Vipshop - Earnings Call - Q1 2025

Transcript

Operator (participant)

Ladies and gentlemen, good day everyone, and welcome to Vipshop Holdings Limited's 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.

Jessie Zheng (Head of Investor Relations)

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 outlined in our safe harbor statements in our earnings release and the public filings with the Securities and Exchange Commission, which also apply to this call to the extent any forward-looking statements may be made.

Please note that certain financial matters used on this call, such as non-GAAP operating income, non-GAAP net income attributable to Vipshop 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 matters to GAAP matters. With that, I would now like to turn the call over to Mr. Eric Shen.

Eric Shen (CEO)

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-of-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 of customers showed clear strengths in terms of sales and revenue growth. We are keeping a close eye on the broader 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 remain anchored to the value proposition of discount retail for brands, certainly upon our long-standing merchandising strategy. We are also making change throughout the organization in how we align with growth priorities, operate in greater synergy, and deliver unique, compelling customer value. Our teams are restructured in a 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 brand supply at expected exceptional value, to invest in customer engaging initiatives that drive traffic frequency and multi-category purchases, and to speed up technology advancement that drives 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. It's 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, S-leisures, and family lifestyle categories, continuously giving customers more reasons to stay here. One of the best examples is 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 offerings 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 unexpected high-fashion selections to keep customers coming back to see what's new. Customers were overjoyed with some of the best deals they got, such as Burberry, Coach, and more, or through the invite-only flash sales. We are trying to gain traction with customers as a place for flash sales and treasure hunting. Turning to customers, we aspire to bring together the best of what they want in a unique shopping experience. On top of the compelling array of product offerings, 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 the 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. New as second quarter, SVIP members receive more relevant and rewarding life privileges such as gold card upgrades for Changlong, theme parks, and hotel accommodations, and so on. We are also increasing the power of AI throughout the customer experience in many ways. We will include our AI-powered algorithm to enhance the logic behind the search and recommendations. We will leverage general AI to create high-impact content, including smart mix-and-match content that makes product pages more compelling, and automated customer reviews summaries that highlight key insights to help shoppers. We will also apply AI to customer service, handling product inquiries, generating personalized recommendations, and potentially acting as a smart shopping assistant.

Also, by leveraging general AI, we generate target marketing creatives for diverse platforms and audiences, helping enhance customer acquisition efficiencies. We will continue to invest in opportunities for long-term success. We look to set ourselves apart, provide more than what customers expect, and build 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.

Mark Wang (CFO)

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 investment 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, build on years of efforts, and refine 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 find 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 $400 million to shareholders, which include approximately $250 million in annual dividend distribution and over $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 RMB, 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 shareholders was RMB 1.9 billion, compared with RMB 2.3 billion in the prior year period. Net margin attributable to Vipshop shareholders was 7.4%, compared with 8.4% in the prior year period. Net income attributable to Vipshop 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 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 shareholders per diluted ADS was RMB 4.43, compared with RMB 4.66 in the prior year period. As of March 31st, 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%-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&A.

Operator (participant)

Thank you. To ask a question, you'll 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 and one again. We kindly ask analysts to translate questions into Chinese if you are bilingual. Please stand by while we compile the Q&A roster. Thank you. We'll now take our 1st question. 1st question is from Thomas Chong from Jefferies. Please go ahead.

Thomas Chong (Managing Director)

[Foreign language]. Thanks, Management, for taking my question. 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 tariff, macro headwinds, etc., and how we should think about the revenue, and the earnings outlook for the full year 2025? My 2nd question is about the upcoming 618 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? Thank you.

