Vipshop Holdings Ltd (VIPS) 2023 Q1 法說會逐字稿

Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited First Quarter 2023 Earnings Conference Call. At this time, I would like to turn the call over to Ms. Jessie Zheng, Vipshop Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's First Quarter 2023 Earnings Conference Call. With us today are Eric Shen, our Co-Founder, Chairman and CEO; and David Cui, our CFO.

Before management begins their prepared remarks, I would like to remind you that the discussion today will contain forward-looking statements made in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our safe harbor statements in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this call to extend any forward-looking statements may be made.

Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income and non-GAAP net income per ADS are not presented in accordance with U.S. GAAP.

Please refer to our earnings release for details relating to the reconciliation of our non-GAAP measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen.

Good morning and good evening, everyone. Welcome, and thank you for joining our first quarter 2023 earnings conference call.

We were off to a strong start into 2023. Our steady leadership, combined with the long-term merchandising strategy and relentless focus on agility, execution and business fundamentals allowing us to navigate through micro challenges, stay even closer to brand partners and customers and capture the opportunities in the post-pandemic consumption recovery.

During the first quarter, we saw good momentum in apparel-related categories, which booked a double-digit GMV growth year-over-year. Our abundant and diverse branded merchandise at great value well catered to customer appetite for holiday and seasonal shopping along with a rebound in social activities.

Customer trends remained strong. The number of active customers regained growth year-over-year and the average spending also grew nicely on more frequent purchases. Paid membership growth proved even stronger. We ended the first quarter with a 15% growth in Super VIP members, who represented about 42% of our online spending.

Profitability was exceptionally strong, as we continue to double-down execution for efficiency with a number of measures in place, but our efforts are more on building the strategic and the long-term capabilities related to merchandise expansion, customer engagement and the service excellence that true differentiate us.

On merchandising, we focus on delivering a sense of freshness as customers are attracted to all things new and trending. On top of industry-leading core brands, we continue to expand into more high-quality, affordable and premium brands that offer great style at great value.

And we are more holistic about differentiation our merchandise offerings. We continue to optimize the apparel-focused product portfolio within the Made-for-VIP line. We've developed a general guideline for brand partners to customize high-quality products that can fill in the gap in certain categories and price bands on our platform.

In addition, we've be investing in our merchandising talent because we understand they are at the heart of our business model. Through well-designed internal certified programs, we intend to enable them with skill sets and expertise to take our merchandising capability to a new level.

Customer engagement, especially with our high-value cohort, is driven by a comprehensive set of upgrades. Our goal is to make Vipshop an enjoyable shopping destination, not just the a shelf to search or browse.

We are digging into the customer insights to provide more inspiration, relevant content and personalized offerings to our customers. We are creating innovative channels of promotion around the customer lifestyle, product life cycles and the trading -- and the trending categories. We expect these initiatives to increase repeat orders and cross-category purchases.

Service has been another source of differentiation. We've demonstrated our best-in-class service in worry-free returns or exchanges, as well as efficient and reliable logistics. There is a lot more we can do in terms of enhancing customer mind share as to price advantage, quality assurance, product authentic as well as tailored service through our loyalty program.

We will keep driving changes as needed to capture the opportunities in this environment as consumers manages household budgets more carefully. We are reinforcing our value-for-money perception across our quality branded merchandise to keep Vipshop top of mind with customers.

With this, we're positioned to grow the base of high-value customer and paid members and also grow engagement levels across customer cohorts. We believe we are in the better shape to achieve quality and consistent growth in both top and bottom line for the long term.

Lastly, as stated in our earnings release, our CFO, David Cui will step down from his current position for personal reasons. On behalf of the Board of Directors and the management team, I would like to thank David for his contributions and tireless work over the past 3 years and wish him all the best in his endeavors. Mark Wang will succeed David as our new CFO starting from tomorrow.

I would also like to warmly welcome Mark. His extensive experience in finance and accounting will make him a great addition to our team.

At this point, let me hand over the call to David Cui to go over our financial results.

