Baozun Inc (BZUN) 2017 Q1 法說會逐字稿

Thank you for standing by and welcome to the Baozun first quarter 2017 earnings conference call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question and answer session.

(Operator Instructions). I must advise you that this conference is being recorded today, May 17, 2017.

I would now like to hand the conference over to your first speaker today, Ms. Caroline Dong. Please go ahead, madam.

Thank you, operator. Hello everyone and thank you for joining us today. Baozun's earnings release was distributed earlier today and is available on our IR website, ir.baozun.com, as well as on global newswire services.

On the call today, from Baozun, are Mr. Vincent Qiu, Chairman and Chief Executive Officer, and Mr. Beck Chen, Chief Financial Officer. Mr. Qiu will review business operations and company highlights, followed by Mr. Chen who will discuss financials and guidance. They will be available to answer your questions during the Q&A session as that follows.

Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the US Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by the terminologies such as will, expect, anticipate, future, intends, plans, beliefs, estimates, targets, going-forward, outlook, and similar statements.

Such statements are based upon Management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the Company's control, which may cause the Company's actual results, performance, or achievements to differ materially from those in the forward-looking statements.

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

It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Mr. Qiu, please go ahead.

Thank you, Caroline. And thanks, everyone, for joining our earnings call today. Our business continued to generate strong momentum this quarter. The GMV increased by 61% year-over-year to RMB3 billion during the first quarter, growth continues to be driven by increase of our existing online store sales, the further expansion of portfolio brand partners, the expansion and diversification of value-added services we provide to our brand partners, and of course, the very favorable industry tailwinds created by China's rapidly growing brand e-commerce market. The number of our brand partners continues to grow steadily, increasing to 136 as of March 31, 2017.

As we strengthen our capabilities and expand the area of services on offer, I am confident that we will be able to create new partnerships with existing global brands seeking either to enter China's rapidly growing e-commerce market or further strengthen our existing China online presence.

Last week, we held our second global brand e-commerce summit, which again, turned out to be a huge success. We have over 500 brand attendees including both current and potential brand partners, and attendees from more than 30 leading Chinese and international news organizations.

We also welcomed the representatives from many other important parts of Baozun family, including many of our investors, strategic partners like Alibaba, and also a wide range of industry experts. The theme of this year's summit was Bounded but Boundless Omni-channel. The summit brought together, leading consumer brands and e-commerce industry leaders and professionals to discuss the future of the brand e-commerce industry.

The era of new retail has created many challenges for brands seeking to provide consumers with a seamless shopping experience. The summit helped us demonstrate to current and prospective brand partners just how effective our consumer-centered solutions are.

Leveraging our deep experience in big data analysis and in-depth understanding of consumer behavior, we are able to further improve our brand partner's business by comprehensively integrating offline and online business models.

I would also like to take time to welcome Ms. [Joyce Chang] to our team here at Baozun. Joyce will act as general manager for our digital marketing group. She has extensive experience in digital marketing and media services having worked at [Air China] the global market leader in digital and diversified media solutions and part of the [Bensu] Network, leading their digital strategy, planning, and e-commerce business. Prior to that, she worked at [WPP] Group of Companies, as general manager of digital strategy, planning, and e-commerce.

I'm very excited to welcome her onboard and have great confidence that she will make a valuable addition to our team as we expand our portfolio of value-added services and migrate our digital marketing services towards an asset-light model. Back to our [goal], we will include the detail later in this call.

With our strategy now shifting into higher gear, I'm very excited about the possibilities that will be created with the expanded scale of our business. We have always taken a long-term and a sustainable view of our business. Always putting our hands -- brand partners first, we will continue to drive growth momentum and expand the range of services we have on offer to generate the greater value for our shareholders.

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. We believe year-over-year comparisons are one of the most useful ways to judge our performance, all percentage changes that I'm going to give will be on that basis.

Now, let's start to review the financials.

Total GMV during the quarter increased by 61% to RMB3 billion, our focus remains on growing our non-distribution business, which saw GMV increase by 83% this quarter. We will continue to optimize our business model mix towards the non-distribution model going forward.

Total net revenue increased by 20% to RMB805 million. Breaking down further, product sales revenue rose by 7% to RMB498 million. We continue to transfer portions of our distribution business towards the non-distribution model, which impacts year-over-year growth of product sales revenue.

