Vipshop Q1 2024 Earnings Call Transcript

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May 22, 2024

There are 7 speakers on the call.

Operator

Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings Limited's Q1 2024 Earnings Conference Call. At this time, I would like to turn the call to Ms. Jessie Zheng, VIP Shop's Head of Investor Relations. Please proceed.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining BIP Shop's Q1 2024 earnings conference call. With us today are Eric Shen, Co Founder, Chairman and CEO and Mark Wang, our CFO. Before 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.

Speaker 1

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 include, but are not limited to, those outlined in our Safe Harbor statements, in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this call to the extent any forward looking statements may be made. Please note that certain financial measures used on this call, such as non GAAP operating income, non GAAP net income and non GAAP net income per ADS are not presented in accordance with U. S.

Speaker 1

GAAP. Please refer to our earnings release for details relating to the reconciliation of our non GAAP measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen.

Speaker 2

Good morning and good evening, everyone. Welcome and thank you for joining our Q1 2024 earnings conference call. We had a slow quarter in terms of business momentum, but profit grow much faster than sales. In the face of the shortfall of the top line, we stayed flexible to operate most effectively while focusing on priorities to enhance long term strength. In the Q1, sales growth moderated as the quarter progressed after strong start seasonal demand for spring clothes was softer than expected in March.

Speaker 2

But for the full quarter, apparel category continued to stand out with double digit GMV growth year over year. Customer spending proved resilient. In the Q1, active Super VIP members increased by 11% from a year ago and accounted for 45% of our online spending. That's a healthy indication of the trust, value and the ease of the shopping we've created for them. We came into the year by responding to the change in customer behaviors and continuously refining our approach to navigate a still dynamic environment.

Speaker 2

All that we do centers upon increasing our parallel to customers beyond our existing base. We expand into what customers like and what make us different. We provide greater value that customers are looking for every day. On merchandise expansion, we continue to see plentiful supply in the industry and we are happy with our access to quality planned inventory. We are building a wide range assortment basis on our broad and deep brand relationships.

Speaker 2

A steadily flow of select national and global brands keep us up to date to provide more treasure hunting deal for our customers. Our team's merchandising expertise really feel better brand portfolio with product mix at the range of discount levels. We remain dominant in our share of deep discount branded products, even as consumers have to make disciplined buying choice, our customer continues to welcome affordable selections. The Made For VIP shop line further gives us the ability to meet the needs of customer who are more style and price cautious. Through 180 well known brand partners, we managed to more than double the supply of customized product from a year ago.

Speaker 2

We are pleased to see that Made for VIP shop products are more preferred by high quality customers, who tend to place more repeat orders in apparel categories. Across geographies, we see people are closely looking for value. We got a good chance to grow our share of value spending. We continue to drive value for our customers beyond the compelling price. In addition to promotion, customers buy our brand offerings because they receive the combination of price, quality and service.

Speaker 2

They are conscious of product authenticity, so they rely on our offerings. They like simplified promotions and seamless returns and exchange. All these things make it easy in the shopping experience, which lead to great repeat purchase. That's how we're different from others. We are also taking initiatives to enhance the loyalty program in the Q1.

Speaker 2

We launched coverage sales and the special offering for super VIP members to enjoy additional privileges. It's a good start to building more online and offline connection to our low yield customers. Initial results are encouraging. Within the company, we continue to reinforce our efforts to gain efficiencies. We are working to design better progress and deploy the latest technology in our business.

Speaker 2

For example, we are applying AI generated model photos and product videos to optimize our marketing efforts and help brand partners engage with their customer more effectively With the potential to improve engagement and the commission, we expect to drive further adoption of this solution over the course of the year. While we are cautious in our near term outlook, We remain confident in our ability to generate long term results. Our unique value proposition allow us to service in the best interest of brand partners and grow high quality customers across age and income cohorts. We believe we have the solid foundations to capture the opportunity we see to grow our business in the years ahead. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Speaker 3

Okay. Thanks, Yuri, and hello, everyone. We are pleased to record another quarter of strong profit growth despite the tepid top line performance. In the Q1, our team executed well, moving quickly in response to the dynamic operating environment to drive efficiency gains. As a result, margins all remained very healthy.

Speaker 3

Most specifically, consolidated gross margin increased to 23.7% from 21.4% a year ago, primarily with the help of higher margin category mix from apparel sales. Non GAAP net margin attributable to VIP Shops shareholders expanded to another record high of 9.3% from 7.5% a year ago, aided by our ongoing efforts to maintain operating discipline. As consumers remain budget conscious and value driven, we were reinforcing our value proposition across our merchandise offering to deliver the affordability that better fits into consumer preference. And we will focus on priorities to capture the growth opportunity we see with brand partners and customers. We believe with solid business fundamentals and a great financial position, We are able to deliver quality growth, good profitability, as well as consistent shareholder return for the long term.

