Q3 2022 Vipshop Holdings Ltd Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Yeah.
Ladies and gentlemen, good day, everyone and welcome to the shop Holdings Limited's third quarter 2022 earnings conference call.
At this time I would like to turn the call to Ms. Jessie Zheng Shop's head of Investor Relations. Please proceed.
Thank you operator, Hello, everyone and thank you for joining the Ikea shop's third quarter 2022 earnings conference call.
Today are Eric Shen, our co founder Chairman and CEO and David <unk> our CFO .
Before management begins your prepared remarks, I would like to remind you that the discussion today will contain forward.
We're looking statements made under the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995.
Forward 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 in the imager 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 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 our non-GAAP merits to get leverage with that I will now like to turn the call over to Ms.
Eric Shen.
Good morning, and good evening, everyone welcome and thank you for joining our third quarter two earnings conference call.
We believe that strong earnings close all net of the revenue decline in the third quarter.
We carefully executed our proven model.
During the quarter, Michael and the pandemic certainly weighed on the top line recovery.
Customer trends improved month by month.
And the overall repeat orders and the purchase could hold up well.
So no further optimization of our operations.
<unk> achieved 50% pulp is close and the meaningful margin expansion year over year.
As we moved quickly to adapt to external change.
We also pushed ahead with initiatives to reinforce the strength of our platform for the long run.
Let me share some of our business progress in the third quarter.
First we continue to enhance our merchandising capabilities we have.
More.
Our diverse and high quality partners to our platform and expanded our product offering.
Especially in the trendy and high end segments, we deep dive it into different categories to capture the emerging customer trends and people.
Revved up spending on courthouse, or Chinese patient starts out the door and the SLS sure out fees et cetera.
Our panel related dnb booked a positive growth year over year during the quarter.
We also work more closely with key partners on the Meda for VIP shop.
The light offerings, which become important line for many brands to achieve the greatest sales efficiency.
And the most of the products had a better condition than the average level out of a certain brand or category.
Second we gained we gained a better customer traction.
In addition.
Prudently investing in external channels.
We increasingly leverage our upgraded product selection to acquire and retain.
Great.
Customers.
Increasing propulsion or customers are James it and Mayo customers, who are acute two mall brands that reflect their values.
And the paid member continues to grow nicely as more high value customers enjoy enjoy the sensible memberships pretty villages.
F. Two super VIP customer grew by 21% year over year and that contributed 40% online NEC Jim.
So we worked hard to unlocks technology co capabilities throughout our business close processes.
We made great efforts to further digitalize, our merchant pitfall.
Adding tools like membership system and the customer review for our brand partners to better identify opportunities for Goose Pablo's. We also made it continuously improvements in person that is <unk> <unk>.
Finding search feed and see basically the leak Mondays shoes or customers to recovery, yeah desirable desire the selections while typing into their underlying needs.
Looking ahead, our business has been consistently based on the premise that customers love value for money, which holds even more true today.
We are committed to offering exceptional values on the wide every.
Oh branded quality products.
And we will continue to win new customers.
And the elevate that.
Trust and loyalty of existing one.
We are confident in our class action for quality and sustainable growth in the long term.
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. During the third quarter, our revenues came in line with our prior guidance.
Well the overall consumption was still under pressure, we did see a gradual recovery in spending on apparel related categories.
With strong execution across our business operations, which included a pre emptively securing supplies or seasonal trends and proactively launching promotional channels.
We managed to minimize the negative impact from the predominate resurgence on the top line recovery.
And once again, we demonstrated a strong profitability with markers hitting their best levels since the beginning of 2000 and what gross margin trended upward to 21, 7%.
Two our continued effort in optimizing cost structure across different categories.
GAAP net income increased to five <unk>.
55% to $1 6 billion RMB.
non-GAAP net margin stood above 7% athlete remain disciplined in operations. In addition, we continue to to preserve shareholder value by steadily executing our share buyback program.
In the third quarter, we repurchased approximately $257 6 million U S dollars of our ABS.
Near term, we remain focused on profitability and we'll work with from every aspect that will drive operational efficiency.
We believe we.
We are financially strong enough to navigate ongoing uncertainties as well as to reinforce our business fundamentals, which will help us eventually return to growth track.
Now moving to our detailed quarterly financial highlights.
Before I get started I will.
Would like to clarify that all financial numbers are presented below are in renminbi and all the percentage changes are year over year changes unless otherwise noted.