Services revenue rose by 52% to RMB307million during the quarter, note that this figure excludes parts of the cost of purchasing media on behalf of our brand partners which is a different accounting treatment than in previous quarters. In Q1 2017, we begin adjusting how we execute these media purchases, which I will describe in more detail in a moment.

And on an apple to apple basis, excluding the cost of media procurement from services revenue in both Q1 2017 and Q1 2016, services revenue during the first quarter of 2017 actually grew by 63% on a year-over-year basis. With regards to the change in the accounting treatment of media purchases, as Vincent mentioned earlier, we began migrating parts of our media services this quarter towards a more asset-light model or inventory risk increase our working capital efficiency.

Under the previous media services model, we purchased and made a full payment for media inventory services on behalf of our brand partners. Accounting-wise, under this model, we recognize the cost of the media purchase in our net commissions as revenue.

The cost of the media was also then recorded as part of our selling and marketing expenses, fully offsetting the cost of the media that was recorded in revenue. The net result was that only our net commission contributed to operating profit.

Starting this year, we are migrating our media services towards a more asset-light model, which removes media inventory risk from Baozun, without impacting the quality and the values that our digital marketing services bring to our brand partners.

Under this new model, we negotiate with media platform on behalf of our brand partners as we did previously but we do not assume inventory risk any longer. When negotiations are complete, payment for media inventory is the sole responsibility of our brand partners.

Under this new model, we only recognize our net commission as revenue, we don't record the cost of the media as either revenue or selling and marketing expenses. And please note that the change in accounting treatment has no impact on our operating profit.

And now, turning back to our other profit and loss items for the quarter.

Total operating losses versus total operating expenses was RMB790 million. In particular, cost of products rose to RMB439 million, primarily due to the increase in the volume of product sales from our core brand e-commerce business.

Fulfillment expenses rose to RMB132 million, mainly due to the increases in GMV contribution from our consignment business, more orders fulfilled by the premium delivery service providers as a percentage of total orders, and warehouse rental expenses.

We have a best-in-class warehousing operation and fulfillment experience in the brand e-commerce industry, and we believe, top tier capabilities within fulfillment, are a key driver of our customer and brand satisfaction which is a key factor to sustain our long-term growth.

The sales and marketing expenses rose to RMB163 million, primarily due to an increase in operational staff and promotional and marketing expenses associated with our online stores.

Technology and content expenses rose to RMB29 million. The increase was primarily due to the increases in technology-focused staff, share-based compensation expenses, and project-based variable technology expenses from brand stores.

In addition, a portion of the share based compensation expenses was due to a one-off modification during the quarter and we don't expect this much impact in the following quarters.

G&A expenses rose to RMB27 million. The increase was primarily due to increases in administrative staff cost and share-based compensation expenses. In addition, a portion of the share-based compensation expenses was due to a one-off modification this quarter, and we also don't expect this much impact in the following quarters.

Non-GAAP income from operations was RMB34 million, a significant 139% increase compared with RMB14 million in the same quarter of last year, while non-GAAP operating margin improved to 4.2% compared with 2.1% in the same quarter of last year.

In Q1, net income attributable to Baozun ordinary shareholders rose to RMB11 million, an increase of 157% compared with the same quarter of last year. Basic and diluted net income attributable to ordinary shareholders per ADS were RMB0.20 and RMB0.18, respectively, compared to RMB0.09 and RMB0.09, respectively, during the same period of last year.

In Q1, non-GAAP net income attributable to Baozun ordinary shareholders rose to RMB29 million, an increase of 104% compared with the same quarter of last year. Basic and diluted non-GAAP net income attributable to Baozun ordinary shareholders per ADS were RMB0.54 and RMB0.60, respectively, compared with basic and diluted non-GAAP net income attributable to Baozun ordinary shareholders per ADS of RMB0.29 and RMB0.27, respectively, for the same period of 2016.

That completes the profit and loss statement for the quarter. As of March 31, 2017, the Company had RMB877 million in cash, cash equivalent and short-term investment, a decrease from RMB957 million as of December 31, 2016 due to the investment in the Company's logistic space.

Our business continues to grow sustainably, which increase the confidence in our business and its performance. We reiterate our previous expectation of total GMV during fiscal year 2017, to increase by over 50% on a year-over-year basis.

As we further optimize our business model mix towards the non-distribution model, our distribution GMV will continue to grow at a faster rate than distribution GMV.

