Baozun Inc (BZUN) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Baozun Quarter 2 of 2018 Earnings Conference Call. (Operator Instructions)

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

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 at ir.baozun.com as well as on the global newswire services.

On the call today from Baozun are Mr. Vincent Qiu, Chairman and the Chief Executive Officer; Mr. Junhua Wu, Chief Growth 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 that follows.

Before we begin, I'd 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 U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the terminology such as will, expects, anticipates, future, intends, plans, believes, 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 or 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 or factors is included in the company's filing with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements 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.

We delivered another strong quarter with total GMV increasing by 69% year-over-year. Growth was driven primarily from our existing online stores and our increasing efficiency as we invest in developing new innovative technologies to create more value for our brand partners.

We expanded the number of brand partners we work with to 162 at the end of quarter 2, an increase from 140 as of Q2 in the last year. The newly added brands are mainly in the apparel, cosmetics and FMCG categories.

As the industry's undisputed technology leader, we won bids this quarter to build and host China brand stores for the top 2 largest global cosmetics groups. In addition, we beat our fierce competition to operate the Tmall store for a leading global skincare brand.

Growth within our cosmetics category is expected to accelerate over the next 12 months. We have a number of leading global brands in our pipeline which are expected to come onboard in the coming 12 months, including ones in apparel and sportswear, cosmetics, luxury, kids toys and home furnishing categories.

Our ability to rapidly adapt and develop new technology to a changing market environment remains the key to our success. As I have mentioned before, we are headed in a more technologically focused strategic direction, which we expect will generate the long-term benefits for us. To strengthen our position as the leading brand e-commerce business partner and technology solutions services provider, we're expecting -- expanding the scope of our services through targeted investments in innovation and productization.

By enhancing our IT capabilities and expanding the breadth and depth of our technology services, we are able to create more value for our brand partners and drive future sustainable growth. Teams from our technology and innovation centers, located in Beijing, Shanghai and Chengdu, now consist of over 700 IT engineers. Leveraging our innovative self-developed tools, we quickly established and upgraded official websites for several leading brands, including ones for a leading cosmetics group during the quarter.

Some of our newest tools and products, including big data and AI, have successfully completed trial operations and are expected to be launched soon. By upgrading each generation of our e-commerce shopfront products, we are gradually expanding the omnichannel matrix of solutions that we offer brands to easily and efficiently benefit from the massive growth opportunities China's e-commerce presents.

We've recently expanded these omnichannel solutions to WeChat Mini Programs to meet growing demand for pop-up stores, CRM systems and mini games that have been especially customized for various categories, including luxury, fashion and 3C. We launched several WeChat Mini Programs during the quarter for leading global brand partners and have a number in the pipeline. Our outstanding understanding -- our understanding of consumer behavior and ability to quickly adapt to a changing market environment allows us to deliver superior value to our brand partners. We will continue to closely monitor the market and invest in developing solutions to improve operational efficiency and anticipate what our brand partners need to further solidify our long-term competitive advantages.

We are seeing demand from existing and potential brand partners grow for our expanding array of digital marketing services. Our reputation across the industry continues to grow. We are recognized as the marketing agency of the year and awarded the bronze award for Integrated Marketing at 9th Tiger Awards, hosted by the China Business Advertising Association, one of the most respected marketing awards in China.

With that, I will turn the call over to Beck to go over our financials. Thank you.

Thank you, Vincent. We generated very strong financial results during the quarter, with GMV increasing by 69% year-over-year and the nondistribution GMV, in particular, increasing by 79%.

Let's now go over the numbers. Just a few housekeeping items in advance. We believe these year-over-year comparisons are one of the most useful ways to judge our performance. All percentage changes I'm going to give will be on that basis.