Total net revenues for the third quarter of 2022, or $21 6 billion RMB as compared with $24 9 billion RMB in the prior year period, primarily attributable to softer consumer needs for discretionary category.
And they have a chip a challenging macro environment with the COVID-19, the resurgence in China.
Gross profit.
Core plus 7 billion RMB as compared with $4 8 billion RMB in the prior year period.
Gross margin increased to 21, 7% from 19, 4% in the prior year period.
Total operating expenses decreased by 13.9% year over year tour 3.7 billion RMB.
$4 2 million.
In the prior year period.
As a percentage of total net revenues total operating expenses decreased to 16, 9% from 17.0% in the prior year period.
Fulfillment expenses were $1 6 million RMB, which largely has stayed flat.
Compared with the prior year period.
As a percentage of total net revenues fulfillment expenses.
Was seven 5% as compared with 615% in the prior year period.
Marketing expenses decreased by 53, 9% year over year to $572 4 million RMB from one point to pivot RMB in the prior year period, primarily attributable to a more prudent marketing strategy.
As a percentage of the total net revenues.
Marketing expenses decreased to two 6% from 550% in the prior year period.
Analogy and content expenses increased by seven 6% year over year to $394 8 million RMB from 366 8 million RMB in the prior year period.
Percentage of total net revenues technology and some.
<unk> expenses increased to one 8% from one 5% in the prior year period.
General and administrative expenses increased by 5.0% year over year to 1.1 billion RMB from one.
Zero.
R&D in the prior year period.
As a percentage of total net revenues general and administrative expenses was 5.0%.
Compared with 4.1% in the prior year third.
Okay.
Income from operations increased by 47.6.
6% year over year to 1.1 billion RMB from 778.
8 million RMB in the prior year period.
Operating margin increased 253% from 31% in the prior year period.
non-GAAP income from operations increased by 47, 6% year over year to 1.6 to 300 RMB from one 1 billion and RMB in the prior year period non-GAAP operating margin increased two seven.
2% from four 2% in the prior year period.
Net income attributable to VIP shops to shareholders increased by 168, 4% year over year to $1 7 billion RMB.
620.
<unk> 4 million.
RMB in the prior year period.
Net margin attributable to VIP shops shareholders increased to seven 8% from two 5% in the prior year period.
Net income attributable to VIP shops shareholders per diluted ads increased to two 2.70 RMB from.
0.9 to RMB in the prior year period.
non-GAAP net income attributable to VIP shops shareholders increased by 50.
<unk>, 5.0% year over year to $1 6 billion RMB rocket 1.0 Healy.
RMB in the prior year period.
non-GAAP net margin attributable to VIP shops shareholders increased to seven 4% from 4.1% in the prior year periods.
non-GAAP net income attributable to VIP shops to shareholders per diluted ads increased to 2.56 RMB from 150 RMB in the prior year period.
Looking forward to the fourth quarter of 2022 we expect our total net revenues to be between $30 7 billion RMB and 32 four.
Within RMB, representing a year over year decrease street.
Approximately 10% to 5% please.
Please note that this forecast reflects our current and preliminary.
View of the market and operational conditions.
Which is subject to change with that I would now like to open the call to Q&A.
If you would like to ask a question. Please press star one one on your telephone and wait for your name to be announced once again Thats Star one one to ask a question.
Please standby, while we compile the Q&A roster.
Thank you, we'll now take the first question.
First question comes from the line of Thomas Chong from Jefferies. Please go ahead.
Okay.
Hello, Thomas Chong from Jefferies. Your line is open please ask your question.
Where does that fall off you said what are your challenges all wanted to U S.
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Thanks Manny.
My question. My question is about the consumer sentiment given the outbreak of Bandmates.
I saw that macro headwinds just wanted to get some caught up on management about the trend in recent in recent months as well as our fault.
2023.
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So actually in recent months, our business has obviously affected by the pandemic challenges and the consumers that steel.
Staying on the sidelines.
On the bright side, we have seen our customer churn has been improving month by month.
It has been moving towards.
Close to.
Being flattish or even having some growth.
So we are actually.
On the right track in terms of customer numbers.
So we expect in the coming months Jan meat should stay relatively stable.
The next year.
We still will focus on customer growth at long last we have the right customers on our platform and our lead the pandemic challenging challenges.
Over time, we are pretty optimistic about our <unk> and customer growth for next year.
Thank you.
We'll now take our next question.
