Q2 2022 Vipshop Holdings Ltd Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Ladies and gentlemen, good day, everyone and welcome to a web shop Holdings Limited second quarter 2022 earnings Conference call.
At this time I would like to turn the call to Ms. Jessie Jin Big shops head of Investor Relations. Please proceed.
Thank you operator, Hello, everyone and thank you for joining VIP shop second quarter 2022 earnings Conference call. We just today are Eric Shen, our co founder Chairman and CEO and David <unk>, Our CFO before we begin I would like to remind you that our discussion today will contain forward.
Looking statements made under the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 90 95.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations potential.
Potential risks and uncertainties include but are not limited to those outlined in our safe Harbor statements 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 per ads.
Presented in accordance with U S. GAAP. Please refer to our earnings release for the reconciliation of our non-GAAP measures to GAAP measures with 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.
Our second quarter results came in better than expected.
Driven by improving micro condition.
Toward the end of the quarter with the COVID-19 pandemic effect effectively under control.
<unk>, Chen and logistic efficiency largely recovered.
And the consumer settlement also picked up gradually.
Our topline performance was helped by a month on month recovery in consumption.
Especially a more resilient trends in June .
Even though.
We're still under pressure our bottom line increased and the margin improved year over year, thanks to greater discipline in operation.
This result demonstrates the resilience.
Our business model.
Well as the strong execution and the flexibility of the entire company.
Address it.
Kendall uncertain.
Notably we are doing a good job of supporting the co brand.
Yes.
Two the value to our consumers.
This has translated into strong brand partnerships and the improved customer loyalty.
During the quarter co brand continued to outperformance in sale momentum.
Our buyers team worked more closely than ever to engage with the brand partner.
Helping them navigate flu.
Curtains environments with extensive support from customer engagement.
Carefully pending to marketing campaigns.
And upon it we are pleased to use our merchant platform with new future.
Too many.
To manage and grow their business.
In Kenya, we secured more supply how unique and a quality product.
Competitive client.
In addition, we have been consistent concern simply refreshing our brand mix, we added more new trendy and high end brand in both apparel and non apparel categories.
Targeting different customer group.
Accordingly, we load out several new channels, such as later pink box.
Trends in the VIP luxury to support the growth of these new brands.
Creating a new feed field or shocking.
Our customer.
In the second quarter, we successfully tend to more high value custom into paid member.
SP was super VIP customer grew by 21% year over year and contributed 38% online DMV.
Once again shoot.
PDF value with stable repeat purchase and order size.
<unk> new coastal equipment.
Okay.
With.
With the future.
With the future recovery highly dependent.
Depended on the micro development, we are strategically anchor in retail.
Retail for the long term.
We are convinced that consumers.
The desire for.
Great brand great selection at greater value.
Especially as they become more rational in spending today.
We will continue to enhance our value proposition.
Adapting our business and meet as needed to better serve our brand partners and the customers.
At this point, let me hand over the call to our CFO , Terry <unk>, who will go over our financial results.
Sarah.
Hello, everyone.
During the second quarter will deliver solid profitability.
Decent top line performance.
Pete Pete our prior guidance.
Alright.
Who focus on core brands has been working well and our gross margin increased to 225% from 21% a year ago.
This was achieved.
Douglas has many opportunities to streamline our cost structure in both apparel and non apparel categories.
Managed to improve category gross margin effect.
Effectively.
We also made.
That's first.
Operational.
Efficiency, notably we continue to see some leverage from marketing actually became more rationale spending.
To acquiring and retaining customers.
As a result.
Our non-GAAP net income increased year over year to $1 6 billion RMB.
And non-GAAP net margin expanded by one 5% to six five.
Percent.
Additionally.
We remain committed to our 1 billion U S dollar share buyback program.
Oscar in March.
He had purchased.
$177 $1 million.
Our ABS during the second quarter.
Looking ahead, we remain focused on our merchandising strategy.
Looking at ways to operate our business more efficiently.
Maintaining a healthy and sustainable profitability.
Continues to be our near term financial priority.
And uncertain.
<unk> now.
Now moving to our detailed quarterly financial highlights.
Before I get started I would like to clarify that all financial numbers are presented below are in.
And all the percentage changes are year over year.
Otherwise noted.