Firstly, let's start to review the financials. Total GMV during the quarter increased by 69% to RMB 6.1 billion. Our focus remains on growing our nondistribution business, which saw GMV increase by 79% during the quarter. Total net revenues increased by 30% to RMB 1.2 billion. Product sales revenue increased by 14% to RMB 577 million. The increase was primarily attributable to the increase in product sales revenue resulting from the increased popularity of brand partners' products and our increasingly effective marketing and promotional campaigns, which was partially offset by the transition of the leading electronics brand partner's business from distribution model to the consignment model in September 2017.

Services revenue increased by 52% to RMB 582 million during the quarter. The increase was primarily attributable to the rapid growth of our consignment model and service fee model and, in particular, growth in sales from existing brand partners and the addition of new brand partners in the apparel category. The total operating expenses were RMB 1.1 billion. In particular, cost of products increased to RMB 464 million, primarily due to higher costs associated with an increase in product sales revenues, which was partially offset by the transition of a leading electronics brand partner's business from distribution model to consignment model in September 2017, and improved the margins for our product sales. Product sales margin improved significantly from 12.7% to 19.5% during the quarter.

Procurement expenses rose to RMB 278 million, mainly due to an increase in GMV contribution from our distribution model and consignment model and warehouse rental expenses. As we mentioned last quarter, we continue to strengthen our logistic network with the addition of warehouses in Chengdu, Wuxi and Suzhou, which just began trial operations. We invested in building these facilities in preparation for peak season later this year, where we expect to fully leverage them.

Sales and marketing expenses rose to RMB 273 million, primarily due to the recruitment of additional online store operations staff and an increase in promotional and marketing expenses associated with the company-operated online stores.

Technology and content expenses rose to RMB 65 million. The increase was primarily due to increased investment in innovation and productization, including recruitment of additional technology-focused staff.

G&A expenses rose to RMB 39 million. The increase was primarily due to an increase in administrative, corporate strategy and business planning staff. Income from operations increased to RMB 58 million, while operating margin improved to 5% compared with 4.2% in the same quarter of last year.

Non-GAAP income from operations was RMB 79 million, an increase from RMB 51 million in the same quarter of last year, while non-GAAP operating margin improved to 6.8% compared with 5.7% in the same quarter of last year.

Investments in technology, innovation and the productization were RMB 18 million, which we believe will enable us to expand our addressable market and strengthen our long-term competitiveness. Excluding these investments, non-GAAP income from operations increased by 92% year-over-year.

In Q2, net income attributable to ordinary shareholders of Baozun rose to RMB 37 million, an increase of 23% from the same quarter of last year. The basic and diluted net income attributable to ordinary shareholders of Baozun per ADS was RMB 0.65 and RMB 0.62, respectively, compared to RMB 0.55 and RMB 0.51, respectively, during the same period of last year. Non-GAAP net income attributable to ordinary shareholders of Baozun rose to RMB 57 million, an increase of 34% compared with the same quarter last year. Basic and diluted non-GAAP net income attributable to ordinary shareholders of Baozun per ADS were RMB 1.01 million (sic) [RMB 1.01] and RMB 0.96, respectively, compared with basic and diluted non-GAAP net income attributable to ordinary shareholders of Baozun per ADS of RMB 0.80 and RMB 0.73, respectively, for the same period of last year. That completes the profit and loss statement for the quarter.

As of June 30, 2018, the company has RMB 726 million in cash, cash equivalents and short-term investments, an increase from RMB 557 million as of December 31, 2017.

Turning to the guidance. For the third quarter of 2018, we expect total net revenue to be between RMB 1.09 billion and RMB 1.12 billion. We're confident in our business performance. We expect the GMV to grow to over RMB 20 billion and services revenue to grow faster than 50% on a year-over-year basis during the second half of this year.

This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

(Operator Instructions) Your first question comes from Eileen Deng from Deutsche Bank.