Speaker 3

Looking to 2025, for the benefit of our shareholders, we plan to commit no less than 75% of our full year 2024 non GAAP net income attributable to Vipshop's shareholders in discretionary share repurchase and or dividend distributions. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers present below are in renminbi and all the percentage trends are year over year trends unless otherwise noted. Total net revenues for the Q1 of 2024 increased by 0.4% year over year to RMB27.6 billion from RMB27.5 billion in the prior year period. Gross profit increased by 10.9% year over year to RMB6.5 billion from RMB5.9 billion in the prior year period.

Speaker 3

Gross margin increased to 23.7 percent from 21.4% in the prior year period. Total operating expenses increased by 0.6% year over year to RMB4.09 billion from RMB4.06 billion in the prior year period. As a percentage of total net revenues, total operating expenses for the Q1 of 2024 was 14.8% compared with 14.7% in the prior year period. Fulfillment expenses increased by 11.3% year over year to RMB2.0 billion from RMB1.8 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 7.2% compared with 6.5% in the prior year period.

Speaker 3

Marketing expenses decreased by 17.4% year over year to RMB690.9 million from RMB836.9 million in the prior year period. As a percentage of total net revenues, marketing expenses decreased to 2.5% from 3.0% in the prior year period. Technology and the content expenses increased by 22.7% year over year to RMB 4 81.9 million from RMB392.8 million in the prior year period. As a percentage of total net revenues, technology and content expenses was 1.7% compared with 1.4% in the prior year period. General and administrative expenses decreased by 11.3% year over year to RMB929.1 million from RMB1.0 billion in the prior year period.

Speaker 3

As a percentage of total net revenues, general and administrative expenses decreased to 3.4% from 3.8% in the prior year period. Income from operations increased by 39.0% year over year to RMB2.8 billion from RMB2.0 billion in the prior year period. Operating margin increased to 10.0% from 7.2% in the prior year period. Non GAAP income from operations increased by 33.4% year over year to RMB3.1 billion from RMB2.3 billion in the prior year period. Non GAAP operating margin increased to 11.1% from 8.3% in the prior year period.

Speaker 3

Net income attributable to Vipshop's shareholders increased by 24.6 percent year over year to RMB2.3 billion from RMB1.9 billion in the prior year period. Net margin attributable to Vipshop's shareholders increased to 8.4% from 6.8% in the prior year period. Net income attributable to Vipshop's shareholders per diluted ADS increased to RMB4.18 from RMB3.16 in the prior year period. Non GAAP net income attributable to VIPShops shareholders increased by 24.8 percent year over year to RMB2.6 billion from RMB2.1 billion in the prior year period. Non GAAP net margin attributable to Vipshop's shareholders increased to 9.3% from 7.5% in the prior year period.

Speaker 3

Non GAAP net income attributable to Vipshop's shareholders per diluted ADS increased to RMB4.66 from RMB3.52 in the prior year period. As of March 31, 2024, the company had cash and cash equivalents and restricted cash of RMB24.6 billion and short term investments of RMB2.9 billion. Looking forward to Q2 of 2024, we expected our total net revenues to be between RMB26.5 1,000,000,000 and RMB27.9 billion, representing a year over year decrease of approximately 5% to 10% to 0%. 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 and A.

Operator

Thank you. And now we're going to take our first question. And it comes from the line of Alicia Yap from Citigroup. Your line is open. Please ask your question.

Speaker 4

Hi. Good morning good evening, management. Thanks for taking my questions. I have a question regarding the guidance. So just curious in terms of what's the drivers and factors that you have been factored into your latest 2nd quarter revenue guidance.

Speaker 4

Is that related to the demand has been a little bit sluggish or you actually factor in a higher return rate. So any color you can provide in terms of how you see the 2nd quarter trends and demand would be helpful. Thank you.

Speaker 1

Okay. For the Q2 guidance, we actually have factored a number consideration. First, we had extended winter and also early summer, which actually shortens the window for apparel sales for spring closing. And the apparel sales, it really depends on the right timing, especially during a seasonal shift. And second, we face a tough comp, a high base from the same quarter last year, which we really did very well.

Speaker 1

That does not favor us. And third, we still have a very dynamic industry. So we focus on stabilizing our core business to maintain solid profitability. We did not we have not invested in large scale subsidies and marketing spend to acquire customers very aggressively. This has resulted in some lot of sales from customers who swing among different platforms.

Speaker 1

And lastly, the return rate you mentioned, yes, it's been up. It's primarily because of the higher contribution from our SVIP members who are still growing very nicely and also ties to customer behavior who are used to who likes to return and exchange when they shop among different e commerce platforms. Okay. Thank you so much.

Operator

Thank you. And the question comes from the line of Ronald Koont from Goldman Sachs. Your line is open. Please ask your question.

Speaker 5

Thank you, management, for taking my question. My first question is I want to ask you, have we seen was the Q1 kind of softness mainly due to March? And then as we guide this 0 to minus 5, are we basing this on April trends? Or are we expecting it's a base issue mostly for May June, particularly the shopping festival, our June 16 festival into that with last year. Second is on shareholder return.

