Q2 2023 Vipshop Holdings Limited Earnings Call
Speaker 1: Yeah.
Speaker 2: Ladies and gentlemen, good day everyone and welcome to VIP Shop Holdings Limited second quarter 2023 earnings conference call.
Speaker 2: At this time, I would like to turn the call over to Ms. Jessie Zheng, VIP shop head of investor relations. Please proceed. Thank you. proved numbers.
Speaker 3: Thank you, operator. Hello, everyone, and thank you for joining the IT Shop second quarter 2023 earnings conference call. With us today are Eric Shen, our co-founder, chairman, and CEO , and Mark Wong, our CFO .
Speaker 3: Before management begins their prepared remarks, I would like to remind you that 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.
Speaker 3: that may cause actual results to differ materially from our current expectations.
Speaker 3: Potential risks and uncertainties include, but are not limited to, those outlined in our safe harbor statements in our Earning Threes and public filings with the Securities and Exchange Commission, which also applies to this call to the extent any forward-looking statement may be made.
Speaker 3: 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, 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 measures to GAAP measures.
Speaker 3: With that I would now like to turn the call over to Mr. Eric Shin.
Speaker 4: Good morning and good evening, everyone. Welcome and thank you for joining our second quarter 2020-23 earnings conference call.
Speaker 4: We delivered strong second quarter results on the top line with profitability well ahead of expectations.
Speaker 4: Our value proposition in discount retail is resonating with brand partners and custom-lead by the well-executed merchandising strategy, which has been the key to driving the growth.
Speaker 4: The second quarter performance continued to be fueled by a parallel category, which delivered over 30% GMV growth, reflecting broad-based strength.
Speaker 4: At the time, when consumers are making more rational decisions based on value for money, customers are coming back more and shopping with us more often.
Speaker 4: paid membership growth remained robust.
Speaker 4: By the end of the second quarter, active super VIP members increased by 23%, contributing to about 44% of our online spending.
Speaker 4: We are also pleased with the built-out of merchandising capability and the optimization of business processes throughout our organization.
Speaker 4: They have helped driver weight efficiency. The driver's flexibility hit another new record high in the second quarter.
Speaker 4: More people look to us for value. More partners want to work with us to target their desired customers.
Speaker 4: This provides new levels for us to capture great mindshare.
Speaker 4: In everything we do, we put the custom at the center.
Speaker 4: We hope that discount retail for branded products is the one that VIP shop stands for. And when people feel like buying clothes online, VIP shop is the first place to go. With that in mind, we are committed to enhancing our core competence.
Speaker 4: to offer a rich and diverse selection of great value, as well as wallet-free custom service and experience.
Speaker 4: on merchandising.
Speaker 4: we have secured much more quality supply from co-branes.
Speaker 4: much more quality supply from co-branes. We are constantly...
Speaker 4: are consistently adding new brands.
Speaker 4: more popular products and the range of trendy categories.
Speaker 4: more high-end international brands become available.
Speaker 4: our ability to present new, fresh and fashionable items.
Speaker 4: the one our customers long expect from us.
Speaker 4: has meaningfully improved.
Speaker 4: As a long-standing discount retailer, we were able to provide great pricing across every category, giving our best-in-class service to brand partners.
Speaker 4: But it's far beyond that.
Speaker 4: Differentiate merchandising is also pivotal.
Speaker 4: Pivotal to create value for customers.
Speaker 4: We are doing so through unique and customized
Speaker 4: of offerings which have better conversions.
Speaker 4: And there's a lot more we can do with the Made for VIP shop line.
Speaker 4: our bias team continue to deepen that knowledge and expertise.
Speaker 4: They have put in place a set of rules and a process.
Speaker 4: making it more efficient for brand partners to increase the quality supply at competitive pricing to cater for customers' needs.
Speaker 4: We are moving steadily towards our goal to help every customer find what they need on our platform.
Speaker 4: On service commitment.
Speaker 4: We keep listening to our customers.
Speaker 4: keep listening to our customers. Analyze and understand.
Speaker 4: the involving need.
Speaker 5: We are.
Speaker 4: We are determined to deliver a wallet-free experience by leveraging our merchandising, customer service, and supply chain capabilities.
Speaker 4: For example, we are enhancing our merchandising efforts to make sure that everything is reliable
Speaker 4: Sourcing. Every product is of guaranteed quality.
Speaker 4: and every step along the value chain is properly monitored. We want every customer to feel that the experience of shopping with us is worry-free enough.
Speaker 4: Screen reader
Speaker 4: They are pending here.