Eric Shen (CEO)

[Foreign language]

Okay. Regarding your 1st question on consumption, I think in the past few months we do see signs of improvement in overall consumption sentiment. After a muted start in January and February, actually we do see some marginally improvement in March in terms of sales. Into the second quarter, April plus May to date, we see actually even better sales momentum. For the 2025 full year outlook, we maintain our view that we are going to regain growth track in the 2nd half, in the third quarter or the fourth quarter, after a negative 5%-0% growth trend in the 1st half. On margins, we have a good amount of our overall profitability because of our disciplined investment and also management. 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. In terms of the 2nd question on the June 18th promotion, actually you may have noticed that the industry promotion has been quite lengthy. It lasted for a month, and consumers are growing accustomed to these promotions and subsidies. Everything is readily available. They actually do not have to stockpile anything. They do look for value. They focus on deals. They are still responding to promotions if they do have a shopping need in terms of family and seasonal essentials. The overall trend becomes quite normalized for everybody. For Vipshop, we just focus on providing unique quality and off-price value-for-money deals for consumers.

Thomas Chong (Managing Director)

Thank you.

Operator (participant)

Thank you. We'll now take our next question. This is from Alicia Yap from Citigroup. Please go ahead.

Alicia Yap (Equity Research Analyst)

Hi, thank you. [Foreign language]. Thanks, Management, for taking my questions. Have a question related to the tariff. I understand that our business does not have a direct collaboration 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 attract away some of the user demand to the competitor sites. 2nd quick question is that just wondering if Management or company have any view about potential secondary listing in Hong Kong. Thank you.

Eric Shen (CEO)

[Foreign language]

Let me translate 1st. 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 healthcare products or non-U.S. origin products. Overall, the exposure is very small. In terms of export companies trying to divert their export goods to the massive 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. 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, etc.

We believe over time export companies, especially those with quality supply chain capabilities, will choose the massive market as one of the options for them to gain a wider base of consumers within China. We are trying to grab any opportunities arising from that in terms of getting access to quality brand supply, etc. It takes time.

Okay. Alicia, thanks for your question regarding the Hong Kong listing. We have been closely following changes in the capital market developments, and evaluating the option of Hong Kong listing internally. We will keep the market posted if there is any progress. Thank you.

Operator (participant)

Thank you. We'll now take our next question. This is from Wei Xiong from UBS. Please go ahead.

Wei Xiong (Equity Research Analyst)

[Foreign language]. Thank you, Management, for taking my questions. I have two questions. The 1st 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 2nd half and next year? 2nd, 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? Thank you.

Eric Shen (CEO)

[Foreign language]

1st, on SVIP customers, we do see very solid momentum in the growth of SVIP customers, and it has expanded double-digit growth for several quarters, and it continues to be so in Q1 and Q2 to date. We have very strong confidence that we can continue to achieve double-digit growth for SVIP customers for the full year of 2025. 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 inviting private sales to attract more SVIP customers. By doing so, we believe that we will increase the retention of SVIP customers as well. 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.

2nd, in terms of industry dynamics, apparently it's a very hyper-competitive 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. 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, the long-term factors that drive consumers in terms of where they choose to shop have always been great merchandise, great prices, and great services. We will continue to deepen our initiatives to intensify view 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 the gateway for consumers to access deep discount product offerings.

We believe we have the capabilities and the capacity to compete and win in this market.

Operator (participant)

Thank you. We will now take our next question. This is from Jialong Shi from Nomura. Please go ahead.

Jialong Shi (Head of China Internet Equity Research)

[Foreign language]. Good evening, Management. I have three questions. The 1st question is, what is the latest trend? Excuse me, what is the latest trend? What is the latest shopping frequency (ARPU trend) for super VIP members? The 2nd question is, what is the latest trend for your return rate? The 3rd last question is, despite all these challenges for the e-commerce industry, just wonder if Management still maintains the previous capital return guidance for this year. Thank you.

Eric Shen (CEO)

[Foreign language]

Okay. 1st, let me translate your 1st two questions. In terms of SVIP operating metrics, it has been quite stable. Otherwise, we do see a small decline because of the diluted impact from new SVIP customers who need time to ramp up their spending. If you look at the two-year cohort of SVIP customers, actually the ARPU decline is much smaller. We are trying to leverage more unique and exclusive merchandising to increase the loyalty frequency and across-category purchase opportunities for SVIP customers. We do see a lot of potential there because many of our SVIP customers are family shoppers, so they will look to shop across categories for the whole family. It is just a matter of time for us to optimize our personalized recommendation and to translate this across-category purchase potential into growth. In terms of return rates, overall the return rates have been stabilized.