Turning to revenue guidance for the second quarter of 2017, we expect total net revenue to be between RMB870 million and RMB890 million, representing a year-over-year growth rate of approximately 24% to 27%.

Again, due to the continuous strategic shift in our business model mix to optimize our marketing profile, our non-distribution model will continue to grow at a more rapid pace than overall net revenues. The same is true for services revenue which will grow at a more rapid pace than total net revenues and will increasingly contribute more to net revenues on a year-over-year basis.

Our profitability, that will be improved continuously, due to the migration of our media services towards a more asset-light model as I previously described. As we look at services revenue on apples-to-apples basis, excluding the cost of media procurement from services revenue in the same period of last year, growth rate of service revenue is even more higher.

Before I conclude the prepared remarks, I would like to spend a few more minutes on the Company's prospects and strategy. In the annual chairman's letter we have released to the public in April, we shared with our investors the Company's key business developments in 2016 and our strategies and prospects for the coming years.

Over the next three years, we plan to underpin our growth in four key ways, first, through deeper services and enhanced further focus on our core verticals, we plan to extend our value proposition and offerings to our brand partners.

Second, through global expansion by fulfilling the demands of our brand partners internationally.

Third, through human resources as we plan to continue strengthening our team to sustain the Company's long-term growth.

And last but not the least, through the fostering of our creative and entrepreneur culture, we will keep investing in technology and innovation which will be our key competitive strength and a growth driver over the long-term.

We encourage our investors to read through the letter and share the same view with us on our plans for the sustainable long-term growth. This concludes our prepared remarks.

Operator, we are now ready to begin the Q&A session.

Thank you.

Thank you. We will now begin the question and answer session. (Operator Instructions).

Your first question will be from Eileen Zhang with Deutsche Bank.

Thank you, management, for taking my questions. Congratulations on the results, first of all, I want to check whether management can comment on the same brand sales growth for the quarter.

And also what is the client compensation is trending and we know that three new customers have been added this quarter, any color on that and which business model are they? Are there trends -- how the trend compares with the existing customers.

And also, if we compare the service revenue versus the overall GMV, the take rate is like flat sequentially. Is this due to the technology or are there any other reasons behind that? Thank you.

Okay, so thanks for the question, Eileen.

Maybe let us address the question one by one. So the first thing is for the same store sales growth, for the first quarter, it's about 50% on a year-over-year basis, and generally, we think the concentration is not so high compared to the past and we will keep a watch on that because it's only the first quarter. So if we look at the full year basis, we expect the concentration on top tier brands will be further down.

And in terms of new brands, it is mainly in apparel, big apparel categories, men's apparel and women's apparel, foot wear as well, and so overall, I think the term, the commercial term for new brands is better than the existing brand so which means that in the long run, we can see that the for the same category brands, our overall take rate will be improved.

And in terms of the revenue, again, the total GMV amount, basically, in Q4, our business is more likely to sell more apparel products. And as a percentage of the total GMV, apparel is much bigger in Q4.

And in Q1, in this quarter, we think electronics category is getting better too and so if we look at each categories, the general mix of take rate is flat or improved a lot.

But electronics is contributing more to the total GMV, so that is why, overall, you don't see the big improvement in the take rate of the Company, but category wise, I think it's good.

Thank you, very helpful.

Thank you, and we take our next question from Monica Chen with Credit Suisse.

Good morning, management, congratulations on a strong quarter. I have two questions here. Number one is regarding the fulfillment and the warehousing. So we see some of our e-commerce peers establish separate entities and open up their warehousing and fulfillment capacity to the external clients in order to increase the scale and lower cost. I think we have been talking about this before, about open our logistic services to the non-Baozun clients. So, just want to follow up, how is the progress here and what do we see is our competitive strength against the peers? Then I have a follow-up question. Thank you.

Thank you for the question. Yes, right now -- you know, previously Baozun's warehouse and logistic arm just serve internal clients. Starting from last year, we start to serve the potential brands separately by our warehousing team. Right now we have very good progress on that, because not only we can have a more business warehouse and logistics, but also it will give us a chance to work with brands.

Firstly, just provide one single service (inaudible) and then we can provide more and more, add more and more services into their client. So in this case, new potential clients will be also Baozun clients, non-Baozun clients. So we are seeing very good result here, and we'll continue to do so.

And also, not only for the brand partners but also several others like Sanyo also, you know, we also partner with Sanyo and they provide services to their client. So, generate two directions, one is the single consumer brand, others is about the platforms like Sanyo, also our potential partners. Yes.