Total net revenues for the second quarter of 2022, or 24 5 billion RMB.
As compared with $29 6 billion RMB.
Prior year period, primarily attributable to softer consumer demand.
For discretionary categories, Amy a changing macro environment with the COVID-19, researchers in China.
Gross profit was 5.0 billion RMB as compared with 6.0 billion RMB in the prior year period.
Gross margin increased to 25%.
<unk> 'twenty.
1% in the prior year period.
Total operating expenses decreased by.
18, 7% year over year to $3 9 billion RMB.
From $4 8 billion RMB in the prior year period.
As a percentage of total net revenues.
Operating expenses decreased to 16, 1% from 16, 4% in the prior year period fulfillment expenses decreased by 13, 7% year over year to $1 8 billion and RMB from $2 1 billion RMB in the prior.
For Europe .
As a percentage of total net revenues.
<unk> expenses was seven 2% as compared with six 9% in the prior year period.
Marketing expenses decreased by 65% year over year to $555 6 million RMB from $1 4 billion RMB in the prior year period, primarily attributable to a more prudent marketing strategy.
As a percentage of total net revenues.
Marketing expenses decreased to two 3% from four 8% in the prior year period.
Technology and content expenses increased by 11, 3% year over year to 411 8 million RMB.
$369 9 million RMB in the prior year period.
As a percentage of total net revenues.
Analogy and content expenses increased to one 7% from one 2% in the prior year period.
General and administrative expenses for one 2 billion RMB as compared with $1 zero.
In RMB in the prior year period.
As a percentage of total net revenues.
And administrative expenses was four 9% as compared with three 4% in the prior year period.
Income from operations was $1 3 billion RMB as compared with $1 5 billion RMB in the prior year period.
Operating margin increased to five 2% from five zero percent in the prior year period.
non-GAAP income from operations was $1 6 billion RMB as compared with $1 7 billion RMB in the prior year period non.
non-GAAP op.
Margin increased to six 3% from five 9% in the prior year period.
Net income attributable to VIP shops to shareholders increased by 17, 4% year over year to $1 3 billion RMB from $1 1 billion RMB in the prior year period.
Net margin attributable to <unk> shareholders.
Chris the 252% from three 7% in the prior year period.
Net income attributable to VIP shops shareholders per diluted ads increased to two one point 97, RMB from 156 RMB in the prior year period.
Net GAAP and non-GAAP net income attributable to <unk> yourself shareholders increased by eight 4% year over year to $1 6 billion RMB.
From $1 5 billion RMB in the prior year period.
non-GAAP net margin attributable to VIP shops to shareholders increased to six 5% from five zero percent in the prior year period, non-GAAP net income attributable to VIP shops shareholders per diluted diluted avs.
The increase of 2245 RMB from 210 RMB in the prior year period.
Looking forward to the third quarter of 2022, we expect that our total net revenues to be between 21 two.
2 billion RMB 22, 4 billion RMB.
Presenting a year over year decrease street.
Approximately 15% to 10%.
Please note that this forecast reflects our current and preliminary view of the market and operational conditions, which.
Is subject to change.
With that now.
Now I would like to open the call for Q&A.
Thank you management as a reminder to ask a question you would need to press star one on your telephone please standby, while we compile the Q&A roster.
Our first question comes from the line of Thomas Chong of Jefferies. Please go ahead.
While it seems like one is holiday so what if you will.
But we'll see a woman.
Those should be some time.
So the hall.
When you saw that the things that come about.
Alright.
Well.
So that's.
That's it.
Hey, guys.
And then you wanted to highlight.
I'm, sorry, I didn't get the Muslims top honors in the EBIT walk.
Goldman.
Hey, Glenn.
I think I think.
So I think <unk> been momentum.
All the meetings thanks.
Thanks management for taking my questions and congratulations on Ive always thought thats, what we saw with pulp.
And bottom line.
Market expectations.
Let me come into the second half given the global macro type business that we are facing right now how should we think about.
The second half.
Look as well as other coupled with momentum in July and August .
And my second question is relating to competition.
How should we think about it.
Okay.
First of all my life streaming online shopping and the short form video. Thank you.
While expediter degrade.
Nick.
That is without <unk> in June .
So the goods and so that's a good thing.
On this one either.