Speaker 4: Then we keep looking at where we can deepen engagement with our customers.
Speaker 4: Personalize the experience.
Speaker 4: channel efficiency and quality custom
Speaker 4: those and the top priorities.
Speaker 4: We have been deep mining customer and product insights to improve accuracy and prediction in personalized recommendations.
Speaker 4: We have also made several upgrades to our APP to increase the efficiency of different channels. Engagement with SVP customers has been quite encouraging.
Speaker 4: Penetrations into different cohorts of spending has improved year over year.
Speaker 4: As we navigate, the external changes
Speaker 4: We believe that our business model is structurally sound, the discipline and dedication inherent in our day-to-day execution along us.
Speaker 4: to stand firm as a unique player in e-commerce.
Speaker 4: As long as we continue to optimize our merchandise portfolio, putting the custom at the center of every decision we make, we will protect quality customs.
Speaker 4: and benefit from deeper decustom loyalty and engagement.
Speaker 4: That will result in sustainable revenue and earning growth for the long term.
Speaker 4: At this point, let me hand over the call to our CFO Mark Wang to go over our financial results
Speaker 6: Okay, thanks Eric and hello everyone.
Speaker 6: We are pleased to finish another quarter with strong profitable growth.
Speaker 6: During the second quarter, total net revenue increased by 13.6% year over year, and non-GAAP net income attributable to VIP shop shareholders increased by 15.8%.
Speaker 6: leading to margin expansions across the board.
Speaker 6: This set of results was achieved through our enhanced merchandising capability.
Speaker 6: to offer quality products at great value.
Speaker 6: Our diligent execution to grow customer engagement.
Speaker 6: as well as the company-wide efforts to optimize the efficiency of our business.
Speaker 6: Overall gross margin expanded to over 22%.
Speaker 6: for the first time in three years.
Speaker 6: benefiting from much stronger momentum.
Speaker 6: and a greater contribution from apparel.
Speaker 6: and a very healthy category emergence.
Speaker 6: With continuous focus on managing controllable cost.
Speaker 6: and are feeling expenses.
Speaker 6: elaborate where we could.
Speaker 6: Profitability took a meaningful step up.
Speaker 6: and on gap net margin attributable to VIP shops shareholders hit another record high at 8.6%.
Speaker 6: In addition,
Speaker 6: We continue to unlock value for our shareholders.
Speaker 6: with $348.5 million.
Speaker 6: of our ADS.
Speaker 6: being repurchased during the quarter.
Speaker 6: We will keep executing the remaining amount.
Speaker 6: of our one billion US dollar buyback program from time to time.
Speaker 6: Looking ahead.
Speaker 6: As Eric mentioned,
Speaker 6: We are operating in a retail environment.
Speaker 6: where consumers place value at the top of their list.
Speaker 6: And we see the opportunity to gain customers' money share.
Speaker 6: Our team is working hard.
Speaker 6: to ensure our operations are ready to deliver our long-term vision.
Speaker 6: in addition to addressing near-term priorities.
Speaker 6: We are committed to maintaining quality and healthy growth in both top and bottom lines.
Speaker 6: Now moving to our detailed quarterly financial highlights.
Speaker 6: Before I get started.
Speaker 6: I would like to clarify that all financial numbers
Speaker 6: Presented below are Yin, Yan, Min, Bi.
Speaker 6: And all percentage teams are year-over-year teams.
Speaker 6: and life otherwise noted.
Speaker 6: Total net revenues for the second quarter of 2023 increased by 13.6% year-over-year to RMB.
Speaker 6: 27.9 billion from RMB 24.5 billion in the prior period.
Speaker 6: primarily attributable to the growth in active customers.
Speaker 6: and spending driven by the recovery in consumption of discretionary categories.
Speaker 6: Gross profit increased by 23.4%.
Speaker 6: year over year to RMB 6.2 billion.
Speaker 6: from RMB 5.0 billion in the prior year period.
Speaker 6: Growth model increased to 22.2% from 20.5% in the prior period.
Speaker 6: Total operating expenses increased by 13.7%.
Speaker 6: year over year to RMB 4.5 billion from RMB 3.9 billion in the prior year period.
Speaker 6: As a percentage of total net revenue,
Speaker 6: Total operating expenses were 16.1%.
Speaker 6: which states flight as compared with the prior period.
Speaker 6: Fulfillment expenses increased by 22.8% year-over-year to RMB 2.2 billion from RMB 1.8 billion in the prior year period. Sulfillment expenses increased by 22.8% year-over-year to RMB 2.8 billion from RMB 1.8 billion in
Speaker 6: As a percentage of total net revenues,
Speaker 6: Fulfillment expenses.