Okay. Thank you. I have a follow-up question. So we see our non-distribution, GMV contribution has reached 80% in this quarter. So I also think management mentioned we will continue to grow the consumption model faster than distribution model. So, about this 80%, how many rooms, further rooms, do we see, to further increase that percentage? Do we have like a target or ideal level of the non-distribution contribution? And how does this improvement translate into better margin for our business? Thank you.

Let me address the question, Monica. Thank you. So we expect that the total non-distribution business will be stably growing very fast at sustained growth rate of Q1 this year, whole year base. And we are very confident for the growth of -- even for the growth of the second half of this year because we have great potential to adding in new big brands since the second half of this year. And we believe the overall mix, because we have introduced new brands onboard, and new brands usually, sharing even better commercial terms with us, so we think it's a good pattern for us to maintain and even give you more surprises.

Thank you, very helpful.

Thank you. We'll take our next question from Binnie Wong with Merrill Lynch.

Hi, good morning, management. Thank you for taking my question, and congrats on a solid quarter. My question is on, in terms of the gross profit dollar, recall we said that this should be one of our key metrics, right? But it seems that this quarter that was actually going behind GMV growth. And then if we look at our full year GMV target of over 50%, would that be largely driven by which type of categories? Apparel, electronics? Can you share some color on that?

And secondly is that, in terms of the omni marketing solutions we heard in the e-commerce summit, if we think about the long-term implications to our Company, how should that help us in terms of the partnership with the brands, the take rate? Any color on that would be very helpful. Thank you.

Let me address the first question and Vincent will answer the second question, Binnie. Thank you. So, overall, just as I mentioned in the prepared remarks earlier, we have different accounting treatment for our service revenue in relation to the media buying services.

So, previously, we just have to pay, in the purchase, the media inventories on -- purchase the media inventories first on behalf of the brand partners. And if we look at the current treatment, because we migrate our services towards an asset-light model. So by this, we just book net commissions in our total net revenues. We don't book the cost of purchasing media either in our services to revenues, or selling and marketing expenses.

So if on an apple to apple basis, excluding the cost of the media, which was recorded in the revenue before, our actually services revenue during the first quarter of 2017 grew by 63% on a year-over-year basis and our gross profit is growing by 55% on a year-over-year basis. And so that's why I'd like to call out this item during the prepared remarks. So I think it's, you know, this is how we address your question.

Okay. Let me explain something about your second question. I think for the long-term implication of digital marketing capabilities for the industry and also Company, there are three things which are quite important.

The first one is that we have to have this online retail capability plus retail data. That is the foundation of what we can do to integrate digital marketing better than before. Retail capability and data is the first thing, which has already been accomplished in past several years, along with the development of the e-commerce.

And then today, I think the industry (inaudible) the integrated sales and marketing solution, enable a better omni-channel and omni marketing offering to their clients. That's the second thing, digital marketing capability.

And third one is that someone needs to have the capability through technology to integrate all these sections and digital marketing activities together. So we also believe that this kind of migration will be heavily driven by technology. So that is three things.

Baozun's goal is to just to provide the integrated digital marketing and sales solution of clients through technology. So this will make the whole thing much more advanced and intelligent than before. In return, this can add value to the client's industry and Baozun. Thank you.

Thank you, Management. That's very clear, thank you.

Thank you. And we take our next question from Nicky Ge with China Renaissance.

Good morning, Management. Thank you for taking my question. I have two questions here.

Number one is a housekeeping question. Just want to know, could you share with us the 2017 and 2018 brand pipeline? And if you can break it by category, that will be very helpful.

And the second question is regarding our SaaS platform. Just want to know whether we have update on this e-commerce solution platform, and when are we planning to launch it? And when are we expecting revenue contribution from this platform? Thanks.

So, excuse me, Nicky, so your second question is about SaaS platform?

Yes. Well, we are doing the IT service center divisionally. Just want to know, do we have updates on that thing?

Okay. Okay, so, in terms of the first question, let me address the first question first and Vincent will follow with the second question.

So, for this year and next year, our major pipeline concentration are towards apparel, sportswear, electronics and cosmetics. So these are always our major categories. And we're still seeing a lot of great potential in fashion-related categories.