I have 2 question. The first one is regarding the product sales. In the second quarter, we see the strong growth on a year-on-year basis. So just wondering, what's the underlying reason to drive such growth? And how should we forecast trend in the second half? And the second question is regarding our guidance. The second half service revenue, 50% growth, and the second half GMV guidance of RMB 20 billion. Between these 2, what is the implied nondistribution GMV growth for the second half?

Okay, thanks for the question, Eileen. So let me take the 2 questions. For question one, about the product sales growth, the underlying reason basically is it's better than our expectation because we removed -- we changed the business model for the leading electronics, so there's a gap we need to fill in this year. But the actual sales for this midyear campaign is better than our expectation when we gave the guidance early in May. So basically, we have seen a change and the sales is more concentrated in our operating -- operated brands. And we are operating the only flagship store on Tmall and JD, and also we are operating the only official branded store. So these flagship stores are gathering more traffic and attention from the Chinese consumers. So that's why -- basically, that's why the growth rate for the product sales is higher than our expectation. And for the second half, there's still a drag factor in Q3 because we changed the business model for the leading electronics in September last year. So there's still 2-month effect in July and August. But for Q4, we think the product sales revenue will be accelerating. The growth rate for the product sales revenue will accelerate in Q4 with the year-end campaign. And about the question -- the #2 question for the guidance, so basically, we based the guidance on the actual results for the first half of this year and also our forecast during the mid-year for the second half of this year. So with a very healthy same-store sales growth and a handful of new brands onboard, we think we can achieve this target to deliver a very good result.

Your next question comes from Monica Chen from Crédit Suisse.

I also have 2 questions here. So first one, can management provide the update on the current same-store sales growth for our major categories like apparel, 3C products and home appliance? And what is like the trend likely for next year? And then my second question is, can management actually provide more color on the collaboration with the cosmetics brands, as Vincent just mentioned? So what is this cosmetics brands? And how do they actually think about the omnichannel strategy? Are they currently more focused on Tmall? Or are they actually considering to move more towards the official site and the Mini Program? And what kind of services can we provide to them?

Okay. Thanks for the question. I will take the first question about the growth landscape for the category. So basically, for the first half of this year, our same-store sales growth rate for existing store is 50% on a year-over-year basis, 5-0, 50% on a year-over-year basis. And basically, for apparel, electronics and even appliances, we are growing in a very promising speed, especially like those -- we have some very long-time operating brands in appliances categories. But in the first half of this year, they are growing very, very fast, even accelerating compared to last year. So it's very good. But for apparel, it's always our big -- apparel and sportswear, they're always our biggest category, contributing over 50% -- a little over 50% of our total GMV amount for the past -- I think for the past 2 to 3 years. So yes, this is the outlook for the same-store sales growth.

Okay. And Monica, this is Junhua from Baozun. So let me give you some color regarding your second question. So the cooperation with the 2 leading cosmetics and beauty category all over the world, we just signed a contract with them for an omnichannel service. So in terms of the channel selection, we serve them on -- the majority part is Tmall, also their JD channel and also their independent channel, independent brand store, their (inaudible) website, and of course, based on WeChat Mini Program product portfolio is going to have some Mini Program WeChat stores. And the service scope, we work with those leading cosmetics group are supporting our end-to-end one-stop solution, also including our IT integration and IT innovation and our store operations, our customer service, our digital marketing, and of course, with our warehousing and fulfillment services. So this kind of the partnership with those leading group of cosmetics [to us] can bring a very -- a decent GMV growth in the future and of course, in the long term can help Baozun to just build up a cosmetics category.

Your next question comes from Alicia Yap from Citigroup.

I have 2 quick questions. Number one is on the broader-picture outlook for the second half. Given the decelerated online retail sales reported by the [MPS] data as well as the noises from the trade war, I wonder if you can give some color. Have you seen any impact from the consumer sentiment that would be affecting the same-store sales in the last 1.5 months for the third quarter? And then any potential impact or decision from new brands signing up affected by the trade war? Then second question is quickly on the guidance. So for your second half, the GMV, over RMB 20 billion guidance, is that already including the new cosmetic brands that you just signed up and also brands that you are expecting to sign onboard?

