Q3 2023 Vipshop Holdings Ltd Earnings Call
Okay.
Ladies and gentlemen, good day, everyone and welcome to VIP Shop Holdings Limited's third quarter 2023 earnings Conference call.
At this time I would like to turn the call to Ms. Jessie Shang VIP shops head of Investor Relations. Please proceed.
Thank you operator, Hello, everyone and thank you for joining VIP shop third quarter, attaining 23 earnings conference call.
Today, Eric Shen, our co founder Chairman and CEO and Mark Wang our CFO before management begins.
Third remark 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 up 1995.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectation.
As you know risks and uncertainties include but are not limited.
Outlined in our Safe Harbor statements in our earnings release.
The filings in ways that secure.
Your teeth and the Exchange Commission, which also applies to this call to the extent any forward looking statements may be made.
Please note that certain financial merits your stomach.
non-GAAP operating income non-GAAP net income non-GAAP net income for ABS are not presented in accordance with U S. GAAP. Please refer to our earnings release for details relating to the reconciliation of our non give merit to get married.
With that I would now like to turn the call over to Mr. Eric Shen.
Yeah.
Good morning, and good evening, everyone welcome and thank you for joining our third quarter country 23 earnings Conference call.
We continue to see decent momentum throughout the quarter.
And the profit growth.
Expectation.
Well, we are steadily our effort on strategic Oh it through.
To capture customer mindshare.
That was a driver.
Apparel categories continued to outperform with over 15% growth in <unk>.
Yes over year high value customers increasingly rely on.
As we look for great deals.
Okay.
Active Super VIP member Glu, 17% below me, a year ago and accounted for 45%.
Our online spending.
Okay.
We continued to execute well and the drive changes for the long term.
Made it clear that we'd like to be the first to go to online shopping destination for apparel.
To that end, we are pushing forward with the strategic improvement related to merchandise expansion.
That's the value for money and the worry free service for our customers.
Our merchandise team is more skewed skewed.
Developing our reach in the device.
Diverse mix of branded products up to date, we have added several hundred trendy and high end brands this year.
And we have a complete system to help the new brand to grow their business faster by providing the right mix our results support it.
Including traffic.
Allocation customer analytic and the channel promotion.
Also as a buyer base.
For the highlights.
Carefully select.
We will launched content like a biased market.
Rich will tailor the pedal category and the customer behavior on VIP shop.
Interest.
The types of users.
<unk> made four VIP shop, our team has done a better job.
Identified product opportunities together with brand partners.
Now in large to supply our customers.
Customer lives offering with Skus available for sale are trending up every month.
The capitalized.
Sylvia.
A telephone better in categories like clothing, and shoes and in fact this has motivated brand upon it to deepen.
Collaboration.
Our customized product with us.
While we are growing our merchandise selections, we are committed to providing our customers with effort ability.
We are focused on seeking out the best deal for our customers to make sure.
We get the value from grid every.
They get the value with Greek everyday price.
And also through unique and customized products and we provide additional saving opportunities through our popular loyalty program.
Luckily we are improving customer shopping experience that include.
Overall.
Enhanced capability.
On the water fleet quality guarantee in reached production a day.
<unk>.
Integrated customer service together with brand partner.
To improve fulfillment efficiency to lose seamless process management.
For example, as part of our enhanced quality assurance program. We recently reached a strategic collaboration with China effect and Mr. <unk> Globe Globe to upgrade our quality control system.
With all this.
Okay.
Competitive at the core of our business.
We are in a better shape to deepen engagement with our customer.
Our Super VIP members recognize our strength.
Then the other.
Because our cost value and we've enjoyed at every interaction.
Super VIP members.
Convective quarters are down.
AG growth.
Overall retention and renewal Lee.
Trending higher however, you spending it also ticking up.
As we look ahead, we are confident that our business will face as we stand firm in the faith, our still challenging environment.
We are encouraged to see a DPM level to cut.