I think in the past quarter, it has increased by a little bit over two percentage points. We have a very stable return policy for customers. In the past six to seven years, we have been adhering to that policy. That is why our return rate has moderated over time to a low single-digit increase every year rather than dramatic increases on some of the other platforms.

Okay. Jialong, regarding your 3rd question, let me give you a full picture for this point. Although we are facing short-term pressure and the dynamic industry change, we have a solid business model with disciplined operations and solid execution. We are confident that we can achieve relatively stable and healthy profits and cash inflow. We have returned over $3 billion to shareholders since April 2021 in the form of buyback and dividends. Year to date, we have returned over $400 million to shareholders, which includes approximately $250 million in annual dividend distribution and over $150 million through our buyback program. 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.

Operator (participant)

Thank you. We'll now take our next question. This is from Eddy Wang from Morgan Stanley. Please go ahead.

Eddy Wang (Executive Director)

[Foreign language]. Thank you, Management, for taking my questions. I have two questions. 1st 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 2nd half? And 2nd question is I just noticed that we have issued a REITs for the Shanshan outlet. So is there any kind of change of the Shanshan strategy after we get the funding fund REITs? Thank you.

Eric Shen (CEO)

[Foreign language]

1st, on the trading program, the trading program mostly covers home appliances, which is not a strong suit for Vipshop. And also, consumers do not feel a lot buying home appliances on Vipshop. They do not have that kind of mind share. In total, we expect any contribution from the trading program will be around 1% of our total GMV. It is not going to have a meaningful impact on our financial performance.

Okay. Eddie, thanks for your 2nd question regarding the Shanshan outlets REITs program. Outlets business in China is huge and fast growing. The outlets business is a long-proven and profitable offline business, which positioning is also discount retail for brands. VIP shop is also a leading online discount retailer for brands. Definitely, we have huge synergies with outlets business, not only from the brand partner side, but also from the user side. At the end of last quarter, we have 20 Shanshan outlets. We are one of the largest outlets group in China. The underlying asset, Ningbo Shengjing outlets, has been in operation for 14 years and is one of our best and popular outlets in Shanshan Group. We have submitted the REITs application documents to the China Securities Regulatory Commission and the Shanghai Stock Exchange for their review and approval.

The REITs could be regarded as a financing platform. We can raise funds by enrolling more outlets projects into REITs. The funds can be used to reinvest into new outlets projects and merge and acquisition existing projects, which could help us to expand our outlets business more efficiently. Thank you.

Eddy Wang (Executive Director)

Thank you.

Operator (participant)

Thank you. We'll now take our next question. This is from Roger Duan from Barclays, please go ahead.

Roger Duan (Equity Research Analyst and VP)

[Foreign language]. Thank you, Management, for taking my question. My question is on sales marketing and margins for this year. Management previously mentioned that we want to have GMV return to positive growth in the 2nd 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. Thank you.

Eric Shen (CEO)

[Foreign language]

In terms of marketing spend, actually marketing spend has been very measured, and we are going to be that for the rest of the year. If you look at our numbers in 2024, marketing spend 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%. We continue to evaluate the effectiveness of our marketing initiatives from a lot of perspectives, especially the LTV side. We don't believe that marketing spend is the only way to drive customer growth. We believe a combination of merchandise value and services do help drive customer growth. If you look at our Q1 and Q2 growth in new customers, actually they're growing nicely, but we actually don't spend so much on marketing.

We are trying to diversify our marketing channels, including branding through LTV sponsorships and target marketing on a lot of external channels. We are also expanding our partnerships with major media outlets. We are trying to look for the most valuable channels for us to invest that we can have the best ROI and also have sustainable growth in high-quality customers. Basically, we have a very good amount of our marketing spend, and we do not think it is going to be a drag for our margins.

Operator (participant)

Thank you. 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.

Jessie Zheng (Head of Investor Relations)

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 (participant)

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