Thank you, Alicia, for the question. Let me take the second question first, and I will pass the first question to Vincent about the broader picture. So for the guidance of the RMB 20 billion we have given during the press release, basically, it's based on our forecasting prudence method.

Yes. Okay, about the impact from the trade war, actually, on our daily base contact with the brand partners, it's not a very hot topic yet. I think it's mainly because that we are doing this brand e-commerce, especially the global brand e-commerce in China, so it's not -- it doesn't have a lot of relationships with the cross-border or trading things. So actually, I think the impact will not be obvious. So I think the cross-border businesses can be more affected. But we -- the portion of the cross-border business in Baozun is very limited and mainly it's just imports, not exports. So actually, I think the impact could be neutral and, in some extent, even positive. So we are not worrying about the trade war impact. We are still expanding our capability to serve more brands and in more service modules.

What about the sentiments on the consumer domestically?

I think the passion for the consumers in China to turning towards more branded products and also more authentic channels is growing. So we actually, luckily, we are not seeing very negative impacts from that. We are quite optimistic for the coming second half and also the coming years of the brand e-commerce, especially global brands e-commerce business in China.

The next question comes from Joyce Ju from Merrill Lynch.

We'll go on to the next participant, that will be Chen Bi from CICC.

I also have 2 questions here. The first, I just have a follow-up on the overall industry trend. Besides we see that overall retail market has decelerated currently, we also see some industry slowdown trend like the overall smartphone shipment. So could management share with us some color, like if Baozun has seen any related impacts on your business so far, and if we should notice any impacts going forward like in the second half of this year or in 2019? That's my first question, and I have a follow-up.

Okay. So generally, our sales is tied into the ending consumer. So basically, it's in line with the overall industry trends in the smartphone categories. But for smartphone, usually, the big peak season is in the second half of each year, usually September and October, when those big smartphone players, when they launch their new series of products. It's usually a big sale complying -- accounting with the 11.11 campaign. So we're going to see for the second half of this year, so -- but we are operating those top-tier brands, so we believe that we should be able to ride in the wave.

Okay, Beck. My second question is about your Innovation Center. So we see continuous investment for Baozun to recruit related talents in technology or develop some products in Innovation Center. So just wondering if there are any products in Innovation Center that already could get monetized or ready for monetization at this stage. And could management share with us the time line or your plan that we could expect innovation products -- the Innovation Center's products that's coming to the market and generate some material revenue going forward?

Yes, we are investing -- we keep investing into the Innovation Center, and we are expecting them to be delivering more values to our brand partners in 2 ways. The first way is that the technical and innovation center will deliver a bunch of tools and also platforms to enable our operating team to deliver better efficiency to the existing brand e-commerce business. So in this case, the result is not the -- how do I say, is not through selling of the products, it's just through the higher efficiency of our services provided to our clients. So this is the first way we are -- we realize the return of investment for the Innovation Center. The second way is that, in some stage, they are selling services, software and solutions to the existing brands and also potential brands to generate sales revenue directly. So that's the 2 ways. For the selling of the software products, there are 2 major directions. One direction is about application-related products. The second one is the data-related product lines. So for the first one, today, we are already utilizing several of the products to deliver the official website solutions for our clients. For example, recently signed brands, when we construct the branded official stores, we're using the new generation of software delivered by the Innovation Center. For the data-related product line, we are having very good results now. We are in the trial operations stage with several of the brands, and we are seeing a very good feedback. So in this direction, we'll keep investing, tracking the results, deliver -- let more and more brands use the system, trying to realize revenue and also profit in the future, keep doing so. So we are quite confident for the results of the innovation investments.

Your next question comes from Nicky Ge from China Renaissance.

