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spk05: Ladies and gentlemen, everyone, and welcome to VIP Shop Holdings Limited Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, I would like to turn the call to Ms. Jessie Zhang, VIP Shop Head of Investor Relations.
spk08: Please proceed. Thank you, Operator. Hello, everyone, and thank you for joining VIP Shop Fourth Quarter and Full Year 2022 Earnings Conference Call. With us today are Eric Shen, our co-founder, chairman, and CEO. and David Tsui, our CFO. Before management begins their prepared remarks, I would like to remind you that the discussion today will contain forward-looking statements made under 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 court to the extent any forward-looking statements may be made. Please note that certain financial measures used on this court, such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income for ADS, are not presented in accordance with U.S. GAAP. please refer to our earnings release for details relating to the reconciliations of our non-GAAP mayors to GAAP mayors. With that, I would now like to turn the call over to Mr. Eric Shen.
spk03: Good morning and good evening, everyone. Welcome and thank you for joining our fourth quarter and full year 2022 earnings conference call. In the fourth quarter, we once again demonstrated strong earnings power amid a tropic backdrop. The top-line recovery was impacted by the short-term disruption on economic activities from the surge of COVID-19 infections nationwide. Apparel-related GMV fared better than expected, slightly down year over year. as we actively worked out merchandising selection to satisfy seasonal demand. Customer trends continued to recover year over year. The desire to spend remained healthily with customer visits clearly picking up, and the active Super VIP customers increased by 13%, accounting for 42% of our online spending. Overall, we accomplished quality development in 2022, delivering record-level net income at RMB 6.8 billion while navigating through an extremely challenging year. Our business fundamentals have been stronger after we incrementally experienced an enhancement on merchandising operations and technologies. On merchandising, we now have an upgrade portfolio of brands and products offering that reinforce the value proposition of our platform. With hundreds of brands at the core of our business, new trendy and high-end brands and a lot more selections, integration styles bring a new look to our platform. For the full year of 2022, co-brands had positive growth on VIP Shop with greater contributions to Total GMV. Apparel-related GMV outperformed non-apparel categories. The Made for VIP Shop customized line developed into a more selective collection that enjoyed higher conventions than general merchandise. Operationally, we are more efficient in deploying resources to best support brand partners, launching innovative channels to build sales momentum, and increasing customer engagement in a cost-effective way. That's how we managed to grow the base of quality customers with 6.7 million SVIP members repeatedly shopping with us last year. Technologies become more instrumental in every aspect of our business. For example, our fully upgraded merchant platform enables brand partners to engage in a more measurable way through data analytics. such as offering customers insensitive and generation-style leads. Our strong execution in 2022 gives us confidence as we look ahead for the post-pandemic opportunities. We are set to take advantage of our plentiful inventories. Our professional buyer team continues to be a great advantage as they work more effectively with brand partners. Though uncertainties still remain following China's reopening, we did see some recovery in spending on apparel and other discretionary items since the beginning of this year. There are opportunities for us to attract new customs and capture more customs fans. We believe we are now in a healthier position than before to achieve both growth and profitability and continue delivering value to our shareholders. At this point, let me hand over the call to our CFO, David Tsui, who will go over our financial results.
spk00: Thanks, Eric. And hello, everyone. In the fourth quarter, we did our level best to keep the business on track despite the spike of COVID-19 infections in China. We are pleased that our revenues continue to recover while another quarter of strong profitability demonstrated the resilience and strength of our business. Gross margin increased by two percentage points to 21.7% from a year ago and actually improved across all categories, thanks to enhanced merchandising strategy, strengthened cost control, as well as dedicated management of business processes. Operating margin achieved at all-time high as we consistently focus on operational discipline. As a result, we had the most profitable quarter in two years with non-GAAP net income up by 24% to 2.2 billion RMB and net margin at 7%. That helped us finish off the full year of 2022 at a record level of profitability. Last year, we generated more than 7.8 billion RMB free cash flow. We purchased a total of 952 million US dollars of our ADSs. under our buyback programs. We are committed to delivering value to our shareholders by steadily executing the programs. As we entered the post-pandemic era, following China's reopening, we are moving quickly but rationally to seize the opportunities for growth while allocating our resources where they will provide the best returns over time. At the same time, we maintain our focus on everyday operation to generate synergies and efficiency gains. We are positive on regaining growth momentum whilst sustaining healthy profitability. