Vipshop Holdings Limited Q1 2023 Earnings Call
Ladies and gentlemen, good day everyone and welcome to VIP Shop Holdings limited first quarter 2023 earnings conference call. At this time, I would like to turn the call over to Ms. Jessie Jung, VIP Shop's Head of Investor Relations. Please proceed.
Thank you, operator. Hello, everyone, and thank you for joining VIP Shop's first quarter 2023 earnings conference call. With us today are Eric Shen, our co-founder, chairman, and CEO , and David Cui, our CFO . Our 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 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 are not limited to those outlined in our safe harbor statements in our earnings trees 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 matters used on this call may be related to the financial situation.
such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income per ADS are not presented in accordance with US GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP merit to GAAP merit.
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 first quarter 2023 earnings conference call. We were offered to a strong start in 2023.
Our steady leadership combined with long-term merchandising strategy and relentless focus
Thank you..
agility, execution and business fundamentals.
along us to navigate through micro challenges stay even closer to brand partners and customers.
and capture the opportunities in the post-pandemic consumption recovery.
During the first quarter, we saw good momentum in parallel related categories.
which broke the double-digit GMV growth year over year. Our abandoned and device-branded merchandise at greater value were catered to customer appetite for holiday.
and seasonal shopping along with a rebound in social activity. Customer trends remain strong. The number of active customers regain the growth year over year, and the average spending also grew nicely BOOM!
swapping along with a rebound in social activity. Customer trends remain strong. The number of active customers regain the growth year over year, and the average spending also grew nicely on more frequent purchases.
Paid membership growth proven even stronger. We ended the first quarter with 15% growth in Super VIP members.
who represented about 42% of our online spending.
Profitability was exceptionally strong as we continued to double down execution for efficiency with a number of measures in place. But our efforts are more on building the strategic and long-term capabilities.
related to merchandise expansion.
customer engagement and service excellence. That's true, it differentiates us.
On merchandising, we focus on delivering a sense of freshness as customers and attracts to all things new and trendy. On top of industry leading co-brands, we continue to expand into more high quality, affordable and premium brands. We continue to expand into more high quality, affordable and premium brands. On top of that, we continue to expand into more high quality, affordable and premium brands.
that offer great style at great value.
And we are more holistic about differentiation of our merchandise offerings.
We continue to optimize the parallel focused product portfolio within the Made for VIP line.
We will develop a general guideline for brand partners to customize the high quality products that can fill in the gap in certain categories and price brands on our platform.
In addition, we will be investing in our merchandising talents because we understand they are at the heart of our business model.
through well-designed internal certified programs. We intend to enable them with skill sets to expertise to take our merchandising capability to a new level.
Customer engagement, especially with our high-value cohorts.
is driven by a comprehensive set of upgrades.
Our goal is to make VIP shop an enjoyable shopping destination, not just a shelf to search abroad.
We are digging into the customer insights to provide more inspiration, relevant content and personalized offerings to our customers.
We are creating innovative channels of promotion along the customer lifestyles.
So that's the life cycle and the treating...
and trending categories. We expect these initiatives to increase repeat orders and cross categories purchases.
Service has been another source of differentiation.
We will demonstrate our best in-class service in worry-free returns or exchanges.
as well as efficient and reliable logistics. There is a lot more we can do in terms of enhanced customer mindshare as to price advantage.
quality assurance
product authentic as well as tailored service through our loyalty program.
We will keep driving change as need to capture the opportunities in this development as consumers manage household budgets more carefully.
We reinforce our value for money perception across our quality branded merchandise to keep VIP shops top of mind with customers.
With Z?ts we were positioned
to grow the base of high-value customers and paid members, and also grew engagement levels across customer cohorts.
We believe we are in the best shape to achieve quality and consistent growth in both top and bottom line for the long term. Lastly, as stuck in our earnest release, our CFO David Cui will step down from his current position for personal reasons.
On behalf of the board of directors and the management team, I would like to thank Debbie for his contributions and tireless work over the past three years.
and wish him all the best in his endeavors.
Mark 1 will succeed Debbie as our new CFO starting from tomorrow. I would also like to warmly welcome Mark.
His extensive experience in finance and accounting will make him a great addition to our team.
At this point, let me hand over the call to David Cui to go over our financial results.