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The mature if and when we come out the full suite would be new year.
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And then what Macau EMEA <unk>, you Construe Qi <unk>.
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With demand, so what Mackay and <unk>.
The week.
Okay. So turning to our first question.
Understandably, we have seen from March to May.
<unk> e-commerce sector has been.
Very hard hit.
By the by the COVID-19.
But we have seen.
The year over year trend.
Pete.
Yes.
Having been improving into.
June and also July and August .
We have a better June promotion than expected.
Sales in July continue to show, some slight markdown months' recovery and <unk>.
In all fairness that momentum continues.
But on the other hand.
There is some uncertainty regarding the recovery momentum.
<unk> highly dependable dependent on the macro developments.
Specially.
No.
As well as the weather conditions.
Actually the e-commerce industry.
Especially.
As we are apparel we.
We are very sensitive to.
Due to the weather conditions.
And that May.
<unk>.
The weather may delay the demand for autumn and winter closing.
And also with the new Colgate Fabs consumers are still cautious about spending Andy hope Max.
The macro backdrop is not comparable to what we had seen last year.
So there is still some uncertainty ahead.
Yes.
And turning to your second question.
Live streaming competition from live streaming.
There is no big change in the competitive.
The landscape.
We think competition is.
Actually that we call.
Live streaming has been there for over two years.
Theyre doing fine.
And standardize items.
It's performing much better than apparel categories.
We are more specialized apparel categories, which is still a very sophisticated.
And difficult for live streaming platforms to epsilon or the market share.
<unk> been monitoring.
Data.
After live streaming platforms, and we think because their traffic and the business momentum.
Has been relatively stable.
Thank you.
Thank you for the question.
We will now take the next question.
From Ashley Street of Credit Suisse.
Please proceed with your question. Thank you Glen and Congress to Ron Josey angles, you have with today is at Yahoo, Japan that Glenn Chief Shan Shan Li Chairwoman FDIC Jvm's Harley Davidson.
So John Mckew alcohol niche about conductivity.
Dutch SME anti JV interest in that type of swap all.
All of the Diablo introduce Macquarie just your thinking on that.
Will mean that my colleague Jay, but they want money.
Okay Radio, which again Asia associated call.
With that she made outdoor Ohio woman.
Not.
Sure.
On the in Shack Yahoo. Once again.
Sure.
Thanks management for taking my question. My first question is about our <unk> strategy.
Seeing that the growth has been quite good.
Even during the call we.
So just wanted to check.
The key driver of the Gulf and my second question is related to the <unk>.
However, its impact on our scrap state both in consumer behavior and also merchandising. Thank you.
Eagle Twenty's wouldn't meet.
Exit.
Johnson, the SBA peanuts resume agusta hydro one to the <unk> divestment of bonds with a yield.
From a chunky with Google the molten cheeses Shuang you want digital digital <unk> Q1, being the <unk>.
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This puts us well.
In addition, so July communications, a woman visual one real quickly you need a partner to the.
<unk> IP.
Orben I'll call it more <unk>.
You are encouraged to agree on the kite home causes swap our culture Tabitha.
Johnson, VIP goodwill Tampa, <unk>, VIP, <unk> and <unk> at Houston as the VIP the up number.
Anyone that Houston woman, the SBA piece that we think with it and sometimes we needed them.
The Mcdonough against the one two.
Given that since you do have some mccann.
Similarly.
We're trying to push that.
Maybe it will not show up in the email me at <unk>.
We might someday.
We opened the <unk> <unk> social.
As usual in the QC at Baylor, partly on the EMEA or Tor, because let's say <unk>.
The Iot.
<unk>.
So you ought to cancel some children number one you don't get to sell.
<unk> of women <unk> Sandler yes.
Please a woman she is about.
Banking store, our D&O book.
<unk> was a 10-Q2 would be at the moment is going to be.
Social EMEA based on multiple EMEA, we can hurdle for by ETT.
And the bulk of <unk> is looking at <unk>.
<unk> be some younger calculate what the motives.
So those are the near term.
Pulpwood.
Jean Paul Kwon the whole quanta.
<unk> of the year.
We finished shipping pipelines.
That's fine.
Fine.
As usual which is good.
Chunks.
Q1 <unk>.