Established with our brand partner and the customer.
We are unique positioned.
Secure consistent product supply.
Aligned with customer performance for volume spending.
We are confident about it being a long standing player with stable sustainable growth prospects.
At this point, let me hand over the call to our CFO <unk> Wang to go over our financial results.
Thanks, Eric.
Good morning, and good evening everyone.
We are delighted to see the third quarter results exceeded our expectations.
Leveraging our LTV to customer mind share.
Power categories, and a value for money offerings.
We delivered <unk> revenue growth.
By the slow season in the third quarter.
With continued focus on high quality growth.
Profitability remained strong.
Gross margin increased by two percentage points year over year to.
Two to 23, 6%.
Our record high in three years.
Primarily benefiting from favorable category mix.
And optimized merchandise portfolio.
non-GAAP operating margin.
All time high of nine 1%.
As we stayed disciplined when managing every expense item.
non-GAAP net margin attributable to VIP shops shareholders.
Maintained at a high level of eight 1%.
Yeah.
Meanwhile, we value shareholder interest.
Long term perspective.
As of the end of the quarter. We have returned a total of approximately 2 billion U S dollar to our shareholders.
Since April 2021.
We remain committed to executing our share repurchase program.
Going forward, we are positive on our long term growth outlook.
Supported by the underlying strengths.
Of our unique business model.
We believe.
Hence the efforts from merchandising to supply chain will help us capture the opportunities.
Presented by consumers' increasing need for.
Value for money offerings.
Now moving to our detailed quarterly financial highlights.
Before I get started.
I would like to clarify that all financial numbers presented below <unk>.
And all the percentage change year over year changes.
Our lives otherwise noted.
Total net revenues for the third quarter of 2023 increased by five 3% year over year to RMB 22 8 billion.
From RMB 21 6 billion.
In the prior year period.
Primarily attributable to the growth.
Customers are spending driven by recovery in consumption of discretionary categories.
Gross profit increased by 19.
<unk> by 14, 9%.
Year over year.
Two RMB five 4 billion.
From RMB four 7 billion in the prior year period.
Gross margin increased to 23, 6% from.
From 21, 7%.
In the prior year period.
Total operating expenses increased by nine 6% year over year to RMB 4.0 billion from RMB, three 7 billion in the prior year period.
As a percentage of total net revenues.
Total operating expenses was 17, 6% as compared with 16, 9% in the <unk>.
<unk> right.
Fulfillment expenses.
<unk> increased by nine 5%.
For a year to RMB, one 6 billion from RMB, one 6 billion in the prior year period.
As a percentage of total net revenues.
Fulfillment expenses was seven 8%.
As compared with seven 5% in the prior year period.
Marketing expenses increased by 17.0% year over year to RMB $669 6 million.
R&D five.
<unk> $72 4 million.
Prior year period.
As a percentage of total net revenues.
Marketing expenses was two 9% as.
As compared with two 6%.
In the prior year period.
Technology and content expenses.
<unk> by 10 three.
And 3% year over year to RMB.
$435 3 million.
From RMB 300 <unk>.
$84 8 million in the prior year period.
As a percentage of total net revenues.
Technology and content expenses was.
It was one 9%.
As compared with one 8%.
In the prior year period.
General and administrative expenses.
Increased by five 5% year over year to RMB 1.13 billion from RMB 1.07 billion in the prior year period.
As a percentage of total net revenues.
General and administrative expenses was 5.0%.
Which state flight as compared with that in the prior year period.
Income from operations increased by 34, 8% year over year to RMB, one 5 billion.
From RMB, one 1 billion in the prior year period.
Operating margin increased to six 7%.
Five 3% in the prior year period.
non-GAAP income from operations.
Creased by 33.0% year over year to RMB, two 1 billion from RMB, one 6 billion in the prior year period.
non-GAAP operating margin.
We increased to nine 1%.
From seven 2% in the <unk>.
Prior year period.