Thanks, Eric. Hello, everyone. As Eric mentioned, today is my last time joining the earnings conference call at the company CFO . It has been a great honor to be part of a company that is in social ethics and steadfast at what they do.
The past three years were full of challenges and uncertainties.
But together with our dedicated management team and colleagues,
We weathered through the hard times and emerged stronger with solid business foundations and financial positions to achieve our long-term growth strategy.
I would like to express my gratitude to the board, Eric, and investment communities for your trust and support along the way.
Turning to the earnest results.
We are pleased to deliver a strong quarter that exceeded our expectations. We achieved pretty good sales output as our teams responded to the fast changing consumer needs and aggressively secured inventory for the opportunities ahead.
And it sets us up in a good position going into the year.
Margin remained on extension track.
With increased sales contribution from higher margin apparel related categories and well-rounded measures of cost optimization, gross profit recorded double digit growth and gross margin growth continues to expand meaningfully year over year.
We continue to be disciplined in expenses and held fast to our high-quality growth strategy.
As a result, we saw a decent extensive leverage
Non-gap net income increased by 46% year over year and net margin reached a new record high at 7.5%. Moreover, we continue to return value to our shareholders proactively. Through the quarter.
we have fully utilized the remaining amount of our $1 billion share repurchase program. And today, we announced an increase in the amount of existing shared buyback program from $500 million to $1 billion.
Now moving to our detailed quarterly financial highlights.
Before I get started, I would like to clarify that all financial numbers presented below are in ZMMB and all the percentage changes are year-over-year changes, unless otherwise noted.
Total net revenues for the first quarter of 2023 increased by 9.1% year-over-year to 27.5 billion RMB from 25.2 billion RMB in the prior year period, primarily attributable to the growth in active customers and spending driven by the recovery in consumption of RMB.
discretionary categories.
Gross profit increased by 17.9% year over year to 5.9 billion RMB from 5.0 billion RMB in the prior year period.
Growth margin increased to 21.4% from 19.8% in the prior year period. Total operating expenses increased by 4.2% year-over-year to 4.1 billion RMB from 3.9 billion RMB in the prior year period.
As a percentage of total net revenues, total operating expenses increased to 14.7% from 15.4% in the prior year period.
Fulfillment expenses increased by 5.2% year-over-year to 1.8 billion RMB from 1.7 billion RMB in the prior year period.
As a percentage of total net revenues, fulfillment expenses decreased to 6.5%.
Fulfillment expenses decreased to 6.5% from
6.7% in the prior year period.
Marketing expenses increased by 10.2% year over year to 836.9 million RMB from 759.3 million RMB in the prior year period.
As a percentage of total net revenues, marketing expenses was 3.0%, which stayed flat as compared with the prior year period. The market value and content expenses increased by 0.6% year-over-year to 392.8% in 2019.
RMB from 390.4 million RMB in the prior year period.
As a percentage of total net revenue, technology and content expenses decreased to 1.4% from 1.5% in the prior year period.
General and administrative expenses decreased by 0.7% year over year to 1.0 billion RMB from 1.1 billion RMB in the prior year period.
As a percentage of total net revenues,
General and administrative expenses decreased to 3.8% from 4.2% in the prior year period.
Income from operations increased by
54.8% year over year.
to 2.0 billion RMB from 1.3 billion RMB in the prior year period.
Operating margin increased to 7.2% from 5.1% in the prior year period. non-GAAP income from operations increased by 50.6% year over year to 2.3 billion RMB.
from 1.5 billion RMB in the prior year period.
Non-cap operating income margin increased to 8.3% from 6.0% in the prior year period.
Next, income attributable to VIP shops shareholders increased by 69.6% year-over-year to 1.9 billion RMB from 1.1 billion RMB in the prior year period.
Net margin attributable to VIP shop shareholders increased to 6.8% from 4.3% in the prior year period.
Net income attributable to VIP shops shareholders for diluted ADIs increased to 3.16 RMB from 1.61 RMB in the prior year period.
Non-step net income attributable to VIB shop shareholders increased by 45.8% year over the prior year 2.1 billion RMB from 1.4 billion RMB in the prior year period.
non-GAAP net margins attributable to VIP shops shareholders increased to 7.5% from 5.6% in the prior year period.
NAND gap net income attributable to VIP shop shareholders per diluted ADS.
