Baozun Inc (BZUN) 2015 Q2 法說會逐字稿

Thank you for standing by, and welcome to the Baozun second quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode, and there will be a Q&A session at the end of today's session. (Operator instructions). I must advise you that this conference call is being recorded today, and I would now like to hand over the conference call to your first speaker for today, Caroline Dong, the investor relations officer. Please go ahead, Ms. Caroline. Thank you.

Thank you, Operator. Hello, everyone, and thank you for joining us today. The Company's results were released earlier today, and are available on our IR website at ir.baozun.com, as well as on global newswire services.

On the call today from Baozun are Mr. Vincent Qui, Chairman and Chief Executive Officer, Mr. Junhua Wu, Chief Operating Officer, and Mr. Beck Chen, Chief Financial Officer. Mr. Qui will discuss Baozun's business operations and the Company's highlights, followed by Mr. Chen who will go through the financials and guidance. They will be available to answer your questions during the Q&A session that follows.

The [new drill content] forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934 as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expect, anticipate, future, intend, imply, believe, estimate, target, going forward, outlook, and similar statements.

Such statements are based on our management's current expectations, and current market and operating conditions, and [literal] events that involve [known] or ongoing risks, uncertainties, and other factors, all of which are difficult to predict and [are matters which] are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially (inaudible -- technical difficulty) forward-looking statements.

Further information regarding these and other risks, uncertainties and factors is included in the Company's filings with the U.S. Securities & Exchange Commission. The Company does not undertake any obligation to update any forward-looking statements as a result of the new information, future events, or otherwise, except as required on the applicable law.

It is now my pleasure to introduce Mr. Vincent Qui. Mr. Qui, please go ahead.

Thank you, Caroline. Thank you, everyone, for joining us on our first earnings call as a public company. We are very pleased to report robust growth across the board, which I believe largely reflects our continued strong growth momentum, and the increasing operational efficiencies.

On a year over year basis, total GMV increased by 84%, total net revenue increased by 98%, beating our own expectations, and the non-GAAP operating income increased by 121%. Compared with the same period of last year, total number of brand partners increased by 19 to 99, while the number of GMV (inaudible -- technical difficulty) increased by 18 to 86.

[Socerall] business with partners, we hire [Alex Chi] as Vice President in charge of business development. Alex has over 20 years of experience in sales and business development for multinational companies in China, including Dell and [Somero] Systems.

We greatly value his deep industry knowledge, and look forward to the insights and contributions he will bring for business. (Inaudible) establishing new partnerships with more leading brands.

What makes us attractive to new brand partners is our ability to provide a better end to end e-commerce solution. We are constantly working to improve our capabilities, such as [transitioning] our logistic network, you saw in China during the quarter with the opening of our newest warehouse in Guangzhou Ali Baba Cainiao Logistics Park.

This will allow us to improve efficiency across the entire delivery process. Funded by Ali Baba and a consortium of logistics companies, Cainiao now allow our Guangzhou warehouse directly into their online sales platforms, such as [Timo], and the logistics networks.

Through this, we expect to increase logistical efficiency, lower shipping costs, and provide better services, such as next-day delivery to major cities across six provinces in southern China. With the addition of Guangzhou warehouse, we now operate warehouse that can handle 350,000 daily orders, and 480 daily [pieces], with an aggregate cross floor area of over 91,000 square meters.

We intend to continue to expand our logistics infrastructure by building new warehouses in strategic locations across China, to further improve our [performance] efficiency and support our long-term growth. We are committed to providing [assembly omni channels solutions to our brand partners], and superior services to consumers.

For example, we were granted gold status as a service provider in 5 categories, and silver status in 1 category in the [Tobo Partner] assessment for the first half of 2015. We are proud of this recognition of the quality of our services.

In addition to our leadership position in [Timo], we are further expanding our leading position in China's brand e-commerce solutions market, by operating dozens of official brand sites, trading marketplace scores, and the mobile brand sites.

We also jointly invested in [Beer Glow] with [soft banking] in Q2 2015. [Beer Glow] is a digital marketing software company which provides digital marketing omnichannel solutions for [all time] retailers, that will help make the most efficient use of the retail space.

We believe that integrating their services into our service offerings will help our brand partners improve consumer experience, in physical retail spaces, and increase the conversion rate of sales. We also made a significant headway on the mobile front with our mobile app (inaudible) the appearance, robust growth with year over year growth of 591% in GMB.