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented below are in RMB, and all the percentage changes are year-over-year changes, unless otherwise noted. Total net revenues for the fourth quarter of 2022 were 31.8 billion RMB, as compared with 34.1 billion RMB in the prior year period, primarily attributable to short-term disruptions on economic activities from the surge of COVID-19 infections nationwide. Gross profit increased by 2.8% year over year to 6.9 billion RMB from 6.7 billion RMB in the prior year period. Gross margin increased to 21.7% from 19.7% in the prior year period. Total operating expenses decreased by 6.5% year over year to 4.6 billion RMB from 5.0 billion RMB in the prior year period. As a percentage of a total net revenue, total operating expenses was 14.6%, which stayed flat as compared with the prior year period. Fulfillment expenses were 2.2 billion RMB, which largely stayed flat. as compared with prior year period. As a percentage of a total net revenues, fulfillment expenses was 6.8% as compared with 6.4% in the prior year period. Marketing expenses decreased by 17.6% year over year to 944.1 million RMB from 1.1 billion RMB in the prior year period. As a percentage of the total net revenues, marketing expenses decreased to 3.0% from 3.4% in the prior year period, primarily attributable to more prudent marketing strategy. Technology and content expenses decreased by 7.8% year-over-year to 408.5 million RMB from 443 0.0 million RMB in the prior year period. As a percentage of a total net revenues, technology and content expenses was 1.3%, which stayed flat as compared with the prior year period. General and administrative expenses decreased by 5.2% year over year to 1.1 billion RMB as compared with 1.2 billion RMB in the prior year period. As a percentage of a total net revenue, general and administrative expenses was 3.6% as compared with 3.5% in the prior year period. Income from operations increased by 37.1% year over year to 2.5 billion RMB as compared with 1.8 billion RMB in the prior year period. Operating margin increased to 7.9% from 5.4% in the prior year period. Non-GAAP income from operations increased by 33.6% year-over-year to 2.8 billion RMB from 2.1 billion RMB in the prior year period. Non-GAAP operating income margin increased to 8.7% from 6.1% in the prior year period. Net income attributable to VIP shops shareholders increased by 57.9% year over year to 2.2 billion RMB from 1.4 billion RMB in the prior year period. Net margin attributable to VIP shops shareholders increased to 7.0% from 4.1% in the prior year period. Net income attributable to VIP shops shareholders per diluted ADS increased to 3.66 RMB from 2.07 RMB in the prior year period. Non-GAAP net income attributable to VIP shops shareholders increased by 23.9% year over year to 2.2 billion RMB from 1.8 billion RMB in the prior year period. Net margin attributable to VIP shops shareholders increased to 7.0% from 5.3% in the prior year period. Non-GAAP net income attributable to VIP shops shareholders per diluted ATIs increased to 3.65 RMB from 2.64 RMB in the prior year period. As of December 31st, 2022, we had cash and cash equivalents and restricted cash of 23.1 billion RMB and short-term investments of 1.6 billion RMB. Now, I'd like to briefly walk through the highlights of our four-year results. Total net revenues for the four year of 2022 were 103.2 billion RMB as compared with 117.1 billion RMB in the prior year. Gross profit was 21.6 billion RMB as compared with 23.1 billion RMB in the prior year. Gross margin increased to 21.0% from 19.7% in the prior year. Income from operations increased by 11.0% year over year to 6.2 billion RMB from 5.6 billion RMB in the prior year. Operating margin increased to 6.0% from 4.8% in the prior year. Non-GAAP income from operations increased by 12.1% year over year to 7.4 billion RMB from 6.6 billion RMB in the prior year. Non-GAAP operating income margin increased to 7.2% from 5.6% in the prior year. Net income attributable to VIP shop shareholders increased by 34.6% year-over-year to 6.3 billion RMB from 4.7 billion RMB in the prior year. Net margin attributable to VIP shop shareholders increased to 6.1% from 4.0% in the prior year. Net income attributable to VIT shops shareholders per diluted ADS increased to 9.83 RMB from 6.75 RMB in the prior year. Non-GAAP net income attributable to VIT shops shareholders increased by 13.7% year-over-year to 6.8 billion RMB from 6.0 billion RMB in the prior year. Non-GAAP net margin attributable to VIP shop shareholders increased to 6.6% from 5.1% in the prior year. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS increased to 10.67 RMB from 8.67 RMB in the prior year. Looking forward to the first quarter of 2023, we expect our total net revenues to be between 25.2 billion RMB and 26.5 billion RMB, representing a year-over-year increase of approximately 0% to 5%. Please note that this forecast reflects our current and preliminary view of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A.
spk05: Thank you. If you'd like to ask a question, please press star 1 1. If your question hasn't answered and you'd like to remove yourself from the queue, please press star 1 1 again. We ask that you please ask your questions in English and in Spanish. I mean, I'm sorry, English and in Chinese. And our first question comes from Alicia Yap with Citi. Your line is open.