Speaker 6: was 7.8%.
Speaker 6: as compared with 7.2% in the prior year period.
Speaker 6: Marketing expenses.
Speaker 6: increased by 60.86% year over year.
Speaker 6: to RMB 892.5 million from RMB 555.6 million in the prior period.
Speaker 6: As a percentage of total net revenues,
Speaker 6: Marketing expenses.
Speaker 6: was 3.2%.
Speaker 6: as compared with 2.3% in the prior period.
Speaker 6: Technology and accountant expenses.
Speaker 6: increased by 7.6% year over year to RMB 400.
Speaker 6: 43.0 million from RMB 400, 11.8 million.
Speaker 6: in the prior period.
Speaker 6: as a percentage of total net revenues.
Speaker 6: Technology and accounting expenses.
Speaker 6: decreased to 1.6%.
Speaker 6: From 1.7%.
Speaker 6: in the prior year period.
Speaker 6: General and administrative expenses decreased.
Speaker 6: by 19.4% year over year to RMB 963.1 million from RMB 1.2 billion.
Speaker 6: in the prior period.
Speaker 6: as a percentage of total net revenues.
Speaker 6: General and administrative expenses decreased to 3.5% from 4.9% in the prior period.
Speaker 6: Income from operations increased by 51.1%.
Speaker 6: year-over-year to RMB 1.9 billion from RMB 1.3 billion in the prior year period.
Speaker 6: Operating margin increased to 6.9%.
Speaker 6: from 5.2% in the prior year period.
Speaker 6: Now gap income from operations.
Speaker 6: income from operations increased by 48.2%.
Speaker 6: year-over-year to RMB 2.3 billion from RMB 1.6 billion in the prior period.
Speaker 6: Non-gap operating margin increased to 8.2%.
Speaker 6: from 6.3% in the prior peer rate.
Speaker 6: Net income attributable to VIP shop shareholders.
Speaker 6: increased by 63.5%
Speaker 6: year over year to RMB 2.1 billion from RMB 1.3 billion.
Speaker 6: RMB 2.1 billion from RMB 1.3 billion in the prior period.
Speaker 6: Net margin attributable to VIP shops' shareholders.
Speaker 6: Increase to 7.5%.
Speaker 6: From 5.2%
Speaker 6: in the prior period.
Speaker 6: Net income attributable to VAP shop shareholder.
Speaker 6: Her diluted ABS
Speaker 6: Increase to RMB 3.0
Speaker 6: 75 from RMB 1.97 in the prior year period.
Speaker 6: non-GAAP net income attributable to VIP shops shareholder.
Speaker 6: increased by 50.8% year over year to RMB.
Speaker 6: 2.4 billion from RMB 1.6 billion in the prior year period.
Speaker 6: Nongab Narmardan, attributable to VIP shareholders.
Speaker 6: Increase to 8.6%.
Speaker 6: From 6.5%
Speaker 6: percent in the prior query.
Speaker 6: Non-cap net income attributable to VIP shop shareholders. Her diluted ABS.
Speaker 6: increased to RMB 4.30 from RMB 2.45 in the prior period.
Speaker 6: Test ofgang 30.
Speaker 6: 2023.
Speaker 6: The company had cash in the cash equivalents.
Speaker 6: and the restricted cash of RMB 18.3 billion.
Speaker 6: and still term investments of RMB 1.5 billion.
Speaker 6: Looking forward to the third quarter of 2023.
Speaker 6: We expected our total net revenue.
Speaker 6: to be between RMB 21.6 billion.
Speaker 6: And RMB 22.7 billion.
Speaker 6: representing a year-over-year increase of approximately...
Speaker 6: 0% to 5%.
Speaker 6: Please note.
Speaker 6: So this forecast reflects our current and preliminary view of the market.
Speaker 6: and operational conditions.
Speaker 6: which is subject to TIN.
Speaker 6: With that,
Speaker 6: I would now like to open the call to Q&A.
Speaker 2: Thank you. To ask a question, please press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised.
Speaker 2: To withdraw your question,
Speaker 2: your question, please press Star 1-1 again.
Speaker 2: Please stand by while we compile the Q&A roster. Once again, there's star 11 for questions.
Speaker 2: Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.
Speaker 7: Hi, good evening. Thanks, management, for taking my questions. I have two questions. The first question is regarding the consumer sentiment. Can management comment about how we think about it and the monthly GM retrend recently, as well as our expectations?