Net income attributable to VIP shops to shareholders.
Was RMB, one 2 billion.
As compared with RMB, one 7 billion in the prior year period.
Net margin attributable to VIP shops shareholders.
Was five 3%.
As compared with.
Seven 8% in the prior year period.
Net income attributable to VIP shops shareholders.
Per diluted ads was RMB two.
91 <unk>.
As compared with RMB 2.70 in the prior year period.
non-GAAP net income attributable to VIP shops shareholders.
Increased by 15, 5%.
Over a year to RMB, one 8 billion.
From RMB, one 6 billion.
Prior year period.
non-GAAP net margin attributable to VIP shelf shareholders.
<unk> increased to eight 1%.
From seven 4% in the prior year period.
non-GAAP net income attributable to Vips.
VIP shops shareholders per diluted ads.
<unk> to RMB 3.33 from RMB 2.56 in the prior year period.
As of September 13.
2023.
We had cash and cash equivalents and.
And the restricted cash.
RMB 19 6 billion.
And short term investments of RMB $451 9 million.
Looking forward to the fourth quarter of 2023.
We expected our total net revenue.
To be between RMB, 31, 8 billion and RMB $33 3 billion.
Representing a year over year increase.
A proxy virtually zero percent two 5%.
Please note.
This forecast reflects our current and preliminary view of the market.
And the operational conditions.
Which is subject to change.
With that.
I would now like to open the call to Q&A.
Thank you to ask a question you will need to press star one and one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Thank you we will now take our first question.
Please standby.
First question is from the line of Thomas Chong from Jefferies. Please go ahead.
Hi, Good evening, Thanks management for taking my questions.
I have two questions. My first question is about.
The latest at GM, we trend that we're seeing in the months of October and so far in November and also our feedback on double digit oven.
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Outlook next year.
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Question.
Ladies.
<unk> latest Jeremy our performance in recent months actually.
Entering into Q4.
Overall performance was a bit immune to this especially for apparel category.
Because of the abnormal weather condition.
October.
And this isn't a shift for autumn and winter closings.
Coming on later.
Lower.
That's it.
There are categories have been picking up very nicely in recent weeks, especially during the double 11.
Yes.
The overall <unk> growth in gearing our delivered 11 has actually reached double digits growth.
Performing industry average.
In Italy.
So we still have some expectations for the rest of the quarter, but Q depends.
Italy.
On the weather conditions.
The winter.
<unk> kutter than expected and we should have much better performance.
For the for the year ahead.
Paul.
Our overall store strategy continues.
B.
Focusing.
<unk> stable and healthy growth.
I think.
A lot of the things through the last couple of years development had been reached a healthy level, especially for margins on the matter is on the gross margin on net profit margin.
On the healthy track.
We are looking for.
Growth, especially on the customer from China.
One way to boost our customer growth for the long term.
And of course.
<unk> remains especially into the consumption environment.
Auto centers et cetera.
We remain focused on.
Current strategy.
We believe that we will continue to be very stable and healthy player in the industry.
For the year ahead.
Okay.
Okay.
Thank you.
We will now take our next question.
Please standby.
Our question is from the line of Ronald Keung from Goldman Sachs. Please go ahead.
Okay. Thank you, thank you and Bill Maughan.
<unk>.
So I have to.
Two questions first is we see that the gross margin has reached a new high.
When when should we see kind of apparel I think this is a big quarter.
In terms of the mix that should have boosted.
Gross margin.
Yes.
The apparel mix in the quarter, but how should we think about the gross margin upside.
Into let's say 2024, what are the leaders.
We see for growth margin outlook from here.
This new high level and then my second question is on our buyback over the quarter I think management can you just reiterate it.
Ongoing buyback Glenn that the absolute amount spent during the quarter is quite small compared to let's say the second quarter I want to know is that a buyback a function of.
Share price or.
Our cash which is onshore offshore or.
Is it just an unusual quarter and we plan to have a pretty.
