Baozun Inc.

Good morning, ladies and gentlemen, and thank you for standing by for Bayozan's first quarter 2025 earnings conference call. Currently all participants are in a listen-only mode. After the management prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Wendy Sun, Senior Director of Corporate Development and Investor Relations of Bayozan. Please proceed, Ms. Wendy.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our first quarter 2025 earnings release was distributed earlier before this call and is available on our IR website at .BaoZan.com as well as on PR Newswire Services. They have also postponed a PowerPoint presentation that accompanies our comments to the same IR website where they are available for your download. On the call today from Bayozan, we have Mr. Vincent Chiu, Chairman and Chief Executive Officer, Ms. Catherine Zhu, Chief Financial Officer, Mr. Junhua Wu, Director and Chief Strategy Officer of Bayozan Group, and Mr. Ken Huang, Chief Executive Officer of Bayozan Red Management. Ms. Chiu will first share our business strategy and company highlights. Ms. Zhu will then discuss our financials, followed by Ms. Zhu and Mr. Huang, who will share more about our e-commerce and brand management segments respectively. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward looking statements within the meaning of the U.S. Security Act of 1933 as a mandate. The U.S. Security Exchange Act of 1934 as a mandate and the U.S. Private Security Decreation Reform Act of 1995. These forward looking statements are based upon management current expectations and current market and operating conditions and relate to events that involve no or no risk uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which they call the company's actual results to differ maturely from those in the forward looking statement. Further information regarding these and other risks and certainties or factors is included in the company's filings with the U.S. Security and Exchange Commission and its announcement, notice or other documents published on the website of the Stock Exchange of Hong Kong Limited. All information provided in this call is as of the date here and is based on assumptions that the company believes to be reasonable as of this date and the company does not undertake any obligation to update any forward looking statement except as required and applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in NB. In addition, they may elect to use adjusted in place of non-general accepted accounting principles on non-GAAP in order to reduce oral confusion that may arise from our discussions about financials related to the GAAP grant. It is now my pleasure to introduce our chairman and chief executive officer, Mr. Vincent Chu. Vincent, please go ahead.

Thank you, Wendy. Hello everyone and thank you all for your time. I'm pleased to report that Baozun continues to execute our strategic transformation with constant quarterly progress. Our revenue streams are now more diversified and our operational excellence continues to strengthen across the businesses. Baozun Group achieved 4% -over-year revenue growth. BEC sustained a stable top line while BBM accelerated its strong momentum with 23% -over-year growth growth. BEC is making strides in quality development and value generation for our brand partners. Our ongoing progress in omni-channel and content creation initiatives is transforming customer engagement and the shopping experience. We also improved the quality of our product sales model, achieving both healthy top line growth and gross margin expansion. In addition, we are leveraging technology and AI applications to build a leaner and efficient organization. These innovations set a clear path for margin expansion for BEC and foster a culture of excellence. Within BBM, both GAP and Hunter are performing ahead of expectations. Our efforts to localize teams, products and merchandising plans for GAP yielded strong results. As GAP China continues to innovate and grow, we remain committed in delivering exceptional value to customers. Meanwhile, Hunter expanded the product offering category, achieved strong sales growth and received widespread recognition. To capitalize on this momentum and further strengthen Hunter's footprint, we will open three new stores simultaneously this May in Beijing, Shanghai and Hangzhou. Overall, we closed the quarter with a constant positioning to accelerate our transformation through 2025. Notably, 2025 marks Baozhun's 18th anniversary, a symbolic and strategic milestone. I'm proud of how far we've come. In China tradition, 18 signifies a time of renewed vigor, maturity and ambition. We view this milestone as a reflection of our transformation into an innovation-led platform focusing on long-term value creation. Now I will turn the call over to our team for a deeper look into our financials and business performance.