<unk>, then with Cvs on that John So the Hong Kong.
Okay.
Question related to the SVI rehab.
We have been focusing.
In our VIP customer base for several quarters and.
No.
Now contributed.
Around 38% of online <unk> and we expect this contribution to be higher in the coming quarters.
We have a number as VIP membership privileges to offer it to them to incentivize them to.
Our high value customers inkjet Vips.
For example, we have extra 5% benefits.
We have improved the IP itself.
On the 28th of every months and also the Super VIP membership stores.
Now we increasingly focus on.
<unk> are different.
Shopping experiences for them offering them bestsellers.
And the categories. All the time is limited basis, so that they can really skew.
Constantly seeking out value platform.
So we also have a <unk>.
Sure.
Variety of trough pathway.
Brands to incentivize a more high value customers into as VIP. So we are pretty confident that as VIP.
In terms of kind of there.
Customer base.
Jimmy.
<unk>.
We'll be growing.
Going forward.
On the second question related to our merchandising strategy.
In response to that.
The recent <unk> should be helpful.
Weather conditions.
Actually we have a lot of.
Plenty.
From our brand partners.
Gentlemen, thanks for closing.
For example in by the end of <unk> welcome to launch.
Campaign for autumn.
Sure.
The weather conditions.
No.
We have we don't have a problem with the umbrella.
The ability of the product supply from our brand partners that'd be hard, but we had been.
Highly engaged with them.
As to how we should prepare for the coming seasons.
For example.
We had been working please don't jacked jackets brands further.
For auto for the Leach at closing.
Doc.
<unk> skus as possible.
Just in case of weather.
Coder people expect.
So that's how we work we sell print partners, we don't have a problem with.
Inventory time.
From the best Amara Opera hunters.
Thank you for the question.
Next question comes from the line of Alicia Yap from Citi. Please go ahead.
Thank you.
Why do you still watch on hard tissue disorder <unk>.
<unk>.
Yes.
Yeah.
Can you guys you should continue.
<unk> kind of woman Joseph Thank you.
Julian Segal.
Eagle woman.
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Paul.
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So <unk> yeah sure sure.
Oh sure you'll EBIT Power-saw Hollywood I think I'll go on to Joe should.
When you think about people adhesive solutions for sure.
One is scheduled for July th.
<unk> high yield that shined, a container as usual for us.
Seafood.
The issue with I think the key to warmer okay.
Joseph.
So what's the timing.
Thanks for taking my questions Congrats on the solid results.
I have two question the first one.
It seems like your <unk> guidance is a bit conservative considering.
Considering what you have baked for your second quarter and also it seems like you're also hoping for.
Moving trial in July and August .
And then second question is on margin.
This quarter margin actually improved quite a lot.
Are there any further room to improve or the <unk> level will actually start at the new base for the future quarters. Thank you.
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Nick Adult's dose, which is affiliate.
Yes.
Okay.
Our Q.
Q3 guidance.
Of that 10% to 15%.
Actually.
It takes into account a number of factors.
For example.
We expect there will be some of the second floor.
19.
Cases, and also it takes time for consumer confidence to gradually recover.
And lastly, we are not quite sure the weather conditions in July whether it's going to be code enough for us to launch the autumn.
Martin.
And Ken painful.
Closing.
So we'd better be a little bit conservative, but we will try our best to make.
To achieve the top line performance.
On the margins I'll start.
Bye bye.
I'll start with a few points and David will add.
Some details of this nature.
We did scale back some of our marketing expenses in the second quarter and.
That turned into.
Very good profitability.
But for.
For the for the long term for the coming quarters.
<unk> is still trying to bring customers back to.
Positive growth trajectory.
Spend as needed and it will take opportunity.
Whenever we can to acquire customers.
We'll continue to be quite rational.
At the same time, we are confident that we can maintain healthy and sustainable sustainable profitability, because we had been very good at managing our costs.
Expenses.
Yes.
We have a.
Our proven track record to provide.
Financial stability.
David Yes.
<unk>.
In the first half.
This year, we have been focusing on.
The improvement.
Our operational efficiencies.
We have been very disciplined.
Our spending.
And.
Our goal for the second half is still to maintain a quality busy.
Business with scale and.
While improving the operational efficiencies and we have to balance.