Please standby.
This is from the line of Ronald Keung from Goldman Sachs. Please go ahead.
Okay.
Hello, <unk> Kim from Goldman Sachs. Your line is open please ask your question.
Oh, Thank you sorry, I muted my line.
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Thank you management. The first question is on your fourth quarter revenue guidance that implies that the year on year decline has a sequential improvement versus the third when they hear how have we done in the singles day in November .
Thanks, and have a business seen some some inventory driven demand supplied.
<unk> driven demand that is driving some sequential improvement.
Second is our net margin has reached a new high and within that we've seen that the marketing costs fell around 50% year on year.
Is this a new normal or into next year, where we actually start to spend a bit more and how should we think about the margin outlook for next year. Thank you.
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The <unk> 20, right, let me first turn place Eric's comments.
For Q4, we expect your robin each person or to narrow it to a single digit decline.
Despite.
The fact that you had been a more or less disrupted by the pandemic, especially actually we were located in Guangzhou in August .
Office headquarters had been in restricted areas and we have to work from home.
So we will still stay are facing a lot of uncertainties.
And also on the on.
On the logistics, one do we have Oh.
Vermilions salt potholes.
Pending delivery, so that's definitely going to impact our business.
Oh, yeah tonnage comps and that we will navigate through.
Through this uncertain uncertainties.
Uncertainties and achieve our normal business.
Gross on the.
Profitability flight.
We have been.
We have strong profitability and.
I was going to.
Demonstrate our efforts in various areas.
In terms of cost savings in gap on rationale spending.
Michigan's.
For example, we have been very prudently investing in external channels as to customer acquisition, we still focus on acquiring new players.
And we are quite active in.
Trying to.
Trying to attract the right kind of new customers to our platform based on the LTV model.
We are not going to spending a wait.
33 legs so.
That's helpful.
Customer acquisition costs.
And on the other side, who had been screaming line our cost structure from every aspect, we did manage to achieve a lot of cost savings through our business processes and we still have some potential to optimize our cost structure and lastly, we are in.
March blindly seemingly coupons.
We'd rather work with a lot of brand partners too.
Sure the cost.
Be quiet.
Prudence.
Delivering.
Coupons, so we have seen.
Profitability is solid.
We are accomplishing manage that's kind of profitability is not a onetime thing we're going to achieve.
Sustainable profitability.
Yes.
Eric partially answered.
Your question regarding <unk>.
<unk>.
Okay.
Profit margin and our marketing expense ratio I would like to add two more points one is that.
Our improvement in our profit margin is not just coming from our savings of our marketing expenses, but also coming from.
Our improvements in our gross margin.
As a result of our operational efficiencies and better selections of our <unk>.
Inventories that we carry.
And we pay particular attention tools.
Our products are margin rebase and alike. So.
That's one one point the other point is that.
We do focus.
Our efforts more on our Super VIP growth.
And that results in much about her.
Customer portfolio for us.
So our number of our Super VIP grill significantly in this quarter.
Year over year.
Thank you Sam.
Okay.
Thank you well now.
We'll take our next question.
Please standby.
This is from the line of Alicia Yap from Citi. Please go ahead.
Glenn is Eliza Hall to just this whole other T. One well, so Vicky Wei Alicia well Mayo Lasalle Lindsay.
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We will go come back which are shaping.
Good evening management. Thanks for taking my question. This is the key way on behalf of Alicia Yap.
First question is what management and provide some details on impacts from logistic disruption and the latest return rate churn and how should we think of the fourth quarter Apple Chad.
My second question is what management provide some color on the latest competition and Brent acetyl ethanol inventory level. Thank you.
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So first on the logistics side currently we have a.
Roughly 4 million orders pending delivery.
Some of the orders actually thinning our warehouses.
All of those option point stress are waiting for it to be delivered.
Especially after 4 million actually $1 4 million going to Shun Jiang.
Which actually has been locked down.
Three months, so it's really a tough time there recently.
The delay has extended to places like Wuhan switch on Brownsville.
So so with the delay.
We expect to see some pickup in the cancellation or return rates.
But formulary and it's just it's still a manageable portion of our 200 orders. So we hope that with the pandemic.
Challenges going away over time, we expect.
Delivery.
Fulfillment efficiencies are returning to.
Normal page.
And we can manage to meet customer needs.
On the competition side I think.
Our brand partners.
I'll have for us.
Oh.
Quite some channels to choose from.