Thanks Vincent and hello everyone. Now let me provide a more detailed overview of financial results for the first quarter of 2025. Please turn to slide number three. Baozhun Group's total net revenue for the first quarter of 2025 increased by .3% year over year to 2.1 billion. Of this total, e-commerce revenue grew slightly by .4% to 1.7 billion, while brand management revenue rose by 23% to 387 million. Breaking down e-commerce revenue by business model, services revenue remains at 1.3 billion. DEC product sales revenue increased by .3% year over year to 423 million, driven by strong performance in new categories. CDM product sales totaled 387 million, representing a 23% year over year growth. This growth was mainly driven by the strong performance of the Gap brand, with both online and offline channels delivering healthy gains. Please turn to slide number four. From a profitability perspective, the blended gross margin for product sales at the group level was 32.4%. Gross profit increased by .9% year over year to 262 million for the quarter. Breaking this down by our key business lines, gross margin for e-commerce product sales expanded to 15%, a 130 basis point improvement compared to .7% a year ago. This multi-expansion was primarily driven by product mixed diversification. Gross margin for BVM was 51.6%, compared with .1% a year ago. The decrease was mainly due to product offering adjustments and optimization of commercial plans for the Gap brand. Now turning to bottom line items. Please refer to slide number five. During the quarter, our adjusted loss from operations totaled 16.7 million. This included an adjusted operating loss of 46 million from e-commerce segments, a decline of 58 million from the same period last year. The decline was mainly due to low seasonality for e-commerce retail in Q1, as well as personnel adjustment and strategic investment initiatives to transform and re-align with our operational tactics. We incurred approximately 18 million in restructure costs related to human resource reform in the quarter. BVMs adjusted operating loss totaled 21 million, an improvement of 28% from the same period of last year. Lastly, please turn to slide number six. We published our 2024 sustainability report, highlighting tangible progress across environmental, social, and governance metrics in April. We achieved a 36% reduction in scope one to carbon emissions, versus our base year 2021. And we are on track with our commitment to reduce by 50% by 2030. These initiatives demonstrate our commitment to building sustainable and responsible business. Let me now pass call over to Junhua to update you on BEC, our e-commerce business.

Thanks, Katherine, and hello, everyone. Since resuming full active duties in March, I'm pleased to report that BEC is now firmly aligned with our commitment to profitability and sustainable growth. In Q1 2025, we made meaningful progress across key strategic priorities, revitalizing e-commerce, enhancing our value proposition, expanding omnichannel capabilities, and driving technology-led efficiency improvements. These early achievements align closely with the objectives of our 2025 annual operating plan, which emphasize integrated business management, profit-focused execution, and a leaner, more agile organizational model. Now, let me quickly walk through some of our operational highlights in the e-commerce segment for the first quarter of 2025. BEC revenue totaled $1.7 billion, largely flat compared to the same period last year. However, our strategic investment in enhancing distribution capabilities is beginning to yield compelling results. Please turn to slide number seven. In Q1, BEC's product sales grew by 7%, driven by standout category performance in home and furniture, alcohol, and health and nutrition. Gross profit margin also improved by 130 basis points to 15%, supported by breakthroughs in new categories and renewed terms with several existing brand partners. Turning to BEC service perspective as shown on slide number eight. While BEC service revenue remained flat, when made structural mix change aimed at quality enhancement, revenues from online store operations grew by 12% year over year, driven by strong performance in the luxury and apparel categories, as well as continued progress in omnichannel initiatives. Notably, we achieved a strong double digit revenue growth on JDM Douyin and triple digit growth on Red Note for the quarter. Recently, Douzun was nominated as part of the first batch of red partners, uniquely among traditional team or partners. In the contraction segment, revenues from warehouse and logistics, as well as digital marketing and IT, each declined by a middle single digit year over year. The decline in warehouse and logistics revenue was meaning due to reduced volume from several key clients in a sportwear segment. While we anticipate the challenges to persist with certain clients, we have proactively focused on expanding our B2B business and business development in emerging segments such as outdoor and FMCG category within our warehouse operations. In our digital marketing business, we prioritize value added marketing while optimizing passive performance marketing to enhancing profitability and capital allocation efficiency. As content becomes increasingly critical to success in e-commerce, we are committed to innovating in content creation capabilities to stay ahead of the curve. Recently, our content creation efforts were recognized in the Ardhima ecosystem conference where we received awards for top performance team in Taobao operations and top data driven investment team as well as the Ardhima future business award. Q1 2025 demonstrates BEC's focused and precise execution. E-commerce is regaining momentum. Distribution is getting profitability. Omni-channel platforms are advancing and technology investments are driving measurable efficiencies. These results validate our annual plan's profit center framework. With solid execution and a clear strategic mandate, BEC is poised to deliver lasting value throughout 2025 and beyond. Now I'll pass the call to Ken for an update on Bao Zheng brand management.

