Vipshop Holdings Limited (VIPS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited First Quarter 2025 Earnings Conference Call. At this time, I would like to turn the call to Ms. Jessie Zheng, Vipshop's Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's First Quarter 2025 Earnings Conference Call. With us today are Eric Shen, our 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. 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 outlining our safe harbor statements in our earnings release and the public filings with the Securities and Exchange Commission, which also applies to this call to the extent that 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 attributable to Vipshop's shareholders and non-GAAP net income per ADS are not presented in accordance with the U.S. 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.

Good morning, and good evening, everyone. Welcome, and thank you for joining our first quarter 2025 earnings conference call. Our first quarter results came in largely as expected. We continue to make progress on our path to return to growth. Our team stayed ahead of trends to offer more unique and quality off-price seasonal items that were more relevant to customer preference. We see apparel category achieved positive growth in the first quarter. Super VIP membership extended its double-digit growth. In the first quarter, active SVIP customers increased by 18% from a year ago and accounted for 51% of our online spending. This hardcore cohort or customers show clear strength in terms of sales and revenue growth. We are keeping a close eye on the broadest customer trend. We still see customers show more willingness to spend on family and seasonal essentials and they are gradually catching up on spending in most discretionary categories. We all remain anchored to the value proposition of discount retail for brands, certainly upon our long-standing merchandising strategy. We are also making change throughout organizations in how we align with growth priorities, operate in greater synergy and drive unique compelling customer value. Our teams are restructured in the way that's more aligned and efficient so that they can act with speed to turn potential into growth. We will highlight the strategic priorities to grow the share of branded supply at exceptional value to invest in customer engaging initiatives that drive traffic frequency and multi-category purchases and to speed up technology advancement that's driven value creation for business. Starting with merchandising. We are focused on the brand and the products where we have made the biggest differences for customers, its key factors in driving traffic and customer growth. That's why we believe in the power of merchandising capabilities, which we are leveraging to quickly adapt to trends across fashion apparel, athleisures and family lifestyle categories, continuously giving customers more reasons to stay here. One of the best example in our Made for Vipshop business, which continued to outperform in the first quarter. A total of more than 200 brands joined this program by the end of March. We were close to the brand partner in transforming customized offering based on customer insights and changing trends. We were moving fast to deliver a more compelling brand of quality and value. We also have the prominent channel for Made for Vipshop. We expect it to become the to-go place for customers to discover affordable on-trend products that they cannot find anywhere else. In the first quarter, we also unveiled more expected high fashion selection to keep customers coming back to see what's new. Customers were overjoyed with some of the best views they got such as [indiscernible] or through the invite-only [ provide ] sales. We are trying to gain traction with customers as a place for fresh sale and treasure hunting. Turning to customers. We aspire to bring together the best of what they want in the unique shopping experience on top of the compelling [indiscernible] product offering. Customers know that we stand behind what we sell. That's why our SVIP customers are clearly growing more attracted to our platform because of affordable and reliable nature in our business. We have planned to make the loyalty program bigger and better. We are focused on how we could further differentiate it. For example, our customers are often family shoppers who love travel. So new second quarter SVIP members received more relevant and rewarding life privileges such as gold card upgrade for term loan, theme park and hotel augmentations and so on. We have also increased the power of AI throughout the customer experience in many ways. We will improve our AI-powered algorithm to enhance the logic behind the search and recommendations. We were leveraging general AI to create high-impact content, including smart mix and match content that make product page more compelling and automatic customer review summary that highlights key insights to help shoppers. We also applied AI to customer service, handling product inquiries, generating personalized recommendations and potentially acting as a smart shopping assistant. Also by leveraging general AI, we generally target marketing creatives for diverse platforms and audience, helping enhance customer acquisition efficiencies. So we will continue to invest in opportunities for long-term success. We look to set ourselves apart, provides more than what customers expect and building the unique experience. Against a backdrop of ongoing uncertainty, I'm confident in our teams who have navigated through several years of volatility to keep pace with customer trends, double down on execution of strategy and regain growth track. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Thanks, Eric, and hello, everyone. In the first quarter, we sustained solid profitability despite sales pressure due to muted sentiment on discretionary spend as we prudently increased investments in building customer and brand momentum, to seize growth opportunities. Margins softened modestly compared with a year ago, but still held up healthily within our expectations. This underscored our capacity to drive operational efficiency, built on years of efforts and refining internal management. As Eric mentioned, we are driving important changes within the organization for our long-term success. It will be an enhanced mindset across the business to fund growth, synergy and efficiency opportunities we can take to the bottom line. We will remain focused on executing these strategic priorities with greater agility while maintaining discipline. Turning to our shareholder return program. Our full year 2025 commitment remains unchanged, returning no less than 75% of the RMB 9 billion full year 2024 non-GAAP net income to shareholders. Year-to-date, we have returned over USD 400 million to shareholders, which includes approximately USD 250 million in annual dividend distribution and over USD 150 million in share repurchase. 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 renminbi, and all the percentage changes are year-over-year changes, unless otherwise noted. Total net revenues for the first quarter of 2025 were RMB 26.3 billion compared with RMB 27.6 billion in the prior year period. Gross profit was RMB 6.1 billion compared with RMB 6.5 billion in the prior year period. Gross margin was 23.2% compared with 23.7% in the prior year period. Total operating expenses decreased by 1.6% year-over-year to RMB 4.0 billion from RMB 4.1 billion in the prior year period. As a percentage of total net revenues, total operating expenses were 15.3% compared with 14.8% in the prior year period. Fulfillment expenses decreased by 4.8% year-over-year to RMB 1.9 billion from RMB 2.0 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 7.2%, which remained stable as compared with that in the prior year period. Marketing expenses increased by 6.0% year-over-year to RMB 732.1 million from RMB 690.9 million in the prior year period. As a percentage of total net revenues, marketing expenses were 2.8%, compared with 2.5% in the prior year period. Technology and content expenses decreased by 6.8% year-over-year to RMB 449.1 million from RMB 481.9 million in the prior year period. As a percentage of total net revenues, technology and content expenses were 1.7%, which remained stable as compared with that in the prior year period. General and administrative expenses increased by 2.3% year-over-year to RMB 950.8 million from RMB 929.1 million in the prior year period. As a percentage of total net revenues, general and administrative expenses were 3.6% compared with 3.4% in the prior year period. Income from operations was RMB 2.3 billion compared with RMB 2.8 billion in the prior year period. Operating margin was 8.7% compared with 10.0% in the prior year period. Non-GAAP income from operations was RMB 2.6 billion compared with RMB 3.1 billion in the prior year period. Non-GAAP operating margin was 10.0% compared with 11.1% in the prior year period. Net income attributable to Vipshop's shareholders was RMB 1.9 billion compared with RMB 2.3 billion in the prior year period. Net margin attributable to Vipshop's shareholders was 7.4% compared with 8.4% in the prior year period. Net income attributable to Vipshop's shareholders per diluted ADS was RMB 3.72 compared with RMB 4.18 in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders was RMB 2.3 billion compared with RMB 2.6 billion in the prior year period. Non-GAAP net margin attributable to Vipshop shareholders was 8.8% compared with 9.3% in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS was RMB 4.43 compared with RMB 4.66 in the prior year period. As of March 31, 2025, the company had cash and cash equivalents and restricted cash of RMB 28.9 billion and short-term investments of RMB 192.3 million. Looking forward to the second quarter of 2025, we expected our total net revenues to be between RMB 25.5 billion and RMB 26.9 billion, representing a year-over-year decrease of approximately 5% 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 for Q&A.