Thanks, Eric, and hello, everyone. As Eric mentioned, today is my last time joining the earnings conference call as the company's CFO. It has been a great honor to be part of a company that is enthusiastic and steadfast at what they do. The past 3 years were full of challenges and uncertainties. But together with our dedicated management team and colleagues, we weathered through the hard times and emerged stronger with solid business foundation and financial position to achieve our long-term growth strategy.

I would like to express my gratitude to the Board, Eric and investment communities for your trust and support along the way.

Turning to the earnings results. We are pleased to deliver a strong quarter that exceeded our expectations. We achieved pretty good sales upside as our teams responded to the fast-changing consumer needs and aggressively secured inventory for the opportunities ahead. As it sets us up in a good position going into the year.

Margins remained on the expansion track. With increased sales contribution from higher margin apparel-related categories and well-rounded measures of cost optimization, gross profit recorded double-digit growth, and gross margin continues to expand meaningfully year-over-year.

We continue to be disciplined in expenses and held fast to our high-quality growth strategy. As a result, we saw decent expense leverage. Non-GAAP net income increased by 46% year-over-year and net margin reached a new record high at 7.5%.

Moreover, we continue to return value to our shareholders proactively. During the quarter, we have fully utilized the remaining amount of our USD 1 billion share repurchase program and today, we announced an increase in the amount of existing share buyback program from USD 500 million to USD 1 billion.

Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that our financial numbers presented below are in renminbi and all the percentage changes are year-over-year changes unless otherwise noted.

Total net revenues for the first quarter of 2023 increased by 9.1% year-over-year to RMB 27.5 billion from RMB 25.2 billion in the prior year period, primarily attributable to the growth in active customers and spending driven by the recovery in consumption of discretionary categories.

Gross profit increased by 17.9% year-over-year to RMB 5.9 billion from RMB 5.0 billion in the prior year period. Gross margin increased to 21.4% from 19.8% in the prior year period.

Total operating expenses increased by 4.2% year-over-year to RMB 4.1 billion from RMB 3.9 billion in the prior year period. As a percentage of total net revenue, total operating expenses decreased to 14.7% from 15.4% in the prior year period.

Fulfillment expenses increased by 5.2% year-over-year to RMB 1.8 billion from RMB 1.7 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses decreased to 6.5% from 6.7% in the prior year period.

Marketing expenses increased by 10.2% year-over-year to RMB 836.9 million from RMB 759.3 million in the prior year period. As a percentage of total net revenues, marketing expenses was 3.0%, which stayed flat as compared with the prior year period.

Technology and content expenses increased by 0.6% year-over-year to RMB 392.8 million from RMB 390.4 million in the prior year period. As a percentage of total net revenues, technology and content expenses decreased to 1.4% from 1.5% in the prior year period.

General and administrative expenses decreased by 0.7% year-over-year to RMB 1.0 billion from RMB 1.1 billion in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 3.8% from 4.2% in the prior year period.

Income from operations increased by 54.8% year-over-year to RMB 2.0 billion from RMB 1.3 billion in the prior year period. Operating margin increased to 7.2% from 5.1% in the prior year period. Non-GAAP income from operations increased by 50.6% year-over-year to RMB 2.3 billion from RMB 1.5 billion in the prior year period. Non-GAAP operating income margin increased to 8.3% from 6.0% in the prior year period.

Net income attributable to Vipshop's shareholders increased by 69.6% year-over-year to RMB 1.9 billion from RMB 1.1 billion in the prior year period. Net margin attributable to Vipshop's shareholders increased to 6.8% from 4.3% in the prior year period. Net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 3.16 from RMB 1.61 in the prior year period.

Non-GAAP net income attributable to Vipshop's shareholders increased by 45.8% year-over-year to RMB 2.1 billion from RMB 1.4 billion in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders increased to 7.5% from 5.6% in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 3.52 from RMB 2.09 in the prior year period.

As of March 31, 2023, the company had cash and cash equivalents and restricted cash of RMB 18.9 billion and short-term investments of RMB 1.5 billion.

Looking forward to the second quarter of 2023, we expect our total net revenues to be between RMB 27.0 billion and RMB 28.2 billion, representing a year-over-year increase of approximately 10% to 15%. Please note that this forecast reflects our current and preliminary view of the market and operational conditions, which is subject to change.