Speaker 7: in coming quarters. And my second question is about our margin outlook. Given the strong margin in Q2, how should we think about it in coming quarters? Thank you. Well, I find you, we would sayJa advises that, you know.
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Speaker 4: With that, we will wrap up for now.
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Speaker 3: OK, in terms of GME retrend, as we enter into the third quarter, until now, it's been one and a half months. Everything is on track, and it's tracking in line with our guidance of 0 to 5% R. So there's a reason why GME has to be on track.
Speaker 3: And we are pretty confident that the total GNV will continue to be on track. And especially for Q4, we still see a very good opportunity.
Speaker 3: to ramp up the GND growth because as you know Q3 is typically a slow season for apparel. Summer apparel has lower ticket size while entering into Q4 when people are going for winter clothes which are typically higher ticket size.
Speaker 3: And for the longer term, we are very confident about the consistent and sustainable GME growth because nowadays we don't have the COVID and everything is in normal operation and we are pretty confident about our merchandising capability.
Speaker 3: to grow the GME for the longer term. In terms of the margin trend, in Q2 we did a pretty good job and we think we now have a very good handle on all the margins, including GP margin, LP margin, NP margin.
Speaker 3: And it's a long-term capability that we have built out because of the discipline and dedication in our daily operation. And we are confident that we will maintain a consistent earnings growth and keep the order margins on a very healthy level.
Speaker 8: All right.
Speaker 2: Thank you, Thomas. Our next question comes from Alicia Yup from City Group. Please ask your question Alicia.
Speaker 9: Hi, good evening, Eric, Mark, and Jesse. Thanks for taking my questions. I have two questions. First, can management share with us the reasons why management is not a good place to start?
Speaker 9: for the improved growth margin this quarter? Usually during the promotional period, growth margins tends to trend a little bit lower, but this quarter is actually exceptionally good. So could this improved margins be sustainable that this is a new growth margin level?
Speaker 9: going forward. And then second question is the consumption pattern. Specifically, within your apparel, what type of fashions or kind of the design or anything that is particularly doing well?
Speaker 9: I wanted to get a sense of what the consumers are spending. Are they more cadence towards apparel that is have a discount or actually more on the sportswear or any color you can share within the apparel category would be appreciated. Thank you.
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Speaker 3: Okay, going back to our first question on GP margin, we did have a very good performance on GP margin, even during the promotional period in Q2. As we mentioned earlier, we have a very good cost control.
Speaker 3: to help our GP margin grow. For example, we don't actually blindly participate in the industry-wide subsidy campaign. We don't want to waste the money on delivering unnecessary coupons or vouchers to our customers. And still we are able to achieve.
In terms of the performance within the power categories, we had very, very strong growth in the second quarter, partially because of the pent-up demand as compared to last year. Today, we don't have COVID and everybody is going out.
for traveling and dining out, et cetera. So given such active social activities, we did see a very good momentum within a pair of categories. And we actually see broad-based strengths across different categories, including women's wear, acute wear, underwear, et cetera.
And for mix and match purposes, consumers also spend a lot on shoes and bags, which are also going very well. Of course, for deep discount products, you can use the discount product.
we think consumers are more susceptible to these product offerings because they now place value on the top of their list and they make very rational decisions and they look for that value for money product.
And if we look at more details of women in the power categories, as you mentioned, the fashion, sportswear, a trend which started a couple of years ago has been growing very well. And for women's wear, we do see a very diverse range of women in the power category.
are growing very well. And of course, some are not that popular. So basically, I think we're seeing very good momentum in a power category.
Thank you.
Our next question comes from the line of Natalie Wu from Hightong International.
Hi, thank you for taking my question. I have one regarding the future growth prospects. So, for the 0 to 5% growth guidance of the sub quarter, it is mainly affected by macro or competition or simply the.
straight entry into 2024 or you will shift your strategy to increase sales and marketing for better growth by then.
We'll see how each other reviewing weight Ida, you get done down to do the wind ya Thank you.
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In the next year, we will expand the strategy of the group to increase the investment in marketing to drive a faster growth of the group.
Q2 is the root of 0 to 5. We also consider that we are talking about because Q3 is the main target. It is the target of the unit. So to us, we are talking about our direction.
So we said that the overall value is not that strong. Also, we also saw that our current growth is not bad, but because we have not been selling too much data, and we saw the data data in the past year.
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So, the other thing is that we are more suitable for Q4. Of course, Q3 is also considered as a reason because Q3 has a lot of interest in terms of the Q2 and Q4. So, Q2 and Q4 are more suitable for Q4. So, this year we have the right to say that we are in the right position. So, the other thing is...