[Operator Instructions] First question is from Thomas Chong from Jefferies.

[Foreign Language] My question is about the recent consumer sentiment. Can management comment about the monthly GMV trend so far we are seeing in Q2, given a lot of events happening like tariffs, macro headwinds, et cetera? And how we should think about the revenue and the earnings outlook for the full year 2025? And my second question is about the upcoming [indiscernible] campaign. Can management comment about the latest sentiment and how the event is different from last year or similar to last year from an industry perspective?

[Foreign Language]

[Interpreted] Okay. Regarding your first question on consumption. I think in the past few months, we do see signs of improvement in overall consumption sentiment. After muted start in January and February, actually we do see some marginal improvement in March in terms of sales. And into the second quarter, April plus May to date, we see actually even better sales momentum. And for the 2025 full year outlook, we maintain our view that we are going to regain growth track in the second half in the third quarter or the fourth quarter after a negative 5% to 0% growth trend in the first half. And on margins, we have a good compound of our overall profitability because of our disciplined investment and also management. So we maintain our view on margins as well. We believe that on a full year basis, our net margins will be largely comparable as we had achieved in 2024. And in terms of the second question on the June 18 promotion, actually you may have noticed that the industry promotion has been quite lengthy. It lasts for a month. And consumers are growing accustomed to these promotions and subsidies. Everything is readily available. They actually don't have to stockpile anything. But they do look for value. They focus on deals. So they are still responding to promotions if these -- they do have a shopping needs in terms of family and seasonal essentials, but the overall trend becomes quite normalized for everybody. So for Vipshop, we just focus on providing unique quality and off-price value for money deals for consumers.