I have 2 questions here. My first question is about our investment forecast in the future. Could Vincent or Beck share more insight on what is the, like, key areas you're going to invest in, in the near future? And the second question is about the margin guidance for the second half of this year across quarters.

Yes. This is Vincent. The first questions for the investment forecast. Actually, we have -- every year, we have a very, how do I say, comprehensive budget planning and forecasting. So for the Innovation Centers, as just mentioned, we are having 2 major directions for the productization. First one is about the tools we delivered to our operational and marketing team to let them have better operating efficiency or some more capability to serve the brands. The second one will be, we call this data-related product line, means that we'll put big data and AI initiatives to the investments. So they are the 2 major directions. For the investments, it's mainly for the talent acquiring and some of the infrastructure or hardware and software investments. So I think we are quite confident that the investments can have a very positive return step-by-step.

Okay. About the second question, the margin outlook, and for the Q2, the margin is good. And we do think that for the second half of this year, our product sales margin could still grow very significantly compared to the same period of last year because we -- because of the factors we had been talking about just now, so yes, much more significantly increased compared to last year.

Your next question comes from [Amy Wong] from HSBC.

Just want to have -- can I have a question to Vincent and Junhua first on the strategy? Just want to see like, basically, as management are continuing investing in the technologies and marketing here, when do you expect to see a translation in the expansion of the take rate? And then whether we are going to charge more to the brand partners? Or is it that more we are just focusing on maintaining a stable take rate and then using those upgrade in our technologies and marketing services and to increase our -- expand our client base? Is the management -- which direction is management strategy with upgrade, but in the matter of, I guess, monetization to translate into higher take rate? And then second question is, I recall earlier we had these software launches on the NEBULA [Plus]. I just want to see any update on that because that can help shorten the lead time and resources for more standardized process. How do you see the adoption rate so far? And do you see that actually helps us diversify into a broader set of brands, mainly we can get into a more medium, smaller brand partners because we offer just more standardized procedures? And that's my second question on the strategy. And then my last question is a follow-up question on margin trend to Beck. We noticed that the tech expense as a percentage of sales were up to 5.6%, and that's continued to be doubling the level we see in last year. So this is on a continued rising trend. We recall management have been mentioning that this would be an investment year, and so how are we comfortable with our longer-term margin trajectory with the continuing investment in tech expense? Should we expect this trend to continue in the second half and going forward?

A very complicated question. No problem. Actually, we keep investing in technologies in other aspects of innovation in Baozun. And we believe this can give us a very positive return from time to time. So talking about the results we're expecting from the investments, of course, take rate is one thing. But the other things, like efficiency, I mean, lowering the cost and also giving us the better perspective when we're talking to potential brands, give us more possibility to deliver value, more value to the brands. So generally, the investments lead to different benefits for us. So for take rate, I think right now the existing brands, I think the take rate is quite stable. And definitely, we're getting a better take rate from the newly onboard brands. So in this case, the general, the total take rate will be mixed for the existing and also new brands. So when we talk to the brands, why we can have a better take rate because we are delivering better services, more valuable services, majorly based on investment we made yesterday and today. And also, for the other benefit that we can see is that we believe that the top technology and also innovations can [dramatically] lower the down the cost, uplift the efficiency in the future. And also in the sense of delivering better value for the brands, of course, we believe software solutions and also innovations can make us much more competitive. So for -- of course, today, I think not only we are serving the traditionally bigger and famous international brands, of course, we are also targeting the -- a broader base of our client. So actually, we are talking to, of course, leading local brands, and also we're trying to deliver more solutions to the small and medium business as well. We will have all the -- we just want to have more capabilities, not only to serve international bigger brands, but also the local and the small, medium key brands as well. Thank you.

So about the long-term margin outlook, basically, investments in innovations and technologies will have some pressure on short-term margin. Maybe it'll still grow but not grow so significantly compared to if we do not have such kinds of investments. But for the long run, we think the investment is the key way for us to keep our competitiveness and also to lift out our long-term bottom line in the future.