Thank you, Tim, and thank you all. Please turn to slide number nine for additional insights into BBM. I'm happy that we carried our strong momentum into Q1, achieving 23% -on-year sales growth acceleration from 70% in the previous quarter. Total BBM revenue for the quarter was $387 million driven by improvements across key operating metrics including same-store sales growth, traffic growth, and conversion rate. Overall, our same-store sales growth improved to 5% for the quarter. Discussing our previous call, our strategic priorities moving forward are clearly channels, merchandising, and marketing. In the first quarter, we achieved growth in both online and offline channels, even amidst ongoing macroeconomic challenges. Throughout 2024, we conducted comprehensive store network optimization and collaborated with key strategic partners to tap into emerging markets. In the first quarter, we closed another four stores. Our optimized offline network has achieved healthier productivity with double digit growth in sales per square meter compared to a year ago. More encouraging, stores opened in the second half of 2024 have generally achieved higher efficiency. -to-date, we have secured an opening pipeline of more than 40 new stores with about 10 set to officially open in the second quarter. Our merchandising strategy remains closely attuned to market dynamics. In the first quarter, we focused on responsive product planning and comparing pricing strategy, all of which have strengthened customer engagement, hence traffic and conversion. We also leveraged data analytics to identify and target high potential customer segments in emerging markets. Tailoring our product offerings to meet their specific needs. Our marketing initiatives in Q1 further deepened GAPS branded resonance through localized storytelling. A standout example was our collaboration with Forbidden City during Chinese Spring Festival, which showcased our ability to blend China's rich cultural heritage with GAPS branded DNA, emphasizing comfort, safety, and quality. By the end of the first quarter, the Forbidden City collaboration had generated a total sales of 10 million and also recorded at the highest sales rate for NAIPA collaborations in our history during the same period. Building more local culture relevance is one of our key strategies in China. We will continue to explore and engage in more collaborations with Chinese culture IPs to enhance our market influence. In January, we kicked off our community engagement trial, Brand and Bear Events, at our flagship store in Shanghai. This initiative is designed to create a memorable experience for families and children who are fostering a positive brand image. We also amplified our reach by leveraging social media platforms and their influences to better connect with younger audiences. Our Brand and Bear campaign deepened emotional connections with consumers, contributing kids and babies to be the highest growing sector during the quarter. We plan to expand such community engagement initiatives to other cities in the coming quarters. Overall, gross margin for BBM grew 20%, with the blended gross margin remaining healthier at 52% for the quarter. Operationally, we made continuous progress in efficiency enhancement. Our adjusted operating loss narrowed by 28% -over-year to 21 million, thanks to displaying the cost management and better unit economics. Looking ahead, BBM's partnership with Gabi Inc. continues to strive, fueled by our local expertise and strong execution. With double-digit top-line growth in Clearview for 2025, we are in a strong position to further unlock new avenues for growth and improve profitability as we keep scaling. That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Our first question will come from Alicia Yap with Citigroup. Please go ahead, ma'am.

Hi. Good morning. Good evening, management. Thanks for picking my questions. I have a couple of questions here. One is that just if management can give us updates in terms of what your expectation for this year -1-8, and then any preliminary result that you can see from just the past one week or so on the promotion, and then across your different e-commerce platform, how do you think is actually trending, which platform is actually generating or getting more traction? Second question is that I know we've been working on the IT and also logistics service. I'm wondering, have we actually able to get more brands actually onboarding to use our IT services and also the logistics services? Thank you.

