.
Sorry.
It does.
So we currently we don't have a plan to too.
Pay out dividends, but we're committed to our share buyback program.
And that's it thank you.
Okay.
Our next question from Natalie <unk> with high tone International Your line is open.
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Good evening management. Thanks for taking my question. So my question is are you going to do with.
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Which typically help us.
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So how should we differentiate ourselves from the general E Commerce platform, if we shift the way to sterilize the topics. Thank you.
Okay.
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In terms of a strategy.
Canada the product actually in all the categories are already on our platform, including our beauty products.
But oh kitchen, where life in grocery and health care products et cetera. This now five products are standardized items.
At Oh, we will manage our product offerings are very carefully and each category not necessary a late as many as S. K use as you use this the on all the platforms, we want to make sure that we can have a very.
Quality supply from friends.
Sometimes.
Now it may be unique supply from from the top rents.
Has to be to provide very competitive pricing.
And Oh very reasonable gross margin.
So we will approach standardized items very carefully.
Currently.
We have 30% from Sendai items.
Our goal is to gradually improve contribution to let's say, 63% over time, an increase of 10% on the current spaces.
And Senator I standardize the items.
I'm not going to be a drag on the overall gross margin.
And it's actually improved optimism from our customers.
So oh, Oh over the time are.
We think we will.
I'll have more balanced.
Customer experience.
All four of our platform.
Got it thank you.
Our next question from Robin Leung with Daiwa Your line is open.
Hi, This is robin asking on behalf of John Choi. Thanks management for taking my questions. This quarter. The gross margin is slightly higher than our expectation.
Is it because of the change in the category mix and because I can remember the Spi piece.
The members they carry lower margins.
But the mix this quarter is also higher so wonder.
What is the reason that this quarter, we see a more a better than expected gross margin and also the trend in the second half.
S. VIP continues to increase the mix of <unk>.
You're going to see any impact.
Impact on.
Gross margin.
And the second question is could management comment on the user growth trend in the second half.
It seems like one of these phones isn't worth it to you went well so now when you shop, our Zika gross margin, that's a good quarter and it'd be woman Samsung.
You didn't then when she was she knew where it took a change.
Changed.
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Okay woman, you said clubs you got user growth trends I second half of tissue.
Okay.
So.
This year, we have taken many cost saving.
Measures to improve our margin that includes the <unk>.
The Ah <unk>.
The selection.
The products the breadth of.
Carried on our platforms for example, we were able to.
Improve the margin profile of many categories. After we shifted.
Our resources that will do to the core brands, So we selected and prioritized stomach.
Some of the non core brands so that helps improve.
Our margin for the coming quarter. So we will continue to be disciplined and make sure that we have.
I have a healthy margin and eventually achieve.
A healthy bottom line and that margin.
Only.
The category mix.
Hum.
Apparel, the payrolls are still representing 70%.
Of our total GMB right and then.
Supplemented by the standardized products, but.
We talk about it earlier.
For the standard.
Centered as a product. So we are we also carefully.
Cool what took care of it to make sure that our overall gross margin will remain stable.
Potentially we could improve gross margin also.
In terms of the impact of the Super VIP.
And we know the Super VIP has slightly lower gross margin because of the benefits and we provided the cool pool.
To the group.
But since they spent more they spend.
A lot much more than.
The frequencies that they're at a much higher so overall, it's just a matter of a time.
They can contribute contributed.
Positively to the overall gross margin so so.
So is this kind of a balance.
And Oh.
In summary, we are committed to the overall improvements of gross margin.
And they.
They are struggling with.
Within China, we mentioned that the you could Sundance. This has been a good year.
Recent months Shang Guang.
You mentioned the ups as you would be so it will have in terms of the dos <unk> sharpened the kittens Atwood <unk>.
<unk> has it be dealt with at the moment history shows that the short run we don't run auction. So youll ship Tycho the whole Cook, which alone could maybe up number what did you start how long the LTV the mizuho Ltvs suite with the highest throughput quadruple LTV book question.
Yourself book and when so when people really need a sharpened who can use some of the tablet the mobile tablet.
In terms of our customer for us for the second half I think our customer growth has been a relatively in line with our overall business performance.
And and given that our pool has actually dumping pipes are not stable over time.
But we will.
Evaluate telephone our marketing spend from time to time.
Nationally, even many of them certainty screen.
Apparently facing a much less favorable customer acquisition environment instead of us.
Justice throwing money away, we won't focus.
Acquiring high quality customers.
We don't we.
But we don't want to invest too much low or why you know our customers and.
We will evaluate.
Lifetime value or very carefully to ensure that they will be a.
Valuable customer platform so.
We are committed to customer service and we believe that a couple of quarters had well all right.
Maintaining a relatively stable stable customer base.
Thank you.
Due to time constraints that concludes today's question and answer session. At this time I will turn the conference back to Jesse for any closing remarks.
Thank you for taking the time to join US today, if you have any questions or follow ups. Please don't hesitate to contact our team. We look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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