Now I would like to introduce Mark, our new CFO, who is also present at the call. I would like him to say hello to everyone.

Okay. Thanks, David. Good morning, and good evening, everybody, I am Mark. I'm very glad to have this opportunity to attend the first quarter earnings release and meet all of you. By way of short introduction, I have more than 15 years financial management experience.

Previously, I worked as the CFO of Benlai Group. Prior to that, I'm the Vice President of Finance in Xiaomi Group. It's my great honor to take CFO in Vipshop. I would like to take this opportunity to thank David for his great efforts during the past years. And I'm looking forward to working with management and do everything I can to contribute to the future success of our business. Thanks.

Okay. With that, I would like -- now like to open the call to Q&A.

(Operator Instructions) First question comes from Thomas Chong with Jefferies.

Congratulations on a strong set of results. My first question is more about the consumption recovery. In particular, the consumer sentiment that the management observed in recent months? And also, how should we think about the monthly GMV trend recently and also our expectations for the coming quarters?

And my second question is about the June 18 marketing campaign. Can management comment about how you are seeing the industry preparations for this event and our strategies for this year? (foreign language)

(foreign language)

[Interpreted] Okay. In terms of the general consumption or current trend in the past several months, actually, we do see a very strong recovery after Spring festival when people are coming back to normal life and work after 3 years of the pandemic effect.

So we do see a very strong recovery in apparel-related categories as people are going out more often to meet friends and along with a strong rebound in social activities. And that momentum in April and May were really well, and it continues into the quarter-to-date. It seems that we do see a lot of pent-up demand as people are going out for travel, having parties or meeting friends.

And in terms of the June 18 promotion. Of course, it's a very important promotional event in the e-commerce sector. It's -- this year, it starts very early and it's going to be extended length of period up to 1 month of promotion. I think everybody is making a lot of efforts to prepare for the promotional campaign, and we do nothing unusual than before. We still focus on apparel-related categories. We are branded discount retail and we focus on securing a strong flow of our branded merchandise and at deep discounts. So we'll be here for the campaign as well.

The next question comes from Natalie Wu with Haitong International.

Just one for the longer-term prospect. Just curious, Shen-zong, I don't know what kind of the expectations do you have post the reopened bonus and the low base effect, let's say, beyond next year? What kind of the normalized growth rate are you anticipating? And also just wondering if the high margin of the first quarter can be sustained in the future?

(foreign language)

[Interpreted] Okay. In terms of long-term growth, our target, I think at least for this year, we still have very high hope because we do benefit from the current environment especially in branded discount retail, and that we are going to take advantage of the opportunity when consumers manage their household budgets more carefully after the pandemic. So we are pretty optimistic about the full year growth.

In terms of profitability, we also have very high confidence, although we achieved a record high level of non-GAAP profit margin, we have -- we may see small fluctuations from quarter-to-quarter. But remember, we still focus on high-quality growth. We're not growing just for growth. We look for quality profitable growth. And with a number of measures already in place in terms of efficiency gains, we are confident that we can still further expand our margins.

And we are also very -- we also continue to be very disciplined in terms of cost and expenses, and we do very careful calculation as to where to spend our money, and we want to make sure that every dollar we spend has returned. So we are pretty confident that we can maintain a relatively high level of profitability.

(foreign language) Just curious post reopen bonus in the next year and much longer term, can we still manage higher than average growth rate compared with other e-commerce players?

(foreign language)

[Interpreted] In terms of long-term growth, we cannot fully guarantee what we are going to achieve for the next couple of years because we do see increased competition from our peers in terms of promotion, subsidies and also a lot of emerging formats like live streaming, grabbing time spend from customers. The only thing we can do is actually to be ourselves, to be good at what we are really good at and to offer our customers with brand -- better merchandise offerings, better pricing and better experiences and try to strengthen our leadership in branded discount retail.

We may not grow as rapidly as a lot of people imagined, but we are going to grow very solidly. So we are optimistic about our long-term growth, but we are also fully aware that the competitive landscape is evolving from time to time, and we are fully prepared for that.

(Operator Instructions) The next question comes from Jialong Shi with Nomura.