In order to further enrich our [microphone] product offerings and improve operating efficiency, we have opened this platform to third parties as a marketplace which many brands and retailers have already (inaudible) signed up for.

With that, I will pass the call over to Beck, who will review our financials.

Thank you, Vincent. Just a few housekeeping items before I go through the numbers. With today's year over year comparisons are the most useful way to judge our performance. All percentage changes I'm going to give will be on that basis.

So to start, as Vincent touched on earlier, total GME increased by 84% to RMB1.2 billion, and the total net revenue beat our own expectations by rising 98%, to RMB518 million, among which product also revenue rose by 102% to RMB389 million, mainly due to the increase of popularity of our brand products, and the competitive pricing we offer to consumers.

Services revenue rose by 49% to RMB128 million due to the growth in sales of apparel products sold by existing brand partners, as they increase their online presence. And also addition of new brand partners, primarily in the apparel, cosmetics, and also mobile categories.

On the operating expenses side, cost of product rose by 125% to RMB346 million, primarily due to the increase in the volume of product sales. Consumer expenses rose by 111% to 67 million, because of the increase of GME contribution from both distribution and the [consignment] models, and the increase in rental expenses for our warehouses.

Sales and marketing expenses increased by 43% to RMB73 million primarily due to an increase in promotional and marketing expenses associated with our online stores, and a promotional campaign from Microphone, as well as increase the share base compensation and the sales and the marketing headcount.

Technology and content expenses rose by 34% to RMB13 million. The increase was primarily due to an increases in headcount of technology-focused staff, and a share-based compensation expenses. G&A expenses rose by 52%, to RMB17 million. The increase was mainly due to increases in general and administrative staff headcount, rental, and the utility expenses to support [venues] growth, and the share-based compensation expenses.

Income from operations was RMB4.7 million, up by 18%, while non-GAAP income from operations rose by 121%, to RMB12 million. Share of loss in (inaudible) investments was RMB5.8 million, primarily due to our investment in auto money and auto mobile performance [switching] provider.

Net income was approximately RMB[51,000], while non-GAAP net income rose by 25% to RMB7.4 million. This translates into basic and diluted net income for ADS of RMB[0], compared to net loss per ADS of RMB1.41 during the same period of last year.

Basic and diluted non-GAAP net income per ADS were RMB0.28 and RMB0.24 respectively, compared with basic and diluted non-GAAP net loss per ADS of RMB1.25 for the same period of 2014.

Moving to our [housing] balance sheet, we had cash and cash equivalents of RMB891 million as of June the 30th, 2015. During the second quarter, net cash provided by operating activities was RMB26 million.

Now for our guidance. For the third quarter of 2015, we expect total net revenues to be between RMB520 million and RMB540 million, representing a year over year growth rate of approximately 40% to 45%.

This concludes our prepared remarks. Operator, now we would like to open the floor to Q&A session. Thank you.

Thank you. (Operator instructions). The first question comes from [Dick Gray], from Credit Suisse. Your line is open. Please go ahead. Thank you.

Hi, Vincent and Beck, thank you very much for taking my questions. Maybe I'll start off with first question is on the [GNV] growth for the Company. I mean it looks like the distribution mix is probably stronger than what we expected compared to the distribution side. How should we look at the trend going forward as far as the GNV mix growth? Thanks.

OK, Dick, this is Beck. So basically, yes, you are right, so the GNV growth for distribution model is stronger than non-distribution model in Q2, but as we talk from a Company perspective, we are still focused on growing the non-distribution model, especially consignment model, because we were focused on cosmetics and apparel categories.

So in those categories, we probably will do consignment model with those brand partners. So going forward, the growth rate of the non-distribution models, especially consignment model, will be stronger.

OK, got it. And if you can also add a little bit more color maybe for the second quarter, the GNV kind of mix by industry, any kind of color would be great.

Yes, we are talking about a GNV growth by different categories, cosmetics is the biggest, but (inaudible) not so much, so basically the biggest category is like apparel, appliance, and electronics. They both grow very fast in second quarter.

OK, got it. Next question I ask is on the MKF. For MKF, how should we see the progress for MKF for the quarter, and also going forward, what are some of the updates in terms of different category, in terms of promotions, how are we going to have investment into MKF?