That's not income, that's a beautiful, for VIP shop shareholders per diluted ADS, we increased it to.
3.52 RMB from
2.09 RMB in the prior year period. As of March 31, 2023,
R&D in the prior year period. As of March 31, 2023, the company
had cash and cash equivalents and restricted cash of 18.9 billion RMB and short-term investment of 1.5 billion RMB. tre sinful.
cash and cash equivalent and restricted cash of 18.9 billion RMB and short-term investment of 1.5 billion.
RMB. Looking forward to
The second quarter of 2023, we expect our total net revenue
to be between 27.0 billion RMB and 28.2 billion RMB, representing a year-over-year increase of approximately 10% to 15%.
Please note that this forecast reflects our current and preliminary review of the market and operational conditions, which is subject to change.
Now, I would like to introduce Mark, our new CFO , who is also presented at the poll. I would like to ask him to say hello to everyone. Okay, thanks, David.
Good morning, good evening everybody and Mark. I'm very glad to have this opportunity to attend the first quarter earnings release and then meet all of you.
By way of short introduction, I have more than 15 years financial management experience.
Previously, I worked out with the CFO of the Nanlight Group. Prior to that, I'm the Vice President of Finance in Xiaomi Group.
It's my great honor to take CFO in VIP shop.
I would like to take this opportunity to thank David for his great efforts during the past years.
I'm looking forward to working with management and do everything I can to contribute to the future success of our business.
Thanks.
Okay, with that, I would now like to open the call to Q&A.
To ask a question, please press star 11 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 1 1 again, please stand by while we compile the Q&A roster
The first question comes from Thomas Chung with Jeffries. Your line is open.
Hi, good evening. Thanks, management, for taking my questions, and congratulations on a strong set of results. My first question is more about the consumption recovery, in particular the consumer sentiment that the management observed in recent months.
And also, how do we think about the monthly GM retrend recently and also our expectations for the coming quarters? And my second question is about the June 18 marketing campaign. Can management comment about how you are seeing the industry preparations for this year?
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And just as a nuknow is the resulting probability, you see an increasing number of prices going up by
when people are coming back to normal life and work after three years of the pandemic effect. So we do see a very strong recovery in apparel-related categories as people are going out more often to meet friends and along with a strong rebound in social activities.
And that momentum in April and May were really well, and it continues into the quarter to date. It seems that we do see a lot of pent-up demand as people are going out for travel, having parties, or meeting friends. And in terms of the June 18th promotion...
Of course, it's a very important promotional event in the e-commerce sector. This year it starts very early and it's going to be an extended length of a period up to one month of promotion. I think everybody is making a lot of efforts to prepare for the...
for the promotional campaign. And we do nothing on Europe than before. We still focus on apparel related categories. We are a branded discount retailer and we focus on securing a strong flow of branded merchandise.
and at deep discounts. So we will be geared up for the campaign as well.
So we will be geared up for the campaign as well.
Please stand by for the next question. The next question comes from Natalie Wu with Hetong International. Your line is open. Hi. Good evening. Thanks for taking my question. Just one more question. My name is Natalie Wu.
What kind of the normalised goal sheet are you anticipating? And also, just wondering if the high margin of the first quarter can be sustained in the future. Thank you. So is your prepared for
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Okay, in terms of long-term growth, our target, I think at least for this year, we still have very high hopes because we do benefit from the current environment, especially in branded discount retail, and that we are going to take advantage of the opportunity when consumers manage their household budgets more carefully.
for high level of non-gap profit margin, we may see small fluctuations from quarter to quarter. But remember, we still focus on high-quality growth. We're not growing just for growth. We look for quality, profitable growth. With the number of measures already in place in terms of efficiency, we're looking for a high-quality growth.
as to where to spend our money and we want to make sure that every dollar we spend has returns. So we are pretty confident that we can maintain a relatively high level of profitability.
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In terms of long-term growth, we cannot fully guarantee what we are going to achieve for the next couple of years because we do see increased competition from our peers in terms of promotion subsidies.
and also a lot of emerging formats like live streaming, grabbing time spent from customers. The only thing we can do is actually to be ourselves, to be good at what we are really good at.
leadership in branded discount retail. We may not grow as rapidly as a lot of people imagine, but we are going to grow very solidly. So we are optimistic about our long-term growth, but we are also fully aware that
the competitive landscape is evolving from time to time, and we are fully prepared for that. Going forward, we are all in this together.