Palace our profitability.
And the gross.
So we will potentially.
Yeah.
Looking into opportunities to acquired new customers.
We could.
Increased our marketing expenditures.
But we have to be really disciplined.
That.
Initiative, so having said all of this.
Our confidence that our profitability our net margin will.
The remain.
Staple for the second half.
Thank you for the question.
Our next question comes from the line of Tien Ho of Th capital. Please go ahead.
Awesome.
Yogurt cooperation so well.
Okay.
There's a lull now with Chicago.
None of our Formula.
So this is bill.
Our goal.
Alright.
As soon as these events.
I'm, a qualcomm film with a tool called <unk>.
Oh Wow.
Long yes.
We saw local landmark in Europe , as a whole quarter of coffee wirelessly.
So the horn.
And the final number means it.
And in the call.
Several half because one quarter I think.
<unk>.
Could couldn't build up its.
One quick one.
Okay.
For the third quarter. Thank you.
Our two co pushing through quicker build efforts.
One quick one.
Alright.
Got that.
So it's related to the inventory build up overseas and also in China. We saw the older also declined.
But the inventory are members of our.
Manufacturers are going to build up in AR.
Cost will.
Really good at it.
To help those.
Manufacturing to get rid of that.
Inventory is a good opportunity for us so.
Would like to have Mr. Paul could give us some color in the second half call what the job is going to capture such opportunities.
Before.
Okay.
What kinds of awards.
Women two leases.
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Since those <unk> industry peak seasonal which is potentially.
Thanks, guys on the womens.
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And especially in the assortment John This is Tom shield volatile number.
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According to you.
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Hypotyposis with what <unk> done so far.
Okay, Let me share a few of my observations here so first.
We work with a lot of primary domestic brands and also some of the international brands.
But that's that's.
Not quite.
Relevant to the export environment.
Because they rely on important things on productions kicked off.
Sure.
The recent months.
And second on the inventory.
There are a few.
Things about inventory to date.
First because of the COVID-19, there are a lot of.
Many offline stores are struggling inventory is definitely doing that.
Second.
Thanks Dara.
Has had been a lot of lockdowns in the past months some of the brands. They have scaled back their scaled back some of their predictions, but I think things are getting better now so they're starting to pick up momentum in terms of placing orders.
So.
Generally speaking I think we should.
Potentially should benefit from a favorable inventory cycle because.
We do see excess inventory nowadays.
Amount of wage.
Actually.
Yeah.
<unk> actually exceeded the level, we have seen last year and in addition to securing the supply.
The unique quality supply from our brand partners.
Remember, we also have some need for VIP shop line, which is quite stable.
It's a long term channel for us. So we think we don't have a problem with the inventory and we have the ability to <unk>.
<unk>.
Best supply from our brand partners.
Thank you for the questions. Our next question comes from Eddy Wang of Morgan Stanley . Please proceed.
Hey, Seth.
Jesse you guys just talk to what.
But when do you what do you guys just the Shaw.
So I'll, let Joe so, let's say, you're a fan of Hollywood if an institution.
Did you ensure that Jake Schatz, Sean which is also what the Jacobs Tricia Sean.
Sure.
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Sure Frank just to see atrocious agenda.
Helpful.
A woman.
Sure.
Gentlemen.
We are seeing way Joseph sure sure just what are you guys.
Module should also allow Shaw.
Alright.
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Jay Thompson, where you thought you could.
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Akshay.
Okay.
Michelle.
Sure Jake.
Luke was sent Jim.
Customer orders yourselves customer tissue <unk>.
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Tossing quit all singtel.
Our Titan.
Try it with Genco woman the showroom wash on Soma.
You don't go back.
What would you say this is Joe. Thank you for taking my question. My first question is related to revenue growth.
Awareness show, we expected that our revenue growth.
Positive thoughts right Ken.
Following quarters.
The second question, you said that it will be mainly driven by user growth for.
For the revenue growth.
Turning into the parts of the country. Thank you.
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Two other communities the momentum into the queue. Please.
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Right.
Uh huh.
Yeah.
So on the question of whether it's.
Sure.
Again, the revenue growth would be driven by customer growth in the coming quarters.
Right.
Yes, I think also it's time to try to bring our customers the positive growth starting from this quarter.