Yes, in this quarter, MKF continued to grow very fast in compliance is the first thing we see, and several of the other activities happen. First thing is that we opened this marketplace for third parties around their business on this platform.

And also we are also strengthening all our back end services to all the consumers, like we hire a lot of more service people to deal with post service requests, because orders are growing so fast. So looking forward, we'll aggressively to develop this business, and we think this business in return will help our brand e-commerce (inaudible) our cost basis can deliver this flat sale capability, help the brands to clear their inventory in a co-location base in future.

So yes, compared to the other business, I think the marketing investment in MKF will be bigger and stronger, but we will be always focused on make a healthy business, not only just invest in marketing. We care about the P&L very much.

OK, great. If you just, last question if I can, just maybe any updates on the cross-border e-commerce, how our clients competing in the cross-border e-commerce, and how much are we kind of seeing, contributing through our current GNV, or current revenue? Thanks.

Yes, right now we have a [cap green] manager who is very focused on this cross-border business, and we are recruiting our brands from Japan, Australia, and America, and other places, and by working with the marketplaces who have this cross-border capability, we can deliver more choices for Chinese consumers for those good branded products from overseas.

So we are seeing this business with a big potential, and we are going to continue to develop this business with the marketplaces who have this cross-border functionalities.

Great. Thanks for taking my questions, and congrats on a very strong top line and bottom line. Thank you.

Thank you.

Thank you. We will now move to our next question, from the line of Robert Lin, from Morgan Stanley. Your line is open. Please go ahead.

Hi, Vincent. Hi, Beck, and the rest of the management team. Thanks for the question, and congratulations on the strong quarter. I guess a few questions here. First I think obviously the market commenting a lot about the macro environment in China, and I think to some extent, impacting the online.

Maybe you could share your view on how you think about third quarter when you provided us guidance? And then I guess added to that is obviously I think that a lot of your brands are right now planning for inventories with [double 11] in the fourth quarter, the fourth quarter being very big. Can you just give us a color, is it better, slower, from the [rents] feedback on where they anticipate with [double 11] this year? That's my first question.

OK, this is Vincent here. Thank you for the question. Yes, talking about the macro [yearly ] economy environment, we have the impression that we can see the slowing down. And talking about the total [the focus assumption] market in China, also the same trend.

But for us, we are a branded e-commerce solution provider, and we are seeing stronger and stronger intentions from the brand who want to step into this market and doing their business in different platforms, and also in omni-channel methodology.

So for us, we think the demand from the brand side are getting stronger than before in contrary. So this gives us a lot of confidence in developing this Company and the business. That is one thing.

The other thing, talking about double 11, yes, all the team have already started to prepare for this event. It is the biggest event each year for the whole team. We will be ready for this, and trying to deliver good results, and we think this year, not only we will focus on the sales number, but we will also quite focus on delivering a better customer service, because the order are so big, we have to make sure all the orders and the services piece delivered to the consumer side in line with the brands expectations. So that is what we are trying our best to do today.

OK, and then I guess a related question is you currently have [99] brands under your portfolio. I think the Company's target is to be thinking about 20 to 25 per year. Maybe just a bit more color on the ads that you have done in second quarter, and what we should expect in the third quarter, when [most plans] to be coming out.

Yes, this is Vincent again. Talking about the [BB] side, as I mentioned, we are seeing a very strong demand from the brands, from the existing brands want to do more business out of our [on] platform, and also the new brands that want to step into the market, so we are seeing this trend.

So talking about the past second quarter, we have established partnership with over 10 new brands during this quarter, including some leading brands in our automotive category, apparel category, and in cosmetics category.

And also looking forward, we think the second half of this year we have a very strong pipeline, we have dozens of brands, partners want to work with us, so we're trying to recruit more brands on board to help us to grow our business.

Yes, and just to clarify, the brands that you added, proportion is more which category, and then is it more consignment or service-based?

Our expectation, and also the fact, is that we are having more consignment than service-based non-distribution brands, and it is also our intention, so we are looking forward to have more and more services and consignment-based brands on board.

OK, and I guess the last question, maybe go back, I think in the retail orders that the comparables sales idea, and so can you comment on your same-store sales expectation, what it was in the first half, if you can break down first quarter, second quarter, and I guess the trading environment, what we're currently seeing in the third quarter?