(foreign language) First of all, thank you very much management for taking my questions. I have 2 questions here. My first question is about the Super VIP. So I just wonder what is the latest number of quarterly Super VIP members? And what was the GMV in 1Q contributed by Super VIP member? How many of Vips' active customers may be converted into Super VIP member?

And my second question is about the growth outlook for second half. Just wonder if management can provide any colors as to how much the top line may be able to grow in the second half?

I'll answer the first question. In Q1 2023, we had active purchase Super VIP 6.3 million, which represents a [15%] (corrected by the company after the call) increase year-over-year, who contributed about 42% of our total revenue. So in response to your question regarding how many can be converted with Super VIP, we have over 85 million active customers in -- annual active customers, I would say, that could be considered for the conversion. And also, we have exceeded like 200 million registered customers that we could tackle.

So basically -- also, we have -- among all these active customers, we have roughly about 15 million we consider high-value customers who contributed a higher ARPU, right? So this could be a target for the conversion.

(foreign language)

[Interpreted] Just adding to David's point in terms of the SVIP, we are going to continue to expand the base of our SVIP members. We're going to increase their membership privileges to motivate them to spend more to stay longer and to place repeat orders and to do a lot more cross-category purchases, to increase their frequency of repurchases as well. So this is our -- on the priority list of our customer expansion.

In terms of the growth for the second half of this year, we actually have seen very good momentum in customer trends in both Q1 and Q2. These have laid a solid foundation for the momentum going into the second half. And we are pretty confident that we can continue to expand our customer base with reasonable spending. We have turned out scientifically to increase customers at a relatively rational spending, and we are pretty confident that we can continue to expand our customer base.

In addition to that, we have a lot of things that we can do in terms of merchandise expansion, creating clear pricing advantage and leverage a personalized offering to increase the conversion rate of our customer purchases.

And in terms of merchandising offerings, we can be quite flexible between apparel-related categories and the nonapparel-related categories. So we do have a comprehensive set of initiatives to maintain a very good and healthy growth of our business momentum.

(Operator Instructions) The next question comes from Wei Xiong with UBS.

(foreign language) My first question is regarding the competition in the e-commerce industry as some of our peers have recently announced their plan to be more aggressive in investments in terms of user growth and the price competitiveness. So just wondering what actions can we take to maintain our value proposition in light of the heightened competition?

And second, just to follow up on the marketing expense. So given that we have the big promotion coming up, and we do want to step up the investment related to user growth when the ROI is positive. So how should we think about the marketing expense trend in the second quarter as well as the marketing expense ratio for the full year?

(foreign language)

[Interpreted] Okay. So in terms of competition, how we are going to compete in this environment? Actually, we still focus on what we are really good at. We focus on apparel-related categories. We actually prioritize on traffic and resource allocation to popular brands and to encourage them to grow faster at our platforms than some other platforms.

In terms of product selection, we have our long-term expertise through our professional buyer team, and we know what consumers are really looking for, and we have very strict requirements in terms of pricing with brand partners. We want to make sure our product selections will cater to consumer demand and needs in terms of product selection as well as our pricing.

In addition, we actually work very closely with some of our core brands to customize high-quality product offerings for our customers. We will continue to further differentiate our merchandising offering and to create more value to our customers.

We understand there are a lot of formats of e-commerce, including live streaming, and we continue to be largely shelf-based e-commerce player because we know there are merits that live streaming cannot compare with.

For example, we have a lot more SKUs, and we offer a lot more selections to our customers. And -- so there are certain merits that live streaming or other players cannot meet customer demands. We understand there is going to be a lot of competition and even pricing wars ahead, but we know how to manage that, and we still focus on building our strategic and long-term capabilities in terms of merchandising to offer our customers with more unique and better priced product selection.

In terms of marketing spends, you don't have to worry too much about that. We are quite optimistic in terms of our marketing spend overall. It's going to be quite manageable in Q1. I think marketing spends as a total -- as a percentage of total revenue is 3%, is not going to jump to 4% or 5%. It's only going to be very incremental increase on the basis of 3% -- probably a 10% increase to 3.3%, at most.

(Operator Instructions) Our next question comes from Andre Chang with JPMorgan.

