Q2 2024 Earnings Summary
- VIPS is focusing on quality brand merchandise, offering customers good products at great value, and is not chasing business scale at all costs, which may lead to sustainable growth amid industry competition.
- The company has a solid foundation of 7.4 million active SVIP customers by the end of the second quarter, accounting for approximately 47% of online spending, and plans to grow this base in the coming quarters, which is expected to drive future sales.
- Investments in technology and content, including meaningful investments in large models since last year, are expected to enhance long-term value and efficiency, while the overall investment remains manageable as a percentage of revenue.
- Muted consumer sentiment and macroeconomic uncertainty are leading to weak GMV growth, with quarter-to-date performance comparable to Q2 and no significant improvement expected, indicating potential ongoing weak sales.
- Heightened industry competition with competitors offering price subsidies and focusing on low prices may negatively impact Vipshop's competitiveness, especially in non-apparel and standardized item categories where the company chooses not to follow these practices, potentially leading to market share loss.
- Slight decrease in shopping frequency among SVIP customers by approximately 2-3%, which, if the trend continues, could impact revenue from this important customer segment.
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Margin Outlook
Q: How will margins trend in Q3 and the second half?
A: Management expects gross profit margins to remain stable in the second half, despite pressure on brand partners due to increased competition. They will not increase take rates to avoid additional burden on partners. While fulfillment expenses may rise slightly due to higher return rates, overall margins and net profit are expected to be manageable and comparable to last year. -
Operating Cash Flow
Q: Why did operating cash flow decline despite decent profit in Q2?
A: Operating cash flow decreased primarily due to a year-over-year revenue decline, earlier payment to suppliers for the 6.18 shopping festival in June instead of July, and faster payments resulting from the implementation of the fully digitalized tax invoice system. -
SVIP Customer Behavior
Q: Has there been a change in SVIP customers' behavior?
A: SVIP customers' average ticket price remained flat, but their shopping frequency decreased by about 2–3% compared to previous periods. Management considers this decline manageable and plans to grow the SVIP customer base by leveraging their trust in quality branded offerings. -
Return Rates Impact
Q: Are higher return rates affecting revenue?
A: Return rates have increased slightly, causing a gap between GMV and revenue. Last year, return rates impacted revenue by 2% with a 3% return rate, whereas this year, the impact remains at 2% with better management. Return rates have started to stabilize. -
Technology Investment
Q: Can technology and content costs be streamlined?
A: The company is investing in technology, including large models, talent, and services, to drive long-term value. While technology and content costs will be slightly higher as a percentage of revenue, these investments are manageable and considered accretive over time. -
Competitive Environment
Q: How is low-price competition affecting the outlook?
A: The industry continues to experience aggressive low-price competition and promotion subsidies. Vipshop focuses on offering quality brand merchandise and delivering value without chasing business scale. The company has trimmed low-quality merchants to concentrate on trusted brands. -
GMV Trends
Q: What is the current GMV trend amid macro uncertainty?
A: Consumer sentiment remains muted due to macro uncertainty, and quarter-to-date GMV growth is comparable to Q2 with no significant improvement. Apparel categories slightly decreased in GMV but outperformed non-apparel categories, which faced a larger decline. -
Standardized Items
Q: What is the plan for standardized items?
A: Management aims to narrow losses in standardized item categories and return this segment to flat or positive growth in the second half. Standardized items have lower return rates and contribute positively to the bottom line. -
SVIP Contribution
Q: What is the current SVIP customer contribution?
A: As of Q2's end, there are 7.4 million active SVIP customers, accounting for roughly 47% of online spending. -
Customized Products
Q: How are customized products contributing to GMV?
A: Customized products, including exclusive brand inventory and discounted SKUs at 70% off retail price, make up over 40% of unique offerings in the apparel category. These differentiated products help avoid direct competition with peers.