Yes. Thanks, Robert. So basically as you may know, we always focus on growing the same-store sales, and this is the top priority to grow our business. So for the first half of the year, the year to date same-store sales growth is over 90%. So basically we think the second half of this year we are still maintaining the same-store sales at such a high level.

OK, very good. Thank you.

Thank you, Robert.

Thank you. Our next question comes from Binnie Wong, from Merill Lynch. Your line is open. Please go ahead. Thank you.

Hi. Thank you for taking my questions. My first question is on the, in terms of the RR (inaudible) positioning the strategy, in terms of the free business model, the distribution consignment and the service C model, how should we see the Company, this will change going forward in terms of the split between the three?

And also in terms of the margin, so in the [field segment], understand the Company don't break it down that way, but can you just provide some color in terms of expectations on the operating margin and goal for this [free] segment?

And I guess my second question is also on if you have any update in terms of the logistics integration with [Chinell], how are we going to be more value add to our brand partners? Thank you.

Hi, Binnie. Let's answer your first question first. Yes, talking about the new development of the different business models, our expectation and intention is having more and more service fee and consignment-based clients. That is our intention, and we are [training] for this.

And we are seeing a trend that more and more apparel and the cosmetics clients are getting on board to our portfolio, and in these two categories we adopt service info model and consignment model. So we are seeing we are getting more and more non-distribution clients, and portion of our revenue.

Talking about numbers, I'll pass it to Beck to try to give you more.

Thanks, Vincent. So Binnie, basically we believe the gross margin, or net margin contribution by non-distribution models, especially consignment model, is the strongest. So we will focus on growing the consignment model business. So in the long run, the operating margin level, net margin level of the Company will be the keeping improving, OK?

Yes, and also I can give you one more example. During this recently we have successfully turned one of the major distribution model clients to consignment. So you can see that our efforts is all about this.

So for your second question, Junhua is here to help us answer.

Thank you, Vincent. This is Junhua speaking. So in terms of the warehouse expansion, so the opening of our six warehouses in Guangzhou was significantly [interest] in our logistical presents in southern China, and will provide us with greater supply chain flexibility, improve our cost structure, and enhance the client experience by shrinking the logistic lead time.

So we will continue to expand our logistical infrastructure by building warehouses in strategic locations across China, and in the support of our long-term growth and provide our clients with continuously improving commerce solutions.

So as you can see that this is aligned with our [trouble] strategies in terms of the warehouse expansion, so more and more brands will just apply in our southern warehouse, provide a lower cost benefit from our expansion in southern China.

And the lead time in those areas will be significantly shrinked by three days to within same-day delivery. So right now, the over 20% to 30% order is contributed from our southern China (inaudible) in Guangzhou City. So we will look into more expansion in the northern China, and the other territory in this mainland, so to provide a better service line for our consumers. Thank you.

Thank you. And just one last question is on the marketing strategies. I understand that this quarter, marketing costs is potentially down a little bit, but overall we see that from other e-commerce companies that marketing costs are acquiring new customer is getting higher and higher, as more and more perform are competing for traffic.

So what should we expect going forward? Thank you. And what is our strategy to basically improve also on the conversion rate, and also attract new customers for our brand partner, as you were [surfacing] for the other brands? Thank you.

Yes, OK. This is Vincent. Yes, we are a [ren] e-commerce solution provider, so actually we work with the brands to [pull] this consumer marketing together. So talking about the cost to attract new customers, I think as the competition [proclaim] marketplaces, it's getting more and more open. We can get better deal with all these marketplaces. That is one thing.

The other thing is that I think it's a very good thing for us, because most of our brands are very famous international big brands, so the majority of the traffic will come from the organic traffic, means people will search for these big names on search engines, or within marketplaces.

So this will give us a very good position, that is a very good, strong base. So based on that, we will use all the marketing dollars from the brands wisely with them, and trying to exchange marketing resources, not only a [heart] advertisements, but also exchange all the marketing resources with the platform.

For example, some of the brands have a very good celebrities for use, so we can use this to exchange marketing resources with the marketplaces. So that is also a very important thing. But overall, manage this marketing expenses is always a challenge, because it is online business, you have to attract new customers, retain the old customers.

But working with the brands, and as long as our marketing capabilities getting stronger and stronger, we believe that we can deliver a much better performance-based solution capabilities to all the brands.

Thank you.

Thank you. Our next question comes from Natalie Wu, from CICC Investments. Your line is open. Please go ahead.