Okay. Thank you, Alicia, for the question. This is Junhua. Let me address your first question about the campaign of 6-18. This 6-18 is the longest campaign by far. It started from the 13th of May to the 20th of June. It's about a 37-day campaign. If you're talking about some kind of difference between this 6-18 with the others, they provide a lot of instant discounts at day one. Without giving a lot of threshold discounts, they provide some lower tiers with a sliding scale starting from 200 minus 20 to 5,000 minus 500. As you can see, this is only about eight days after the 13th of May. I can only share you with the first wave result. As far as we're concerned and we observed from our number, the first wave came really well. A lot of brands, they keep ramping up their pre-sale stage and their existing transactions convert rate is really pretty well. In terms of the cancel rates, now the current data suggests we have a single mid-digit, lower down than last year, which means a better result. The return rate is also relatively lower than last year, which is also a better result. As far as we do have about 50% of the shipment still ongoing. Maybe we can share the data later on after the next wave or someday in the middle of June. In the categories differentiation, we look forward to see, of course, the first one is home appliance category and consumer electronics category is wrapping up very well because of the subsidies from the government. Also, luxury category and fashion apparel category is also very catching up. We can see that the home appliance category and fashion luxury category is leading 618 by far. Second thing is about the IT services and logistic services. For the IT part, you can see that our revenue growth has a little bit decline. The cadence of IT services is very different from the regular flagship store operations. They have to just find a new client and based on different kind of solutions they provide, the revenue contribution period and cadence is very different. A lot more brands are focusing on the new one-stock solution to leverage their online inventory with their offline inventory, especially with their offline flagship stores. More and more brands explore the possibility with Baozhen's IT team to think about the one-stock solution. We have a strong confidence that in the coming Q3 and Q4, we can catch up the revenue growth. For the logistic service traction, we can say that right now, as you might know, we're focusing on several key clients, as like the report just said. We focus on several key clients and their business is remaining flat. Some of them are declining. So keep supporting those clients. So we need to just keep supporting them and increase the quality of the services and also have a new development of new B2B and some kind of the return reverse warehousing and logistic services as a complement. Okay. Hope that makes sense to you.

The next question will come from J.Y. Yen with Citix. Please go ahead.

Good evening, management. Thank you for taking my question. Congratulations on this quarter's strong performance. My first question is regarding the BBM sector. Is there any update for the gap operation strategy and how does the company plan to balance scale expansion with profitability? And is Baozhen considering acquiring more new brands? That's my first question. My second question concerns the recent collaboration between Red Note and what is Baozhen's strategy and have companies seeing brands allocate more resource to Red Note? Thank you.

Okay. This is Ken. I will answer the first question about the strategy of GAP. I think from 2025 our strategy is quite clear in product marketing and channels. We are trying to enhance our key categories including GAP Denim, GAP Khaki, GAPs Washed Shirt, and the Kids and Babies category. And at the same time we want to be more balanced between the local assortments and global products to bring more value to our Chinese customers. For marketing we are creating more local culture elements including the IP collaboration with the BBM city we just did and we will continue to do this year. Starting from last month we also launched a series of Red Note campaigns with the key KOLs delivering our connections with our customers through music and dance. And the third one about channel, I think for online channels we are expanding in all channels and our advantage is our faster response to every platform and we are further improving our spare chain for our online exclusive products. And for offline we are partnering with a number of strategic partners in different regions for us to further expanding our local stores in emerging markets. So in terms of balancing our scale and profits I think we are continue looking for the increase of scale. As we mentioned we will keep a double digit increase this year. We target to open 50 stores, new stores this year. So with the increased scale it will help us to balance our back office cost and in the end to breakeven. So we want to keep this momentum quarter by quarter to deliver solid results and in the end to reach a breakeven point in the last quarter. Of course when we are balancing the scale and the profit we are also considering our brand. So we will still continue investing in our brand marketing. But yes it's really a challenge but in the same time I think we are confident by working with the Gabin team together for the branding part.

Thank you. Again if you have a question please press star then one.

I think the second question regarding the later rep and Timo and also whether the company plans for acquiring new brands are not just yet. Maybe you can say