It's hard to know.
Quarter, we've seen a drastic decline in customers.
We are seeing fewer customers shopping our platform to consult.
Got it.
19 of Covid impact.
Mostly related to.
The sector that people cannot move around this tree as before for example last year deals were 100 people shopping on our platform but in the.
Second quarter this year.
It was 83.
So with Tivo.
On a rolling basis, so entering into the second quarter, we made.
Additional pressure.
Customer base.
Why.
We'll spend is needed to bring our customers to positive growth.
Starting from this quarter.
Thank you for the questions.
I will take the next question is from <unk> <unk> of UBS. Please proceed.
Hey, Glenn is Oh my God.
<unk> <unk> will follow up with <unk>, you May go <unk>, pangalos, who wish to authentic launching quad.
Joe Johnson is always yes.
Cellular Ms Aman Sehgal Horseshoe Baltimore.
<unk> also on the on highway two tenths of a tissue.
Got you sounds from Jefferies.
Amit <unk> who's your television and that one Glenn that we showed you Michelle she welcome volatile Asia number one dollar city.
What are you going to enroll in that food home shield <unk> with BTG.
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That was it all went your way through defined as you think.
You management for taking my questions and I have two follow up questions. First is we just talked about we want to see the user growth returning to positive territory starting from the third quarter just wanted to ask what's the marketing strategy, our user acquisition strategy marketing expense planned around to this goal and my son.
Question is.
Given that our third quarter guidance.
Has more conservatism built in based on the macro uncertainty do we see a bigger chance to see a very strong result rebound in the fourth quarter given the year end promotion as well as the lowest last year. Thank you.
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Okay.
Some of our customer acquisition strategy.
We are trying to increase our spending in <unk>.
Acquiring new customers from the third quarter.
In the past several quarters.
All of it.
Friction we have.
As more or less stopped.
New customer acquisition in certain.
Geographies now we are trying to.
We'll continue trying to restart our investing in this.
Uh huh.
Regions.
Our strategy continues to be operating installation.
And the targeted marketing for new customers, but at the same time, we're trying to pull back.
The old customers.
We will use to shop with us in the past year or so.
First quarter, we're trying to reactivate this group.
Customers.
By leveraging targeted marketing.
We're trying to bring back.
17% of the customers, who are unable to shop with.
Does it come from.
There is a COVID-19 restrictions.
In terms of.
Our.
In terms of the.
Actually in terms of the Q4 outlook, we are actually quite confident.
Conditions that if we can turn our customer into the growth trajectory.
In the sub culture, because as long as we bring our three new customers in.
Welcome to see some upside.
Fourth quarter performance.
Because that's going to be the peak season for us.
And in the in the past several quarters, we have been able to take the economic downturn as opportunities to optimize our merchandising our portfolio and increase the customer mind share for.
Discount retail among our customers. So we are pretty confident we'll see some upside in the fourth quarter if everything.
It goes along well.
Thank you for the question sorry, please continue.
Oh, yes, I'll just add something here so when we're implementing artist marketing initiatives in the third quarter end.
Quarter Oscar.
We will not sacrifice our.
Our profitability we will.
We'll be really careful when we.
Launch out of this program we will.
To transfer to much better job as compared to what we did in the past.
To ensure the ROI on artist programs.
Is good.
Yeah.
Thank you we have our next question is from the line of Andre Chang from Jpmorgan. Please ask your question.
Yeah.
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This was isolated to.
Turning to go up I think that tells it.
So let me translate my two questions. The first question is.
About.
The impact on the gross margin and part of mix.
Historically, the second quarter is the peak season for apparel sales, which lead to higher gross margin, but this year is there any change of the mix.
And also does that mean, the gross margin seasonal declines into third quarter will be milder than usual.
Question is about the capex, which seems to be doubling in the second quarter.
The driver and are we still going to eat into that at this pace in the current macro environment. Thanks.
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Okay on the gross margin.
We think.
Susan that actually does not impact our gross margin that two months in.
In the second quarter gross margin tends to be lower because of the promotion and because.
Apparel sales.
Our demand was Roger.
And in the third quarter they are not so much.
So many promotions and when they fail.
Harold.
So.
I just wanted to try to share that we actually have taken many cost saving initiatives. This year to try to stabilize and improve our gross margin.