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the guidance for Q3, the 0 to 5% revenue growth is primarily because of the slow momentum in relatively slow season for paracategories and you know we are pretty strong in a paracategories and while we enter into Q3.
we will have a general growth. But the general growth is actually much better, but a parlor naturally carry higher or return rate.
And partially, and of course, we also find that consumers are more cautious about their spending. And when they place their orders, they have to think over and over and then the return rate would be trending higher.
Another reason for return rate is that we provide a work with resources for returns to exchanges. And a lot of customers appreciate our service. And this is a part of our initiative to actually to provide excellent services to customers for the long term, to gain their customer money.
impact and going into Q4 where definitely are returning to a stronger growth rate.
The basic fact is also in play, as I mentioned, because last year COVID impact was actually more that meaningful in the third quarter. So we probably don't have an easy count to compare.
For the longer term, of course, we are looking at very much healthier growth rates. We still want to leverage our value per position in discount retail for branded products and to grow our business. Already in this picture, where...
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Thank you, management for taking my question. My question is also regarding the return rate. Can you share with us the trend of the return rate in first quarter, second quarter, and third quarter so far?
because we have seen that if you look at the fulfillment rate in the second quarter actually we see a little bit higher than the first quarter and so we expected that this fulfillment rate of a full expense ratio to you know be a little bit higher going forward thank you
The first question is that we see that Q1 is also increasing in advance. But there is no Q2 to grow so slowly. We also see that the current advance of Q3 and Q2 are equal. Q4 is our??.
There may be a little bit of a gap, but there may not be a gap. Because we think that the flow has grown a lot. It's not as if this is a big change. So, in the end, we think that this flow of flow will lead to the future. So, including what we are thinking, this is the kind of...
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Okay, in terms of the gap between gravity and GND, actually have seen, return rate has starting to change up from the first quarter. And in the second quarter is going up quite significantly.
So we expect that Q3 would maintain a similar level as Q2 and Q4. It's how to tear up potentially, it could be higher, but it should not be much higher.
The public we have started to take some initiative to bring the return rate to a more normalized level. But having said that, the gap between our revenue and the GMV that we have seen for the past several quarters.
Could be the benchmark for your estimate for future revenue progress of GMB. It's going to be a little bit different than the level we have seen in the past several years. And we'll return right. We have mentioned.
Earlier, if there was one of the reasons is that many consumers at the IP, they love to shop on a platform. They enjoy trying on and if they are not satisfied, they would just return like change, lower eligible. Through IWR in Worryfree.
because they manage their household budgets more carefully.
They have 10 minutes to decide whether to buy or not.
Our peers they have some way.
To motivate.
Their customers not to return for example.
Deliver coupons, a voucher for their customer service staff.
No.
Ron in a very different business model.
They all were recently it is.
Two to three percentage points higher than our peers. According to our estimate.
Whether it's in the two wives phenomenon has to return rate trending up.
We are still.
We're doing some research because we don't have that data from the all the industry players are we just still have.
Some of them so.
So you don't have a conclusion.
Do you evaluate that situation.
As to.
Few more sentiment.
Mentioned.
Probably.
Part of the reason is that consumers are becoming more cautious but that also are our estimate.
We don't have solid concrete.
Oh from ticket typically way to determine whether it's because.
Consumers' wallets wallet shrinking.
So although.
We don't have a conclusion from that.
It's a follow up.
Estimate that probably becoming more rational.
And as to the competition, we don't think it is.
Sure.
Behind the return would be.
Consumers pay for all the outcome they proteins shopping pod done to decide whether to keep a one region.
Whether to keep them all to return Wow too so they've already made their decisions to.
To shop on our platform.
They just didn't need to consider whether to keep or outcome.
They need to return some of what it's not.
Because of the competition.
So in summary, we don't have a final conclusion.
Why the retention rate is trending up.
And as to at the IPO as of June 30.
We have a total of $6 7 million Cooper Atkins Super.
Our team members.
Who contributed to 40% from 44% of our online spending.
In terms of <unk> that should be a little bit higher.
Again at VIP.
Uh huh.
Higher return rate than normal.
Absolutely.
Because the.
VIP shop.
The recency loves to shop.
Shop on our platform.
What sort of the offer.
A lot of changes.
Yeah.
They think this is the place.
It's a very reassuring.
Customer service for the customer experience. So that's that's one of the reasons why the return rate is.
Trending up.
Yeah.
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 pending questions I'll follow up please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
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Okay.
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