spk01: Alicia Yap, your line is open.
spk05: Hello, can you hear me?
spk11: Yes, we can hear you, Alicia. Please go ahead. Okay. Good evening, management. Thank you for accepting my question. I have two small questions here. I would like to ask how the management is seeing the latest competitive pattern. We are now seeing that there are other e-commerce platforms that will increase the investment in marketing. What do you think is the impact on us? Will we also increase the investment in discounting and discounting? 我的第二个小问题是,请问管理层我们今年新用户获取的策略是怎么样的? 我们应该如何看待其对今年利润率的影响? 谢谢。 Thanks, management, for taking my question. This is Vicky Wei on behalf of Alicia Yat, and I have two questions. First, how would management view the current competition landscape? Will the recent startup marketing campaigns by e-commerce peers have any impact on VIP shop to step up on promotional discount as well? My second question is what is the company plans for this year in terms of new user acquisition and how will that impact margins chance for 2023? Thank you.
spk03: That answers Alicia's first question. This is about competition. So we see that in fact, the competitive pattern of the entire e-commerce industry recently, we are talking about the competitive pattern of the domestic e-commerce industry is also escalating, including everyone doing subsidies and preparing to PK. So for us, we are actually We are not the kind of people who have more standards. We are the e-commerce industry that we wear. So what we say is that it is more difficult to get into this price war. Then in addition, if we have some of our own speciality in standard products, then many brands give us this kind of speciality. Then, but we may not have so many SKU models, but we have our own characteristics. Then in addition, we actually should not be involved in this price war, because we include our pursuit of healthy growth. Then we will not say that today we say that the supplement comes to replace the user, then we think it should be healthy. The users will think that Weipin's overall special sale advantage is good. Then the users we are talking about will be active for a long time, instead of saying that we have a subsidy today, and then the next time there is a subsidy on other platforms, they will go there again. So this is the competition I mentioned. There is another question about the competition with the live broadcast shop. We have been continuing this for a long time anyway. Anyway, this pattern is basically the same. This is the first question I answered. The second question is about the future acquisition of new users. In fact, in 2023, we believe that 2023 is a good time. For us, we still need to actively expand our new customers. However, in the case of actively expanding new customers, we still strictly follow what we call LTV assessment. In this way, we can ensure that our users the quality is relatively good. In this case, we can spend more money on goods, but the quality is also relatively good. So this will cause our sales, that is, new customers to get costs, including market costs. So what we are talking about is still a healthy situation overall. Regarding the impact of profitability, we think that last year's market costs Okay. First, to answer your question on competition, obviously there is some buzz in the e-commerce industry, especially in the shelf model e-commerce.
spk08: Some peers have launched subsidy campaigns. But remember, VIP shops remain highly focused on apparel, not standardized items. And apparel does not only depend on pricing, but also depends on a lot of other factors like styles, sizes. It's a much sophisticated segment. Second, even on standardized items, we are trying to secure unique product supply from top brands with unique styles and SKUs. We are not looking for as many SKUs as possible. We are trying to build a much more selective SKU, so we will not get involved in a pricing war. We are trying to grow our business in a healthier way. We are not going to sacrifice profitability by using a lot of the subsidies in exchange for customer growth. I think the key point for VIP Shop to grow its customers, to grow its business is to unique value proposition in discount retail, then naturally customers will have a better perception about VIP shop and will keep top of mind with customers as well. On live streaming, actually the competition has been already there, but we don't feel any additional pressure on the front. competitive landscape has largely moderated. On your second question on new user growth strategy, this year our goal is to achieve quality customer growth. We will definitely take this opportunity during the post-pandemic era. to try more proactively to acquire new customers. But at the same time, we'll continue to stick to the ARTV model to evaluate the ROIs from different channels to ensure that we are indeed acquiring high-quality customers. So overall, we probably will have to spend a little bit more to acquire customers in absolute amount. as a percentage of revenue on marketing expenses I should be should stay at a very healthy level as comparable as we had for last year so this is going to continue for so we'll continue to stick to our practice last year in terms of customer acquisition, and it won't have a big drag on our overall profitability.
spk01: Thank you.
spk05: Our next question comes from Joyce Ju with Bank of America. Your line is open.
spk01: Hello.
spk08: Hello, could you hear me? Hey, hello, Jessie. Hi, hello, Judith. We can't hear you. Please go ahead.