Pretty balanced kind of buyback schedule throughout each quarter, let me translate myself.
I'll ask you take when you're talking about.
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Yes.
Okay.
On the first question about GP margin expansion.
The GP margin expansion in Q3 was primarily.
Primarily driven by the higher margin of error.
Okay.
On a year over year.
Also.
Savings initiatives, especially.
Customer incentives.
We are putting in place.
It's not that.
Take rate how much we take from Bryan Palmer has actually not changed that much and instead of increasing the take rate from Bret Bryan Palmer, we actually offered a lot of incentives for brand partners to grow their business together with us.
So that they can actually save.
Mani.
And.
The GP margin has reached.
Relatively high level of can we assume that there is not that much room for it to improve further in Q4 for the year ahead.
We want it.
Excluding the take rates from Gretna footprint Palmer.
The issue is that.
Customer crude conference as well.
We think we find.
Better on a healthier way to grow our business.
As well as all of our customers.
But on the other hand in terms of margin with Cingal, we still have some room for further expansion.
Especially for Q4 is typically.
Our peak season for us in terms of margins, especially at <unk> margin.
It's just the higher margin in Q4.
Forward to May 24, with do you have some economy of scale and from operating loss rates.
Especially on the marketing extend strong so we continue to be prudent.
Invest only when.
We are we feel there is a need.
Zero returns Okay also.
Inc.
<unk> margin of do you have some room for expansion, but not as meaningful.
We have seen.
For 2023 versus anytime soon.
Okay.
Hi, Ryan this is mark and thanks for your question regarding the share buyback.
I'll answer your question Okay.
Well first of all we have been steadily executing our buyback programs.
Last quarter, we have utilized all Henry.
Each of our current $1 billion share repurchase program.
And that is to see starting from the second quarter.
2021, we have a returned.
Total about 2 billion U S dollar to our shareholders as of the third quarter 2023.
The remaining 551 million U S dollar buyback.
It's being executed.
Secondly, we are committed to executing the buyback.
As a way to show confidence in our long term growth prospect.
And also we think about providing relatively stable returns.
With shareholders and investors.
The last but not least we have been doing from time to time.
With some flexibility.
That will take a risk factors into account.
Sure.
Okay.
Volatility.
So regarding the <unk>.
Share buyback programs.
Thank you.
Okay.
Hey, Mike.
Thank you.
We will now take our next question.
Please standby.
Next question is from the line of Alicia Yapp from Citigroup. Please go ahead.
Hi, Good evening management. Thanks for taking my questions very quickly I wanted to ask as we enter 2024 with demand for apparel and the discretionary spend likely to Asbury normalizing growth. So what all VIP strategies or plans to enhance your growth outlook.
All your user purchasing frequency what could be the normalized growth percentage for next year and does management think the consumption sentiment will be improving from DCF level. Thank you.
Right.
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Mr. Zhang.
Could you Josephine what's wrong.
Thank you Tom.
Okay.
Goldman Challenge.
Tonnage.
Got that.
So just coming from Germany.
Thank you Jonathan.
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Boutiques, but let me see how the metallic okay, Emily Wagner to fruits go from here.
So I've got you the Ceos.
On the tenet and explore growth outlook.
We are.
Pretty confident that we can achieve.
So in a sustainable growth.
For the long term, we are still a very small player in China's e-commerce industry and with a limited number of active customers. So we still have a lot of potential.
For our customer base, we are very confident about that on one hand, we continue to account for new customers.
I'm pleased that retention.
<unk> customers and especially.
<unk> RSV IP members.
In addition to marketing spend we think merchandising our portfolio.
A more important factor.
So to help us grow faster.
We continue to.
Expand merchandising portfolio, including unique offerings make full VIP shop customized offerings as we go ahead.
IOL offerings.
We.
We will continue to leverage the combined nation of this.
Our product offerings to add value to our customers.
Hum.
And the <unk>.
Speaking of customer base.