Hi (inaudible). Thank you for taking my questions. I have a question regarding to your marketplace business. I noticed that your MKF business is running up quite rapidly. Just wondering could you provide some color on some operational metrics regarding this platform, for example, number of active users, user demographic, (inaudible) average order size, et cetera? And I also have a follow up question.

OK, thank you. We launched the third party marketplaces, it is to enhance our consumer experience, but to let them have more choices, and to extend the addressable market. The (inaudible) portfolio product offering as well.

So this expansion of (inaudible) business have very positive impact on the user base as well, we can see this. In this quarter, around 63% of (inaudible) are based returning, repeat customers, and 86% of the total order base. But we are still in early stage of the development. We will share more color with you when it gets more mature.

OK, thank you. Just a quick follow up, can you share with us what is the rough gross margin of this MKF business currently?

Hi, Natalie. So basically for the gross margin of the direct to sales [mode] for future, it's around 18% for MKF direct sales mode.

Great, thank you.

Thank you. Your next question comes from [Sean Chung], from [AD6] Research. Your line is open. Please go ahead.

Thank you, management, for taking my question. First of all, congratulations on a solid quarter. My first question is regarding your GNV growth. I'd break it down to 27% GNV brand growth, and 42% average (inaudible) brand.

How can I reconcile this 42% of average MV per brand with what Beck just mentioned, 90 plus same-store sales? Can you give us some more color on the same-store sales? Does this mean we are expanding to other platforms, for example in JV? So any color on that will be helpful.

My second question will be a follow up on the Microphone, would you share some color on the Microphone, how we compete, how we differ ourselves on other flash sell business company in the market, and what's the percentage of direct sales of Microphone (inaudible)? Thank you.

Sean, thanks for the question. This is Beck. Let me answer your first question. So basically the average MV per [genie brand] partner has increased 42% year over year, but the GME per [J brand] is actually the total JME divided by the total GME [gram] partners.

So maybe if we are considered as being same-store growth, you don't have the [end of] peers, maybe there is a new store, but new stores we don't have the comparative figures, so we will exclude it from the same-store sales calculation, but in terms of the total average GME per [JM gram], we will calculate all the GME into the total pool, and divide it by the [JME] brand partners of the quarter. So that's what we get from this number.

OK.

Yes. And also for this number, our point was that for this number, average JME per GM brand is caused in the annual [read] for Q2 figures, and I will just [planning] about the same-store sales growth rate of over 90% is year to date figures, actually the first half of 2015. So that's how we reconcile the difference.

OK. Now for your second question about Microphone, actually Microphone is quite focused on young generation. So if you check with some of the market research, you can see that microphone is ranked very high, talking about this new generation coverage.

And the difference between Microphone and other platforms, I think number one is Microphone is mainly focused mobile side. Second one is that we offer more competitive price on the platform because number one, we have a very efficient operational team, they can deliver this. Number two is we can also leverage a lot from existing brand service team, and also capabilities. So that is two reasons why we can offer more competitive price.

The third one talking about Microphone is that we talking about this co-location capability, because most of our major existing clients, they just put their inventory in our warehouse, so when we just want to sell them through Microphone platform, we don't need to move the inventory, so that is our so-called co-location capability. So I think the main difference will be this rate.

Great, that's great. I just have a small follow up, recently we know that Ali Baba established partnership with Macy's. Any color on that? Will that be a competition to us, or what's the implication for our business [on Timo]?

Over the past several years, you can see that Ali Baba and also [Timo] is evolving, or has been evolving a lot. So more and more brands, retailers, and also multi-brand stores will be opened on the [Timo], so it has not spread to us.

And also as well, we are also attracting more and more retailers and multi-brand stores on [Timo], that's like several newly on board retailers from Japan, we are opening their stores and have a good business potential.

So actually a lot of different types of retails like branded store retailer, and multi-brand stores, will be there. So we'll have help different -- we'll shape our capability to cope with different requirements from different types of sellers, these brands. So we will come this, and we continue to deliver better services for all the brands, retailers, and multi-brands stores.

Thank you, management.

Thank you.

The next question comes from Zhe Chen, from Guangfa Securities. Your line is open. Please go ahead.