Speaker 5

We've seen we've bought back around at 11,900,000 of shares worth of shares in the Q1. But then the announcement says we're committed to up to 500,000,000 by the end of this year. Does that imply a significant step up in the share buybacks in the remaining three quarters? Thank you.

Speaker 1

On your first question, actually quarter to date, sales momentum has been softer than expected and we are doing our best to try to adjust the business and try to execute right. And given a lengthen extended promotional season, it started this year, it start from May 20, it is going to last for 1 month and it's quite different from the situation we faced last year. So we try to remain cautious about the sales momentum going forward. And in ups and downs, we will be try to be conservative in terms of the outlook and also we will continue to be quite disciplined in our operations.

Speaker 3

Okay. Thanks for your question. For the second question regarding the shareholders' returns, okay? Let me answer you in this way, okay? We are committed to a long term shareholder return policy and we'll continue to use the combination of buyback and the dividend to provide shareholders with relatively stable and consistent annual returns.

Speaker 3

We have returned over US2.2 billion dollars to shareholders since April 2021 in the form of buyback and dividends. For 2024, we have adopted an annual dividend policy and announced a US250 $1,000,000 dividend. In addition, we are steadily buying back shares and are committed to repurchasing approximately US500 million dollars by December 31, 2024. This implies that we will almost utilize the remaining amount of the existing US1 $1,000,000,000 2 year buyback program at year end. Furthermore, looking into 2025, for the benefit of our shareholders, we plan to commit no less than 75% of our full year 2024 non GAAP net income attributable to Vipshop shareholders in discretionary share repurchase and our dividend distributions.

Speaker 3

All I mentioned above regarding the history records and the future planning shows our determination and insistence to return value to our shareholders in a long term, stable and consistent way. Hope this answer your question. Thank you.

Speaker 5

Yes. Thank you, Jingde and Mark.

Speaker 4

Thank you.

Operator

Now we're going to take our next question. And the next question comes from the line of Eddie Wang from Morgan Stanley. Your line is open. Please ask your question.

Speaker 6

Thank you for taking my question. So my first question is about the competition. As Shendong mentioned that we have seen a more intensive competition from peers, especially in terms of the subsidy they granted. So I understand in the short term, we may stick through our current strategy. But if you take a relatively long term view, will we also follow suit this, the more aggressive like the subsidy strategy or we will continue to see through our current strategy.

Speaker 6

And secondly is the user side. We record a year over decline for the user in the Q1 of this year. So just want to hear your view on your user growth strategy in this year and in the longer term. And the third one is about the AOV. So we see that AOV in this quarter actually increased on a year over year basis.

Speaker 6

So is this because of the proportion of the SVIP, the users coming up, so the AOV is higher or any other reasons actually leads to a higher AOV in this quarter? Thank you.

Speaker 1

So on the first question, competition, actually our strategy has been and we'll continue to be laser focused on this branded discount retail. There are many e commerce platforms nowadays, but each has its unique value proposition and our uniqueness lies in our ability capability to serve in the best interest of brand partners and to deliver better value to our customers. That's why we have so many loyal customers on our platform who have seldom leave us. And we will continue to broaden and deepen our relationships with more brand partners to bring in a steady flow of the right merchandise offerings to deliver value to our customers who are looking at brand quality and the product authenticity, etcetera. And in terms of subsidy, we wouldn't want to follow our industry peers to blindly investing in large scale subsidies.

Speaker 1

Of course, we will prudently aggressive in customer acquisition, but we will continue to focus on acquiring high quality customers. On your second question, in terms of the marketing spend, in Q1, our we had a slight decline in active customers. That's because we have very strict requirements on LTV. As long as it's higher than a certain level, we would stop investing in margin spend. We realize that in the face of competition and especially in price competition, there are some customers who are more driven by subsidy or more price sensitive.

Speaker 1

They actually have swung to other platforms. But on the other hand, SBIP, the core customer base has been quite resilient. They are still growing at double digit in terms of customer base and their ARPU is still going up faster than the average customer. Having said that, entering into the Q2, we will be a little bit more aggressive in terms of our current customers. After all, we want to are bringing more new customers to our platform, but only those who are high quality.

Speaker 1

So we will cautiously relax our restrictions in terms of our LTV to make sure we continue to acquire customers in an effective and efficient way. And last upper trend, that's more representative of the customer momentum, SVIP members are still gaining very good traction. As I mentioned earlier, their ARPU are growing faster than average customers. And it demonstrated that as long as we serve in the best interest of our SVIP members, providing them with the right merchandise offerings as well as the best in class services, they will continue to shop with us and they will shop more and come more. So in the future, we will continue to drive the expansion of our SBIP customer base, we believe that our core customer cohorts are very strong foundation for us to maintain quality growth as well as good profitability.

Operator

Excuse me, Eddie, do you have any further questions?

Speaker 6

No. Thank you.

Operator

Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Jessie Sheng, for any closing remarks.

Speaker 1

Thank you for taking the time to join us today. If you have any questions, please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.

Operator

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.

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