And in the long run, I think for these categories, brands, usually, right now, except for electronics, most of the other categories, we are doing by non-distribution model and even constitute (inaudible) the consumption model. And for electronics, we will decide on whether or not it's like favorable products and popular products by the Chinese consumers.

So right now, recently, for some brands in electronics, we are doing non-distribution model. So this is the general guideline for the pipeline of the next two years.

Okay. Thanks for your question. About the second one, yes, we have a plan to implement a cloud-based SaaS platform to provide our technologies to the potential and existing clients. Because one thing is that the brand official sites somehow is quite -- the barrier is quite high and brands need to put a lot of investments to set up their brand official stores. Of course, if we can provide a cloud-based SaaS platform for them, including the front and -- I mean the web front applications, plus the supply chain solutions together, then this can enable them to set up the official web store quickly in a much lower cost. So that is the benefit of the solution.

And also I think some of the investors know the potential of these services for the industry, so we do as well. Right now we are in the planning, product planning stage. So we hope that in the near future we can share with you with a very clear roadmap of that. But the potential, we all believe that the potential is huge. Thank you.

Thanks a lot. It's very helpful.

Yes. For more color, we expect, our internal play, to expect to launch the -- or finish the product (inaudible) of this Nebula platform by September this year. And this will be very unique in Chinese market and we don't think there is, you know, enough competition is there.

Okay, great. Thanks. Thanks a lot.

Thank you. And we take our next question from Ryan Roberts with MCM Partners.

Good evening, Management. Thank you for taking my question. And also congratulations on a solid set of results. Very encouraging.

My question actually is kind of a follow-up from a previous question on GMV growth for the year. I was wondering if you can kind of give us some more color. I think you earlier mentioned, you reiterated your 50%, at least 50% growth for the year, and also said that you look to see non-distribution GMV growth kind of continue at the Q1 pace, which was pretty significant.

I'm wondering if you can kind of give us maybe a tighter range, again, from at least -- it seems like extrapolating those numbers out, it's a bit higher. I'm wondering if you can kind of give us maybe a bit of a tighter range, and also tell us, is that deepening sales with existing brand partners, or alternatively, is that adding new brand partners on? I think our target for the year was about 20%. I'm just kind of curious if you can give us more color on that.

Okay. So, thanks for the question, Ryan. So the first thing I'd like to mention is we value quality over quantity when it comes to new partnership with brand partners. So we expect this year and the next year we can onboard some more new brands with more potential to generate higher GMV compared to past years. This is the first thing.

And the second thing is, for our total GMV content brand, we expect we could provide more services to them into deepening our value-added services to our brands and also for us to generate much more revenue, just like we mentioned during the early prepared remarks, we have onboard new general manager of digital marketing team, who is Joyce. And we expect Joyce will lead the team to be providing better and more value-added services just like Shopcat, more value-added services to the brands and to bring the returns to customers as well.

And also in terms of the total GMV growth of this year, we gave the general guidance earlier this year, of about 50% on a year-over-year basis. And we think it's a conservative trend but right now we don't want to raise up.

And for the non-distribution GMV growth rate, I think for the next three quarters of this year it could be maintained, at least maintain 80% year-over-year growth, at least, could be higher, if can onboard more higher GMV contribution brand in the second half of this year.

Got you. Thanks, that's very helpful. If I can add just one real small quick follow-up on that. Is any of the GMV growth, the kind of incremental GMV growth, is any of that coming from overseas yet? Are we still in the early stages of that, or perhaps are we seeing kind of some momentum on that front as well? And that's all for me.

Okay. So, like we mentioned earlier, our same-store sales growth for the first quarter is about 50%. Considering we already have a large GMV base for last year, I think it's a very promising number for the Company as well and for the investors.

And even for some 10-year store, I think for some 10-year stores, the earliest store offers, can generate like 40% plus year-over-year growth rate in the first quarter and also the margin improvement is by 22 -- sorry, 200 to 300 basis points for the same brand on a year-over-year basis. So, which means that the market is very good. And we have seen more and more demand from the Chinese consumers to consume branded product in authentic way. So I think this is great tailwind of the market for us. And we believe for the next few years the momentum will keep still.

Got you. Thank you very much. Appreciate the additional detail there. Thank you.

Thank you. And we take our next question from Thomas Chong with Bank of China International.

Hi, good morning, Vincent, Beck and Caroline. Thanks for taking my questions. I have two quick questions.

The first question is about the total headcount in the first quarter and our expectation by the end of 2017.