For example.
Have stopped delivering coupons.
On the call.
First off our own benefit we aren't trying to be prudent.
Keeping additional coupons to customers.
Turning to engage partners to do that.
At some time.
We have stopped investing in the <unk>.
Analysts, which seems not to be that economy com so that pattern.
Cost saving initiatives as well and lastly, we have drawn a lot of.
Taken the logic matters to try to optimize the cost structure.
The process, stating it related to gross margin for example, we're trying to.
Hendo customer return in a better way without sacrificing our.
Our benefit.
These initiatives are proved to be very effective and we are quite confident that we will maintain a relatively stable gross margin going forward.
The capacity the capital expenditure in the quarter.
Is largely fourth for Shenzhen August so we will add three new.
All of us in this year.
A lot of the times the payments for the land use right.
R.
Our upfront.
The cash outflow is not necessarily in line with the.
The opening of the outlets.
But if we look the passenger four.
Sure.
Year over year.
The amount should be quite comparable.
Yes.
Put this particular quarter maybe appears peers.
Here's a lot more but over the year it should be quite comparable.
Thank you for the questions. Our next question comes from Natalie <unk> of Hi, Tal International. Please go ahead.
He has this year, you're going to get all of it. If you will can you get the question.
Sure.
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Okay, I think should be equal.
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Thanks, Joe.
This will go on keep although you can also horrible user harlequin trend.
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Yes, it does.
Thank you guys that's it for our shareholders.
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So thank you for taking my question.
That's why it's regarding the pack.
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The user growth path.
Just wanted to clarify.
With us to the growth of that.
Active customer.
Number in the fourth quarter and with that.
That actually translate to two 2 million active users.
<unk>.
But.
The cost of that.
User addition.
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Which also translates.
202 for Hudson, along it will be.
In terms of the additional sales and marketing expenses, just wondering how does that align with our margins are stable margin profile.
<unk> practically and second lines regarding Bob.
The bargaining power. So I was just wondering.
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With that I thought that sounded a final award.
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Yes. It is.
So in terms of full year.
Okay first on the customer acquisition.
<unk>.
Yes.
It's not a simple math it doesn't mean that adding 2 million customers that we have we will have to spend $200.
400 million RMB.
Every quarter.
We may have to spend a little bit more acquiring new customers, but reacting out customers, especially the active customers during the past quarter or it doesn't.
It's not that expensive, it's much lower than 100 RMB per.
Per customer.
So we.
We don't have to spend that much. So we can ensure you that our marketing spend as a percentage of total revenue is not going to be higher than what we have seen Paul.
<unk> period of last year.
We are going to leverage combined nation.
Great brands, Great selection and great prices.
And as well as better personalized recommendation to achieve our goal.
Oh positive customer growth.
Second on the inventory.
Hi.
We have plenty of thing, which as I've mentioned.
Just now.
Work very closely with our brand partners.
Securing the best supply.
You kind of quality products and most of them are still on a consignment model.
If we are buying.
Buying out.
Supplies, we probably have to you know, we probably have much higher bargaining power, but because they are on consignment model.
We don't have to incur.
Increased the percentage would take from Brent.
It's still within the normal range and actually we want to keep.
Certain support for the core brands and we May.
We may we can't afford to decrease the take rate a little bit to make sure of that.
They can grow faster on our platform.
A stronger supply all thought any kind of.
Quality product offerings.
Because co brands can really help deliver value to our customers and increase consumer mindshare for VIP shop.
Yeah.
Discount platform. So that's how that's how we work with our Brent Brent suppliers, we can.
For them and that creates a win win situation for both parties.
Thank you very much I'm sorry.
Alright, Thanks Canadian yes.
Yes, just to add clarity to your first question regarding the customer acquisition, a large portion of the.
Customer.
<unk> should come from.
The calling back the existing.
Registered I would call active registered customers.
Cost of four columns that those people.
Is relatively realm.
Relatively small yes.
Thank you Vanessa and due to the time constraint that concludes today's question and answer session.
I will turn the call back to Ms. Jessie Cheng from closing remark.
Thank you for taking the time to join US today, if you have any questions or follow up please don't hesitate to contact US we look forward to speaking with you next quarter.
Okay.
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