But one thing is certain that they believe the offline stores.
Are you struggling, especially Lucy.
Colby surgeons in the latest.
Third and fourth quarters.
A lot of England she.
Two clear and it's very hard for them to make money.
Okay.
I think.
We think the sprint pondering selection they'll go to the online channels, including us and the other.
Channels, including live streaming entrepreneur their inventory.
We are one of the Uh huh.
All of their partners.
We know we have a strong value for transition in discount retail and we managed to secure a largest decline with deep discounts.
Some of the Ah <unk>.
Some of the suppliers are actually not saying well on other channels and then.
Spirit to our platform.
Many of them.
Customized offerings.
From a full VIP shop, so as long as we maintain a strong value proposition.
Brian Good quality products, we saw a steep discounts.
We think we can then we will when we have the competence to meet the growing needs from customers, who care value for money product offerings.
And.
There are a lot of the inventory Oh, Dear Oh, and we have a very strong merchandising team and we are confident that we can secure more supplies from.
All kinds of our brand partners.
Securing a growing share of the Altair.
Inventory to our platform.
Thank you.
Well now take the next question.
Please standby.
This is from the line of Andre Chang from Jpmorgan. Please go ahead.
Okay.
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Thank you management for taking my question. My question is about the future upside of our gross margin. So we noticed no efficiency canned part of strategy has helped the company to improve the gross margin over the past two years, but theres still a significant gap no of course margin that company achieved I'll get back to.
Eight years ago, So I wonder whether no demand must still see good room to improve the gross margin toward historical levels.
The current strategy or other things or that way for the seed no near term benefits being released and then the margin should be.
Stable here.
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Okay.
Margin on one thing you should bear in mind that we always focus on achieving.
Solid and the sustainable net profit margin.
Turning to GP margin.
I guess, just actually is actually the cost savings strong.
Rebates and coupons.
We are not.
Currently quite prudent on this side for example, this months.
We probably achieved 21% of your chicken margin and if we.
Investing a lot of the rebate of coupons that could go down to 19%. So that's one of the biggest savings.
Hum.
On the take rate.
Central many times down to we're not going to increase the takeaways from <unk> partners.
They are sort of struggling with their business so that that line should remain stable.
<unk>.
This means that the gross margin.
March go back to the level.
Five years ago say, 25% it should largely remain stable at the current level at the level, we have seen for Q3 and Q4.
<unk> 'twenty one something.
For gross margin, but then net profit margin, which could be that we still have a lot of potential.
To grow.
To further optimization of our operations.
We can still achieve.
Such an operational leverage on the containment.
Customer acquisition and other.
G&A expenses so.
For the net.
Its margin would still have room.
To grow.
Thank you.
Well now take our next question.
Yes.
Please standby.
Sure.
This is from the line of Eddy Wang from Morgan Stanley . Please go ahead.
He said, though David thought this guy so like I said it does show it to you.
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Now what are you finding yourself I think.
Thanks for taking my question My question was about the.
User behavior change.
Notice that the.
Net sales per customer and the south per order actually declined year over year this quarter, but on the other hand, there could look how to cherry pick up that much every per order I should be quite stable. So not sure where this is because of the COVID-19 impact or it is because that we have the.
<unk> do you have you actually increase.
Regardless of the car.
And whats your thoughts about that for the trend of this Richard Thank you.
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Positive year over year growth.
At three 5% gross.
So.
And our nominee apparel categories can be relatively higher reaching a rejection of waste. So that's why you would see.
I'll.
Uh huh.
Fine.
During the quarter of it but if you look at the Jimmy to order that's quite stable.
And then the other thing is that.
Returns and exchanges are totally manageable it has been consistently reflected in our income statement.
Has very little impact on the profit.
On the profit model.
Yes.
Eric answer also to key points on this question just to clarify that.
Sharp on our pool is not is not because of a distant standardized is purely because of the.
Revenue mix.
The apparel.
Those issues calibers.
<unk> increased.
You did pretty well on that part.
The perils of high return rates.
And we believe that the return rates in future will remain relatively stable and that will not worsen other stipulation on our.
And the other is in the euro.
Leslie pointed out.
Is that because of the.
The softer consumer demand and people spend less and also use in the summer season. So.
The consumption is soft and that contributed.
Another reason for that.
Sure.
Sure.
Thank you.
Due to time constraints that concludes today's question 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 US we look forward to speaking with you next quarter.
Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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