Hi Vincent, Beck, and Caroline. Congratulations on a very good quarter. Actually I have two questions I think. The first one is also about Ali Baba's investment, but it's on [Suny]. So what is your opinion about that, and do you think it's going to have an impact on your current business model, especially for the electronics category?

And the second one, I think we talk about [Be Able] in the presentation, and could you please add a little bit more color on that point? Thank you.

Thank you for your question. This is Vincent. Talking about your first question, we noticed the big investment, and also the corporation. Actually we are helping one of the major Japanese-based retailer on [Timo] to run today, and this is actually between [Timo], [Suny], and Baozun. So actually we're working together already. That is one thing.

For us this is not the [sopriety cause], from the many years ago, [Timo] attract a lot of retailers like [Yi Ha Din, Dung Dung], and other, like CostCo, to be on board on the [Timo] platform. So we are continuing to do this. So that is very natural thing.

And as I mentioned, we'll make ourselves ready to serve different retail price like branded store, multi-brand store, and also these retailers. So for us, more and more brands want to be on platform, it's our business opportunity actually.

Yes. Thanks, Vincent. This is Junhua speaking. So let me address your question about the [Be Able] investment. So [Be Able] is a very interesting company that specialized in the combination of digital marketing solutions and big data for offline retail environment, which means that their (inaudible) can show retailers what exactly customers are doing in their store, which products are they looking at, for how long, and what they are looking at next.

So integration with [Be Able] solutions is part of the Baozun's omni-channel solution. We are driving a lot of the brand presence across [all those] channel [eaters] on [Timo], [JD], their brand store, and their offline store. So [those shelow] scenario is the key important scenario in our omni solution, so we're driving more traffic consumers into their offline store and create more synergy with those consumers in the store.

So as the integration, so part of our omni solution, [Be Able], their system can integrate with our back end system to make more synergy to regarding their needs, and to meet their requirements in that store, providing better experience, and driving higher conversion rate. Thank you.

Thank you very much.

(Operator instructions). Your next questions come from Robert Lin from Morgan Stanley. Your line is open. Please go ahead.

Hi, guys. Sorry, I just looped back to a follow up. So I think, Vincent, you kind of alluded to the competition with the marketplaces, and as a beneficiary to what we're doing here. Can you just give us a broad sense -- I mean obviously [Timo] they've [formed] a strategic alliance with [Honda CP] brand, et cetera.

Can you give some context on what this means to the landscape? Obviously they also cut their commission on [Ju Han Chung], right? So how does that impact your acquisition cost of customers for the [key op] platform, and versus when you look at JB, what would that cost be versus [Timo]? Are they comparable? Is it higher or lower? How should we think about this dynamic of the marketplaces? So that's the first question.

And the second question is the losses on MKF, maybe can provide some color on losses on MKF in the first half? And think about longer-term, when do we think this things can break even, I guess?

OK. This is Vincent. Talking about the recent move about the signing of this exclusive deal [one does 50 grands] with [Timo], yes I think it's quite a natural competition between marketplaces, which in general we'll benefit from. So that is generally a good thing.

I think if our directions were clear, we'll help other brands to deliver their omni-channel capabilities throughout all different marketplaces if the [make up] is sufficient to do this, we'll have the capability to help them.

So for our specific stores, if we are going out with the omni-channel strategy, we'll have something to realize that. If we just want to exclusively work with [Timo], it is also a good thing, because [Timo] has more resources to support the business. So for us, we think it's quite fair.

So that is talking about the marketplaces. The other thing is that we think the cost of marketing this kind of operational relative things are quite stable for different marketplaces, and because most of our business will be conducted through service fee or consignment model, so actually this kind of cost will be absorbed by the brands we are serving, so that is also very important thing.

For the financials of the MKF, I will pass this to Beck to help me to answer.

OK. Yes, this is Beck speaking, Robert. So basically the non-GAAP operating loss incurred by MKF was around RMB10 million in Q2, and of course [Mike went still ying] year two, so it still needs time and investment to grow, so basically we will keep to invest in MKF in the short-term.

OK, thank you.

Thank you. (Operator instructions). It appears there are no further questions at this time. I will now hand the call over to Ms. Caroline Dong for any additional or closing remarks. Thank you.

Thank you, Operator. In closing, on behalf of [inter] Baozun management team, we'd like to thank you for your interest and participation in today's call. If you require any further information or have any [interesting] advice, (inaudible) please let us know. Thank you for joining us today. This concludes the call.