And my second question is about Shopdog and Shopcat. Can management give us some color about the merchants adoption as well as the areas that we can further improve to strengthen the monetization? Thanks.

Okay. So, thank you for the question, Thomas. So in terms of the first question, the total headcount, it's close to 2,900 at the end of April 30, April 30 of this, in last month. So generally we think, as long as we grow the businesses much, we will hire more people and hire more talent to help generate the businesses and contribute more.

And the second thing is right now we are in progressing and in plan of some technology plan to replace some of the people work in the near future, which means that in the near future maybe we don't need to -- more people for more businesses, but we believe we still need high-quality people as much as possible to help the business to generate. So, not everything will be done robots, but a portion of the things will be done by robots in the near future.

And in terms of the Shopdog and Shopcat, so this is like sister (inaudible). So for the Shopcat, we just launched our self-developed (inaudible) marketing tool Shopcat during our second brand e-commerce summit last week. So our Shopcat will monitor every step of consumer behavior when they are shopping. And this is based on big data that improves media content membership and omni-channel shopping data. So, leverage on that, Shopcat can provide brands with integrated marketing solutions to deliver better marketing results, which means that, for us, we can have more ways and methodologies to charge our revenues as well.

And in terms of the Shopdog, this is integrated system to integrate our online businesses with offline businesses. So like we said in the previous earnings call, we have started to implement the Shopdog with several international brands across China in their offline stores. And this year we have started pilot project with the leading sportswear brand in the offline store to prepare for the midyear e-commerce shopping festival.

And we believe the results will be good. And if the result is good, we will roll out the potential over hundreds of the stores in the offline store before Double 11 campaign. And in this way, we believe the very big thing is overall efficiencies will be greatly improved for consumers for brand and for Baozun as well. And in this, when you get, you achieve efficiencies, I think for every part of the system will get their -- will share the benefit as well. So this is integrated toolkit and we believe, as long as it is more integrated to the offline stores of those brands, for Baozun, the business will be stronger in the future.

Thank you.

Thank you. And our next question comes from Tian Hou with T.H. Capital.

Good morning, Management. Congratulations on a good quarter. A couple of questions.

One is for the number of brand partners, and Q1 we had a pretty significant increase from 116 to 136. And I wonder, what's the pipeline for our brand partners? And also for the brand partners, is your focus on multinational companies or domestic partners? And also, you're putting more efforts, are you putting more efforts on apparels or 3C categories? So that would be the number one question, for the brand partners.

I would also like to know the allocation or composition of your guidance. What percentage of your -- the top line guidance comes from the non-distribution GMV and the distribution GMV? And what take ratio we expect for your GMV guidance in 2Q? That's the two questions. Thank you.

Okay. So, thank you for the question, Tian Hou. So let me address the questions one by one.

So for the first question, for the brand partners, we are mainly targeting the brand partners in, actually, in global companies categories, not multinational or domestic. So if a Chinese company, we say, if a Chinese company, it's a global company, it could be our brand partners for the moment. And if it's a truly local Chinese company, maybe it's not our current portfolio but it could be in the future.

So, our focus will be still growing in the global industry. And we think for the global brand, they have higher, right now, have higher demands from the consumers. So we think our priority is in that.

And for the pipeline, like we said before, it's generally, it's -- we value the quality over the quantity over the long term. So as long as we have a quality brand, the brand and the Baozun to enjoy long-term growth in the long run. So we expect our brand partners will grow steadily year-over-year, quarter-over-quarter. And right now the pipeline is mainly concentrated in fashion and tech related category. So, fashion means apparels, sportswear, and cosmetics, and tech means -- mainly means 3C-related brands, like smartphones as well.

And for the second question about the guidance, so up to now we still maintain the GMV guidance for year 2017. We know that it's maybe prudent, but we don't want to raise up. So, 50% is our guidance up to now. And in terms of the non-distribution model, it will be growing, like we said before, like 80% plus for the next few quarters as well. So, services revenue, as expected, could be still growing much faster than the product sales revenue, and service revenue will contribute -- will account for more in percentage of the total net revenues, which implies that greatly improve the higher gross margin and operating margin of the P&L.

Thank you.

Thank you. And as we have no further questions at this time, I would like to turn the call back over to Ms. Caroline Dong for any additional and closing remarks.

Thank you, operator. We are now ready to close the -- this earnings conference call. Thank you for joining us.

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