We'll now take our next question. This is from Alicia Yap from Citigroup.

[Foreign Language] I have a question related to the tariff. I understand that our business does not have a direct correlation with the cross-border sales and also the tariff. But just wonder if some of these excess supply from apparel that's supposed to aim for the export market that were temporarily diverted to the domestic market in April or the last couple of months that actually attracted away some of the user demand to the competitor sites. Second quick question is that just wondering if management or company have any view about potential secondary listing in Hong Kong?

[Foreign Language]

[Interpreted] Let me translate first. In terms of the tariff question, we have very limited exposure to exports. And we do have a very limited amount of direct purchase from the U.S. market, mostly health care products or non-U.S. origin products. But overall, the exposure is very small. And in terms of export companies trying to divert their export goods to domestic market, we do see that because in April, we have already started to work with these export companies trying to see the possibilities to help them gain access to our customers on Vipshop. And -- but it takes time because there are a lot of different standards for export versus domestically manufactured products in terms of brand, trademark and quality certification, et cetera. We believe over time, export companies, especially those with quality supply chain capabilities, we will choose domestic market as one of the options for them to gain a wider base of consumers within China. And we are trying to grab any opportunities arising from that in terms of getting access to quality brand supply, et cetera, but it takes time.

Okay. Alice, thanks for your question regarding the Hong Kong listing. And we have been closely following changes in the capital market developments and evaluating the option of Hong Kong listing internally. So we will keep the market posted if there's any progress.

We now take our next question. This is from Wei Xiong from UBS.

[Foreign Language] I have 2 questions. The first one is regarding our SVIP program. We can see the SVIP member growth has been very steady over the past few quarters. Can we please update our strategy here to further drive the SVIP growth going forward? And do we have any goal for the second half and next year? And second, just a quick one. Could management update the competitive landscape change you have seen over the past few weeks -- over the past few months amid the macro uncertainty for the e-commerce competition?

[Foreign Language]

[Interpreted] First on SVIP customers, we do see very solid momentum in the growth of SVIP customers, and it has extended double-digit growth for several quarters, and it continues to be so in Q1 and Q2 to date. And we think we have a very strong confidence that we can continue to achieve double-digit growth for SVIP customers for the full year of 2025. And of course, we are also working on a lot of initiatives to drive the SVIP customer growth, especially in terms of merchandising, we are trying to provide more unique exclusive off-price product offerings all through in light of the private sales to attract more SVIP customers. And by doing so, we believe that we will increase the retention of SVIP customers as well. And we do believe that over time, SVIP contribution in terms of online spending will grow from the current 51% to even a higher level in the foreseeable future. And second, in terms of industry dynamics, apparently, it's a very hypercompetitive environment. We believe that the only way for Vipshop to survive and to compete and to win in this e-commerce sector is to remain anchored to the value proposition of discount retail for brands. And although there are a lot of business models in terms of how to sell the products, including live streaming platforms or shelf-based e-commerce, but the long-term factors that drive consumers in terms of where they choose to shop has always been great merchandise, great prices and great services. So we will continue to deepen our initiatives in terms -- to enhance the flywheel from merchandise to value to customer engagement. We believe that by remaining highly focused in discount retail for brands, we will gradually become the online outlet and this is the gateway to -- for consumers to access deep discount product offerings. We believe we have the capabilities and the capacity to compete and win in this market.

We will now take our next question. This is from Jialong Shi from Nomura.

[Foreign Language] I have 3 questions. And the first question is what is the latest trend -- what is the latest shopping frequency ARPU trend for Super VIP members? And the second question is, what is the latest trend for your return rate? And third and last question is, despite all these challenges for the e-commerce industry, just wonder if management still maintain the previous capital return guidance for this year.

[Foreign Language]

[Interpreted] Okay. First, let me translate your first 2 questions. In terms of SVIP operating metrics, it has been quite stable. And upwise, we do see a small decline because of the dilutive impact from new SVIP customers who need time to ramp up their spending. But if you look at the 2-year cohort of SVIP customers, actually, the ARPU decline is much smaller. And we are trying to leverage more unique and exclusive merchandising to increase the loyalty, frequency and cross category purchase opportunities for SVIP customers. And we do see a lot of potential there because a lot of -- because many of our SVIP customers are family shoppers who look to shop across categories for the whole family. And it's just a matter of time for us to optimize our personalized recommendation and to increase these -- to translate this across category purchase potential into growth. In terms of return rates, overall, the return rate has been stabilized. I think in the past quarter, it has increased by a little bit over 2 percentage points. We have a very stable return policy for customers. And in the past 6 to 7 years, we have been adhering to that policy. So that's why our return rate has moderated over time to a low single-digit increase every year rather than dramatic increases on those other -- some of the other platforms.