As a reminder, if you can please ask your question in English and Mandarin.
Please stand by for our next question.
The next question comes from Jay Lungsher with Numora. Your line is open. Michelle OKanojilling if you want to communicate ahead again.
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Thank you very much for management for taking my questions. I have two questions here. My first question is about the Super VIP. So just wonder what is the latest number of quarterly Super VIP members and what was the GMV in one queue contributed by Super VIP member? Is there a long run on how many of the
how much that top line may be able to grow in the second half. Thank you.
I'll be the one talking. To answer the first question, in 2021-2023, we had active purchase super VIP, 6.3 million, twinkling hook, FDR 6.4 million.
10% increase year over year, who contributed about 42% of our total revenue. So irresponsible question regarding how many can be converted with super VIP. We have
over 85 million active customers in – annual active customers, I would say. That could be considered for the conversion. And also, we have exceeded like –
200 million registered customers that we could tackle. So basically, also we have, among all these active customers, we have roughly about 15 million, we considered high-value customers who contributed higher, you know, our pool. So this could be
could be a target for the conversion. Thank you very much.
I would like to thank you for your support of the SVIP. We are very grateful for your support of the SVIP. We are very grateful to you for your support of the SVIP. We are very grateful to you for your support of the SVIP.
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Just adding to David's point in terms of the SBIP, we are going to continue to expand the base of our SBIP members. We're going to increase their membership privileges to motivate them to spend more. We're going to increase their membership privileges to motivate them to spend more.
to stay longer and to place repeat orders and to do a lot more cross category purchases to increase their frequency of purchases as well. So this is our...
on a priority list of our customer expansion. In terms of the growth for the second half of this year, we actually have seen very good momentum in customer trends in both Q1 and Q2.
These have laid a solid foundation for the momentum going into the second half. We are pretty confident that we can continue to spend our customer base with reasonable spending. We have turned off some...
to expand our customer base. In addition to that, we have a lot of things that we can do in terms of merchandise expansion, creating clear pricing advantage and leverage personalized offerings to increase the conversion rate of our customer purchases.
And in terms of merchandising offerings, we can be quite flexible between apparel-related categories and non-apparel-related categories. So we do have a comprehensive set of initiatives to maintain a very good and healthy growth of our business momentum.
Please stand by for the next question.
The next question comes from Wei Sheng with UBS. Your line is open. kingdom
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We will continue to work on the competition in the e-commerce industry as some of our peers have recently announced their plan to be more aggressive.
to step up the investment related to user growth when the ROI is positive. So how should we think about the marketing expense trend in the second quarter as well as the marketing expense ratio for the full year? Thank you. Which content in the situation
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So in terms of competition, how we are going to compete in this environment, actually we still focus on what we are really good at. We focus on apparel related categories. We actually prioritize on traffic and resource allocation to popular brands.
and we know what consumers are really, are really successful, and we have very strict requirements in terms of pricing with brand partners. We want to make sure our product selection will cater to consumer demand.
and needs in terms of product selection as well as pricing. In addition, we actually worked very closely with some of our Corvette brands to customize high quality product offerings for customers.
We will continue to further differentiate our merchandising offerings and to create more value to our customers.
We understand there are a lot of formats of e-commerce including live streaming and we continue to be a largely shelf-based e-commerce player because we know there are merits that live streaming cannot compare with.
For example, we have a lot more SKUs and we offer a lot more selections to our customers.
So there are certain merits that live streaming or other players cannot meet customer demands. We understand there is going to be a lot of competition and even triflowers ahead, but we know how to manage that and we still focus on building our services.
strategic and long-term capabilities in terms of merchandising to offer our customers with more unique and better priced product selections.
In terms of the marketing expense, you don't have to worry too much about that. We are quite optimistic in terms of our marketing spend. Overall, it's going to be quite manageable in Q1. I think marketing expense as a percentage of total revenue is 3%.
it's not going to jump to 4% or 5%. It's only going to be very incremental increase on the basis of 3%.
probably a 10% increase to 3.3%.
a 10% increase to 3.3% at most.
Thank you very clear. Thank you, management. Please stand by for the next question.
Please stand by for the next question.