(foreign language) Let me translate my question into English. I have 2 questions. The first one is to understand more about the growth driver. What are the user group, geographic group and also the category that are driving the revenue growth acceleration in this quarter?

Two, we noticed GMV growth is clearly faster than revenue growth this quarter. Does that mean the company is making good progress on the marketplace 3P business? If that's the case, what's the driver? And does that contribute to the margin improvement as well?

(foreign language)

[Interpreted] Yes. In terms of category, overall, apparel categories are doing much better, at double-digit GMV growth in Q1, than non-apparel categories. We did see broad-based recurring in subcategories like women's wear, menswear, sportswear, kids wear and shoes and bags because, people are going out often and they need to mix and match.

In terms of geographic recovery, actual recoveries in across different tiers of cities, more or less with Tier 1 cities slightly outperforming, but not much as understandably, they were also hit the most by the pandemic.

On the GMV and the revenue gap, actually, it's not about MP. We have no change in our strategy as to MP. It's actually due to higher contribution from apparel categories in Q1 and apparel categories [yearly] carry relatively higher return or rejection rate. But remember, return and exchange is key to achieving excellence in service and customer experience. Over time, this will elevate the trust and the loyalty of our customers and translating to better customer revenue growth.

And -- because we focus on high-quality merchandising selection, services as well as price advantages. So those are the things that we are going to focus for the long term. And regarding MP, we don't actually see any change in terms of its contribution in the last several quarters.

(Operator Instructions) The next question comes from Ashley Xu with Credit Suisse.

(foreign language) My question is related to consumer behavior that we have seen on the platform. Do we see continuous signs of consumption downgrade? And would we be changing our strategy in product direction to focus more on lower price range to cater such demand?

(foreign language)

[Interpreted] Okay. In terms of consumption trend, I think we haven't seen very clear downgrades in terms of consumption among our current customers. Actually, order -- average order size ranges from CNY 200 to CNY 300 for our customers. And it seems that after the pandemic, they think it's worth it, spending more -- a little bit more on apparel and related categories because they need to travel a lot. And we actually don't carry a lot of premium stuff like gold or premium watches. So we actually don't have a very strong say in whether a lot of customers are actually downgrading their consumption.

What we have observed from our customer trend is that actually customer visits active customers and average orders and ARPU are all trending pretty well. In this environment, of course, there are a lot of people talking about whether cheap stuff are going to sell much better? We are not quite sure about that because we haven't seen that has happened on our platform. It seems that our customers continue to buy what they used to buy.

(Operator Instructions) The next question comes from Charlene Liu with HSBC.

(foreign language) The first question I wanted to ask is, obviously, we're seeing cumulative buyers in positive growth in the first quarter. Can we discuss the key drivers behind that growth and also more specifically, what acquisition channel contributed to that user growth or what is the key acquisition channel that contributed the most growth?

The second question is regarding dividend. Obviously, we've seen the management of the company announce the new buyback plan, but I want to just get the latest of mind the topic of dividend.

(foreign language)

[Interpreted] in terms of our customer acquisition, actually, we continue with our different channels, including targeted marketing, which includes preinstallations, app store installations, et cetera. And in particular, we are trying to enhance our personalization targeting our new customers to offer them with better selections of products so that they can convert sooner than before. And we continue to invest in TV dramas with sponsorship, those 15-second sponsorships in TV dramas prove to be very effective in increasing our branding exposure to a wide range of consumers.

And we also do a lot of marketing on social media to increase our branding, so that they can be converted sooner or later. So overall, we try to invest in different channels -- marketing channels at a manageable cost so that we can ensure that we are efficiently enough in terms of customer acquisitions.

In terms of share repurchase programs. We have been returning value to our shareholders proactively through the last couple of years. And with the current share price still underappreciated, we think the best way to increase shareholder value is to invest in our own company.

So we'll continue with this practice, and we are pleased to hear that a lot of investors actually have very positive feedback regarding our share buyback program, and we will definitely be committed to shareholder value creation for our investors, and we want to make sure that investors have a stable return through investing in our company.

I show no further questions at this time. So at this time, I will now turn the conference back to Jessie for any closing remarks.

Thank you for taking the time to join us today. If you have any questions or follow-ups, please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]