Your next question comes from Joyce Ju from Bank of America Merrill Lynch.

I have 2 questions. My first question is regarding the take rate trends for the second half and going forward. We know, this quarter, actually, we have a lot of new brands signing in, especially like cosmetics. Traditionally, they have quite decent margins, and they're like across all the consumer products; and also apparels. So I want to get an idea, like, for the second half or for next year, shall we expect a further upward trend for the blended take rate? Could you just give us more colors from the category mix perspective? My second question is a more broad-picture question. We want to better understand management's main strategic focus at this stage of development of Baozun. Is there anything in terms of like management's attention focus and the (inaudible) you can prioritize like different aspects? And also, anything management see as the biggest risk for the business?

Thanks for the question, Joyce. I'll answer the first question about the take rate for the second half and in the long term. So basically, for the first half, actually, starting from Q3 last year, we have some take rate pressure. The electronics category is increasing very fast, and also we have some different accounting treatment for the marketing revenues, gross versus net, so it brings a lot of pressure on take rate. And just like we said in the previous calls, that the take rate will be slightly stable this year and slightly upward later this year. And also for next year -- in the next few years, we shall be able to achieve a higher take rate with our businesses because we -- first thing is we have more leverage -- we have more scale, scalability on the business and also we have more value-added services and tools delivered to the brands. So this is the foundation and the cornerstone for us to charge more through the business generated by us. And you're already seeing the change about the gross margin increase, significant increases starting from Q4 last year, so we expect the gross margin from product sales revenue will still keep increase for second half of this year on a year-over-year basis significantly, and also keep to increase next year. And about the category mix, still, apparel, electronics and appliances, the 3 largest -- the 3 categories are the 3 largest categories in our business currently. And for next year, we expect that cosmetics could be the fourth-largest category in our overall businesses. So we believe that in the long term, the cosmetics category growth will also help to lift up the overall corporate profitability.

Okay. Joyce, for your second question, actually, the major theme of strategy for Baozun this year, there are 2 aspects: one is upgrade; the second one is create. In Chinese, we call this (foreign language). So for upgrade, actually means that we are not -- just want to upgrading all the Baozun capabilities in services, operational efficiency, profit making, all these kinds of daily operation-related things. We are doing a quite good job, I think, for this first half. For create, it means that technology and also the innovations, on these kind of directions, also we are quite optimistic looking forward. Just as one more years ago -- 1.5 years ago, when we just had the vision that sales and the marketing can be connected together, and then we had the initiative to develop our digital marketing capability. So after 1.5 years, you can see that today we have achieved a lot for this kind of services. So we call this kind of initiative, create. We successfully create a very successful capability in business for Baozun's digital marketing so we can serve the brands better. So our attention will be on these 2 aspects majorly. And also, to make that happen, we need to acquire and retain more and more better talent. So that is also a daily focus for the management attention. Yes, so that is about the major attentions from the top management. So I hope this answer your question.

Yes. I'm wondering like for the risk, potential risk, is there any like -- anything or any concerns like management have like in terms of, like, broad-picture macro or company-specific wise? Anything you think like could potentially threaten Baozun's growth or like give some pressure?

Yes, I think for preventing us from, how do I say, [neglection] of the potential change in the market, we actually take the omnichannel view of the business. It means that we just want -- we not only serve the major channels today, including the platforms, existing platforms and official web store, we also have a team called the emerging market and industry team. They will be focused on the development of the brand e-commerce directions. So in this case, we can work with the potential emerging markets and changing of the market to make sure we'll have a better position. So that's why, today, we're working quite well with the existing social commerce channels, including Xiaohongshu and also Mini Programs. So that is about the prevention of the risks. And also, I think, majorly, the challenge will be, first thing, maybe the changing of the market (foreign language)... yes, the form of the marketing and also the talents we need to fulfill the requirements. So I think that's the challenge. I mentioned this. We are working on that closely, yes.