Do you have missed that.
100 million annual active customers so.
I think as long as we can.
We continue to update upgrade our platform to focus on the apparel categories.
B.
Better.
Amit.
Only one in the vertical.
Our retail.
Segment.
And as.
As we can.
We continue to enhance our customer experience and the services.
We will grow our customer base from the turnkey Nevertheless, very meaningfully.
Thank you.
As a reminder, if you would like to ask a question you can press star one and one on your telephone.
Accounts on your request is compressed star one and one gang.
We will now take our next question.
This is from the line of <unk> Shah from Nomura. Please go ahead.
Hey.
Thanks for taking my question.
First.
After my partners in China, our transplant them myself.
Hello.
Just on what you're wearing a harder or easier.
George I'd say well, how do you go to watch what's.
Wendell Nagel buyback a whole birds.
When you start to say well merchandised.
Joe Shan Shan Shan Nen domains.
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What did you find it so I just ask three questions to the management. The first question is a follow up question on the buyback.
Just wonder if we should expect the company.
To continue to top up the buyback program when the current 500 men in U S.
500, <unk> U S dollar buyback authorizations are fully utilized.
<unk> also just wonder if management can provide some rough ideas what is the size of buyback company may Tennessee at our all company part, making theater on an annual basis. The second question on the management.
On the gross margin so I just wonder if they won't be able to maintain the current 2003 to two 4% gross margin standpoint going forward and the third question is about the number of Super VIP member just wander wanted to growth.
The EBITDA growth of Super VIP member in this quarter and also the revenue contribution from Super VIP member in Q3. Thank you.
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Okay first on the buyback, we still have $500 million.
Sure.
Left in our existing buyback program.
We will continue to execute that.
The board is very supportive of the current buyback plan.
The euro effect firstly in the past is that we are close to us.
Fully utilizing the buyback.
Current buyback program, we will.
The board.
The approval of the next buyback program.
As the board and management has reached a consensus consensus.
Buyback, especially given the share price is still deeply undervalued.
We will continue to approve new buyback as long.
I assume as we finished that even during that process.
As to how we are going to execute the buyback program.
It's too much detail.
I would just add.
Have to remember that we will.
Executing the buyback program from time to time.
And on a continuous basis.
On the <unk>.
<unk> margin.
Have reached three three year high of over 23%.
But as we.
We mentioned earlier there is not so much room for us to.
I'll further expand our GP margins, because we are not going to increase the take rate for brand partners.
We are going to incentivize them to grow their business faster.
To shop.
So there is not so much room for us to.
Just to interpret will gross margin, but for the next year. The gross margin will be maintaining at the same.
Tim.
The level of.
As compared to 10 eight in history.
Especially in a quarter is that relatively good gross margin.
And.
And.
I've also mentioned that on the MP margin, we still have the challenge of expanding that because some of the economies of scale and operating leverage.
Pretty confident on that.
On the SME IP. We currently have six time of $6 7 million active customers.
Accounting for 45% of our online spending.
They have maintained double digit growth for several quarters, so far and all the operating metrics for SB IP members.
Performing including approvals frequency et cetera. So we will continue to focus our efforts on maintaining the FBI IP customer base.
Elevating their loyalty and trust with our platform.
So that they can spend much more for the longer term.
Okay. This is mark Jonathan ill give some supplement comments regarding your question for the share buyback and.
We would like to create and return value to our shareholders and we have confidence in our long term growth prospect. Therefore, we will execute the share buyback program from time to time.
And though we do not have actual rates targeted volume amount.
Amount for the share buyback every quarter, but I think one things in that.
We have 1 billion U S dollar share buyback program last for two years, Okay. I think that can give you a concept.
Regarding the your question Okay.
Yes.
Thank you.
Thank you.
Turning 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 follow up questions. Please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.
Okay.
Thank you that does conclude the conference for today. Thank you for participating and you may now disconnect.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
Uh huh.
[music].