something about the rep. Yes sure. Yes

yes I believe that you are asking about the the rep cat initiative. Let me explain that to you. Before and after kind of scenario. Before the rep cat initiative we used to spend a lot of marketing spending on rep no for seeding for new arrivals and for driving some keys for consumers can really just get a lot of content on rep no before they drop in transactions. So like 10 years ago when a consumer made their decision for purchasing they used to go open in PDP and then reading a lot of reviews of the products and then make the decision. Now they are using rep no as a UGC content platform to get a lot of information from different angles and then place a transaction on the Timo or JD or wherever they are familiar to. But the rep cat project is directly provided way to just link directly from the content or a different link or different heats or different forwarding from rep directly to Timo transaction PDP page. You can seamlessly experience that kind of thing. The rep project to us is more related to the performance marketing part. For now in the 618 campaign several of our partners already reallocate some of their online performance marketing budget from the in Timo search for performance marketing budget to the rep cat project. We can directly just invest on driving traffic on rep no from all the seeds or the content and getting the transaction done. Compared with the ROI for now the ROI is relatively higher than the one on the Timo inside performance marketing results. Because this is very new the rep cat initiative is only just open for two weeks and we have only several brands for trying that initiative and we will get back to you with a more detailed result after we have a significant awareness and balancing all those kind of allies in a stable way. I hope that makes sense to you.

Okay this is Vincent. I'm making some comments for your third part of the questions which is a new brand acquisition plan for the I think it is for the brand management part of our business. BBM actually our strategy is the portfolio strategy which means that we will do multiple brands and trying to build up the synergy in different brands. So that is the strategy. So far we have two brands already. First one is the Gap, second one is Hunter both doing quite well. And for other new brands they can be either on board or BBM platform or if it is majorly distribution model it can be also on board our BEC platform. So we have two platforms for the new brands to on board. And sometimes you can imagine that BEC and BBM will meet in the middle in the middle. So that gives the potential brands more opportunities to work either more focused on products development or channel development. So we always have a quite strong pipeline for BEC and also BBM. But recently given the microeconomic situation we're quite you know careful and cautious in onboarding new brands. But we are seeing more and more synergies between brands and between brands in BEC and BBM and also between BBM and BEC. Yeah hope that answers your question. Thank you.

Thank you very clear.

The next question will come from Chris Cowle Hightel Securities. Please go ahead.

Thank you management for taking my question. I have two questions. The first question is about the apparel and the sports and I think these two categories are performing very well this quarter compared to the overall weak market consumption sentiment. Could you please share the key drivers behind it and how should we think about the future trends these two categories. And my second question is about BBM sector as 618 campaign approach. How should we think about the potential opportunity of integration of the BBM sector and BEC sector during the 618 campaign. Thank you. These are my two questions.

Okay Chris. The first question is regarding the apparel and sportswear category. So yes indeed the apparel especially sportswear and luxury apparel category they are the key in the battlefield across different platforms especially as far as you might know that JD they've been restructured and hired some kind of key players to in charge of their apparel category which used to work for TMO. So apparel and sportswear and luxury they are rap racing in heavy way especially in those big campaigns like 618 they've been spending a lot of providing coupons and instant discount in this category. So yes as far as the momentum currently for apparel and sportswear industry everybody is catching up and some of the leading brands they are ramping up. So they've been spending a lot of drivers in differentiating different consumers. They spend a lot of investment into segregate different kind of consumers by different tiers like they set up the apparel into trendsetters, quality chasers, pragmatic consumers and price sensitive consumers. So based on the consumer study so we've been spending a lot of time finding the right assortment leveraging the right message using the right marketing approach way to send a group of assortment to the right group of consumers to make the right transition. So for apparel sportswear and luxury category so more and more resources are spending into the -to-day operations based on data bank they provide based on historical data based on a lot of merchandising and assortment collections we can work with our brand partners. So we look forward to foreseeing this category have a better momentum in this 618 and maybe across this year.

And for the second question for the synergies between BBM and the BCI and I think we mentioned the synergies we are having from the beginning because before BBM our brands both our brands Gap and Hunter we are working very closely with BEC for TP service, DP service, logistic service, IT service, digital marketing service. It's not just for 618 it's for our -to-day work and especially mentioning to the 618 I think the advantage is we have more for BBM we have more all channels information in advance and the resources measurement so we can anticipate what we should respond to each platform and BBM as a platform that can produce product itself. We are our advantage is to make our work of action more responsive fast response to the different platforms needs. So I think this is a major advantage between BBM and the BC when we are facing fast changing platform strategies. Thank you.

Again if you have a question please press star then 1. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Please return to the meeting room. Thank you. Please go ahead.

Okay thank you operator. On behalf of the BBM management team we would like to thank you for your participation in today's call. If you require any further information feel free to reach out to us. Thank you for joining us today. This concludes the call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.