Your next question comes from Tian Hou from T.H. Capital.

My question is related to your distribution GMV. In the past several quarters, the company emphasized you want to de-emphasize distribution model and shift from distribution model to a nondistribution model. However, if I look at the 2Q rapid GMV and the revenue composition, I feel like the distribution model grow actually faster than expected or than guided. So I wonder what happened there. And what can still happen in the future in the business, direction-wise?

Okay. Thank you for the question, Tian Hou. So basically, yes, you're right, so we just want to de-emphasize on distribution generally, especially for newly onboard brands. Usually, we just encourage to adopt the nondistribution business model with -- by partnering with those brands. But for existing brand partners, if we are not able to transition the business model from distribution model to other business models, we will still stick to distribution model. And for our team and our company, we'll try our best to deliver the good results like the same-store sales growth rate for the existing distribution partners. So this is our -- this is like our mission to do that. So that's why for the remaining distributional partner, we will keep to grow the businesses. And basically, this is why that -- why in Q2, the [existing] stores, especially like those big brands, long-term operating history, big brands in appliances categories, they are growing faster and they are growing very healthier in line with -- actually, higher than the marketing -- market average. So basically, we will keep to do that for our existing distributional GMV. And for the future outlook, and we still have some drag factor in Q3 because we're transitioning the then largest distributional partners in Q3 last year. So we had some comparison change. But for Q4, we did not have any historical figures in the comparative figures, so the distribution in GMV will really reflect our same-store sales growth rate for remaining distributional partners, which is higher than the growth rate for product sales revenue in first half of this year.

Your final question comes from Billy Leung from Haitong International.

I just have 2 quick questions. The first one is -- I'm sorry if I missed this. But about the mini app category, I was just wondering if the management can tell us what kind of categories or industries or what kind of brands are actually showing interest on the mini apps services. Are these mostly our traditional longtime clients? Or are they sort of relatively new clients which are showing interest in the mini apps services? That's my first question. The second question is more for Beck. It's to do with the free cash flow. So I realize that for this quarter, we've entered into another negative free cash flow. So was there any timing issues with receivables? Or is this just a seasonal thing?

Okay. So this is Junhua from Baozun. So let me answer your first question. So regarding the Mini Program-based applications, so the industry and category, here it's really more towards the fashion, apparel and cosmetics. And in terms of the brand, according to our current [differentiation], so it's more like a luxury brand. It's having a lot of Mini Program-based engagement with your end consumers. But of course, with the -- in the cosmetics category, it's towards the luxury, their luxury division. It's more providing a lot of new touch points and engagement based on that Mini Program [protocol]. So the WeChat Mini Program store is having a lot of different kind of forms. Number one is like they provide a pop-up store to supporting the luxury brands in fashion apparel category and the cosmetics category to launch their new arrival products and launch their limited categories and limited editions. Number two form is their permanent store. So more and more luxury brands realize that having the independent brand store based on WeChat and combined with their WeChat official account is very efficiency (sic) [efficiently] engaging their consumers. So they open a permanent store, listing all your products for selling online with their end consumers. So that's basically my answer to your question.

Okay, so Billy, for the same question, basically, we have investment in CapEx items, especially for abilities of logistics. So we keep using new spaces in Chengdu, Wuxi, Suzhou for the first half of this year. So we need to do a lot of leasehold decoration and improvement. So basically, this is all those facility CapEx -- cash outflow to -- (inaudible) free cash flow. But in the long run, we will keep to invest, and we will get benefits and also leverage in next year or in -- even in this year, later this year in the peak season of this year.

Thank you. There are currently no more questions in queue. I'd like to hand the conference back to our speakers today. Caroline, please continue.

Thank you, operator. In closing, on behalf of the entire 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 interest in visiting us in China, please let us know. Thank you for joining us today. This concludes the call.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for your participation. You may all now disconnect.