Okay. John, regarding your third question, let me give you a full picture for this point. So although we are facing short-term pressure and the dynamic industry changed, we have a solid business model with disciplined operations and solid execution. So we are confident that we can achieve relatively stable and healthy profit and cash inflow. So we have returned over USD 3 billion to shareholders since April 2021 in the form of buyback and dividends. And year-to-date, we have returned over USD 400 million to shareholders, which include approximately USD 250 million in annual dividend distribution and over USD 150 million through our buyback program. So I would like to emphasize for 2025, as we mentioned before, we are going to return no less than 75% of our full year 2024 non-GAAP net income to shareholders in discretionary share repurchase and dividend distribution. Thank you.

We'll now take our next question. This is from Eddy Wang from Morgan Stanley.

[Interpreted] I have 2 questions. First is about the trading policy. I noticed that we have a channel on the app, which is focused on the trading program. So just wondering what kind of the sales and incremental sales or GMV actually coming from the trading program? And how should we expect this benefit in the second quarter and the second half? And second question is, I just noticed that we have issued rates for the Shan Shan Outlet. So is there any kind of change of the Shan Shan strategy after we get the [indiscernible]?

[Foreign Language]

[Interpreted] So first on the trading program. The trading program mostly covers home appliances, which is not a strong piece for Vipshop. And also consumers don't feel a lot buying home appliance on Vipshop. They just don't have that kind of mind share. So in total, we expect any contribution from the trading program will be around 1% of our total GMV. So it's not going to be -- to have a meaningful impact on our financial performance.

Okay. Eddy, thanks for your second question regarding the Shan Shan Outlets [indiscernible] program. And outlet business in China is huge and fast growing. The outlet business is a long proven and profitable offline business. [indiscernible] positioning is also discount retail for brand. Well, Vipshop is also a leading online discount retailer for brands. So definitely, we have huge synergies with outlet business, not only from the brand partner side, but also from the user side. At the end of last quarter, we have 20 Shan Shan Outlets. We are one of the largest outlets group in China. And the underlying assets, Ningbo and Shenzhen outlets has been in operation for 14 years and is one of our best and popular outlets in Shan Shan Group. So we have submitted the [indiscernible] application documents to the China Securities Regulatory Committee and the Shanghai Stock Exchange for their review and approval. And the [indiscernible] could be regarded as a financing platform. We can [indiscernible] funds by enrolling more outlet projects into [indiscernible]. And the funds can be used to reinvest into new outlet projects and merge and acquisition existing projects, so which will help us to expand our Outlets business more efficiently. Thank you...

We'll now take our next question. This is from Roger Duan from Barclays.

[Interpreted] My question is on sales and marketing and margins for this year. Management previously mentioned that we want to have GMV return to positive growth in the second half of the year while also maintaining a quite stable margin profile for the remainder of the year. So my question is on how should we think about your marketing campaign cadence and the balance between spending on marketing and maintaining margin profile for the year?

[Foreign Language]

[Interpreted] In terms of marketing spend, marketing spend has been very narrow, and we are going to be that for the rest of the year. If you look at our numbers in 2024, marketing expense as a percentage of total revenue was 2.7%. And in Q1, it was 2.8%. For the full year, we believe it's going to be within 3%. And we continue to evaluate the spectrum of our marketing initiatives from a lot of perspectives, especially the LTV side. So we don't believe that marketing spend is the only way to drive customer growth. We believe a combination of merchandise value-add services do help drive customer growth. If you look at our Q1 and Q2 growth in new customers, actually, they're still growing nicely, but we actually don't spend so much on marketing. And of course, we are trying to diversify our marketing channels, including branding through TV sponsorships and target marketing on a lot of external channels, and we are also expanding our partnerships with major media outlets. And we are trying to look for the most valuable channels for us to invest that we can have the best ROI and also have a sustainable growth in high-quality customers. So basically, we have a very good amount of our marketing spend, and we don't think it's going to be a drag for our margins.

Due to time constraints, that concludes today's Q&A session. At this time, I will turn the conference back to Jessie for any closing remarks.

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.

This concludes today's conference call. Thank you for participating. You may now disconnect.