Our next question comes from Andre Chang with JP Morgan. Your line is open. Your line is open.
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Q and A. Let me translate my question into English. Thank you, management, for taking my question. I have two questions.
The first one is to understand more about the growth driver. What are the user group, geographic group, and also the category that are driving the revenue growth acceleration this quarter? Two, we know that GMV growth is clearly faster than revenue growth this quarter.
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In terms of category, overall apparel categories are doing much better at double-digit gen regrowth into one than non-apparel categories. We did see broad-based recurring in subcategories like women's wear, men's wear, sports wear, just wear.
or less with tier one cities slightly outperforming, but not much as understandably were also hit the most by the pandemic.
On the GME and the revenue gap, actually it's not about NP. We have no change in our strategy as to NP. It's actually due to higher contribution from apparel categories in Q1.
and a paracategorist, yearly carry, relatively higher or return or rejection rate. But to remember, return and exchanges key to achieving excellent, and so is the customer experience.
Over time, this will elevate the trust and the loyalty of our customers and translate into better customer revenue growth. And we focus on high quality merchandising selection, services as well as price advantages. So those are the things that we are going to focus on long term.
And regarding MP, we don't actually see any change in terms of its contribution in the last several quarters. Please stand by for the next...
question. The next question comes from Ashley Show with Credit Suisse. Your line is open.
So, we'll bring back our Holdings Bunny return groups. Next, Judge Huang Aly-B celebrating his professional journey in repentance and unison.
My question is related to consumer behavior that we have seen in the past. Do we see continuous signs of consumption downgrade?
And would we be changing our strategy in product selection to focus more on lower price range to cater such demand? Thank you.
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Okay, in terms of consumption trend, I think we have seen very clear downgrade in terms of consumption among our current customers. Actually, average order size ranges...
like gold or trending watches. So we actually don't have a very strong state in whether a lot of customers are actually downgrading their consumption.
What we have observed from our customer channel is that actually customer business, active customers, and average orders and Apple are all trending pretty well. In this environment, of course, there are a lot of people.
talking about whether chips are going to sell much better. We are not quite sure about that because we haven't seen that has happened on our platform. It seems that our customers continue to.
Bye, was they used to buy?
Thank you, Shenzong and Jesse.
Please stand by for the next question. The next question comes from Charlene Leile with the HSBC. Your line is open.
I'd like to know what the main channels are for customers. The second question is, I can see that the company has just announced a new plan for the purchase of the product. Can you tell us how to see this? I'll translate it for you. Thank you.
The first question I wanted to ask is obviously being the primary device in positive growth from the Earth's water. Can we discuss the key drivers behind that growth and also more specifically what acquisition channel contribute to that user growth or what is the key acquisition channel that contributed the most growth?
For example, data acquisition is similar Recently we strive for better efficiency for data acquisition Even it has been in the foot trade print machine, markets etc. We have tried these so far We also continue to optimize our code reviews of V1uma97 foraps app, which also allows us to update all our apps. Forffffff me to correct and reprint things here. Yes. Please put them in all immediately. OK, please put them in here now. Thank you. Perfect I would isso perfect. Thank you Fox. Does anybody else yes. Thank you. Thanks. Thank you. Ok. Thank you. Bye bye. Bye. Wow, thanks,
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The second point is about our re-purchase. We are confident about the overall development of our company. We see that our share price is not very high. We think that the best investment is????
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we will continue to do what we think is right at the right time. We also want to continue to give our investors a better return. But even if the stock price has been stable, we hope to create more value for everyone.
In terms of our customer acquisition strategy, actually we continue with our different channels, including targeted marketing, which includes pre-installations, app store installations, et cetera. And in particular, we are trying to enhance our personalization, targeting our new customers to offer them with better selections of products so that they can convert sooner than before. And we continue to invest in TV dramas with sponsorships. Those 15-second sponsorships in TV dramas are proved to be very effective in increasing our branding exposure to a wide range of consumers. And we also do a lot of marketing.
with this practice and we are pleased to hear that a lot of investors actually have very positive feedback regarding our share buyback program and we will definitely be committed to shareholder value creation for our investors and we want to make sure that
Investors have stable return through investing in our company. Excellent. Thank you so much.
I show no further questions at this time. I will now 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 RR team. We look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for participating. You may now disconnect.
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