spk06: Sure. Good evening, Shenzong. David and Jessie, congrats on the solid results. I have two questions. The first one is regarding the overall apparel demand we observed year-to-date. Have we observed any trend of pent-up demand or any behavior change such as consumption upgrade, downgrade, or frequency change? Or like, you know, whatever, like, you know, trends we observe from the supplier side, like brand side, you know, is there any clear goals of clearing the over clearing the stocks or like, you know, they have a plan of launching new products. Any colors will be good. The second question is, we have observed this in the fourth quarter, the platform GMV actually grow a little bit faster than our 1C revenues. Does this because of like previously we mentioned we have some like, you know, make change in our marketplace. Is there any specific plan in terms of in our like 3P marketplace? 我翻译一下我的问题,第一个问题是想要问一下,就是说我们今年到这个疫情放开以后,我们看到整个市场, Are there any obvious signs of recovery? And if so, we can see from the customer side, in terms of their consumption quality, consumption bias, or brand bias, and various types of bias, are there any new trends that we can look at? Including when we and some brands and suppliers are talking about cooperation, Are there any obvious experiences? For example, the trend of light storage, or at what point in time we can expect more new products? The second question is that we see that our GNV increase in this quarter is faster than our 1P. I want to ask if it is because of our 3P marketplace, which is growing faster this quarter, and is doing better than the growth Thank you, Joyce. The first question is about the recent atmosphere after the pandemic.
spk03: We can see that after the pandemic, the recovery is faster. There are more people on the road. People often participate in gatherings and activities. Actually, when we talk about buying clothes, The demand for this multidimensional product has increased significantly. We can see that the number of users is increasing. The conversion rate of users is also increasing, and so on. Businesses are also growing. In addition, the brand has a lot of goods to sell. Last year, the brand suffered a lot because of the epidemic. A large number of offline stores were closed. As we said, there is a lot of inventory. So, in general, the supply of goods and the cooperation of partners and the trend of the whole market are all pretty good. The second question is...
spk08: Apparently, post-pandemic, we did see faster than expected recovery in spending in apparel and other discretionary items. And on the ground, you will see a lot of people feeling more comfortable with moving or traveling around. So they do have strong demand for apparel categories. We've seen positive growth of customer members as well as conversion rate. So that's on the consumption side. On the supply side, actually, there is a plentiful inventory out there because a lot of brand partners had a very tough year out here, especially a lot of offline stores were actually locked down due to the COVID-19. impact. So both on the demand side and on the supply side, we've seen a stronger momentum than expected.
spk00: Your second question regarding the GMV and the revenue changes. Actually, our GMV narrowed down our revenue, our revenue narrowed down by 7%, right? And then GMV is down by 4.6%. So the reason for that is because of the, towards the year end, post-pandemic, their exchange and the return items were actually up. So that is the primary reason reason for that, yeah.
spk01: Got it. Got it. Thanks.
spk05: Thank you. Our next question comes from Vy Xiong with UBS. Your line is open.
spk07: Thank you, Manager, for accepting my question. Congratulations on your strong performance this quarter. I have two questions about margin. The first one is about our net margin. Because 4Q's net margin is more than 7% in the second quarter. It is indeed very strong. I would like to ask, if we look at 2023, how much of the cost will continue to be optimized? Do we expect the net margin of 2023 to continue to increase? Thank you management for taking my questions. I have two questions regarding the margin side. First is on the net margin. So looking at 2023, how much room can we further optimize our expenses and costs? Do we expect that the net margin in 2023 can continue to improve year on year? And are we becoming more confident on the long-term net margin target? And my second question is on the gross margin. How should we think about the trends in the first quarter as well as 2023? And how does management think about the opportunity to further improve the gross margin longer term. Thank you.
spk00: I will combine the two questions together. Our objective for both net margin and gross margin is to remain stable over the year. There could be a room for us to improve to improve the net margin because of the volume for procurement cost. There might be a room over there. So in terms of the gross margin, our aim is to remain stable.
spk01: Got it. Thank you, management.
spk05: Thank you. Our next question comes from Thomas Chong with Jefferies. Your line is open.
spk09: Thanks, management, for taking my question. Could you please provide some updates on the business development, GMV, and consumer sentiment in recent months? How do we see the monthly trend and what's our outlook for the full year 2023? 感谢管理层先生我的提问。 可不可以分享一下最近几个月的业务情况, GMV和消费者情势?
spk03: As mentioned earlier, the overall recovery is quite obvious. We estimate that the overall Q2 will be relatively good. Because last year's Q2 was the worst. Especially in March, April, and May, the supply chain was out of control, there was no supply, there was an epidemic, and there was a problem in Shanghai. We actually fell by more than 10%. So we are quite confident in the overall growth of Q2. Overall, we are pretty optimistic about the outlook for this year in terms of growth. After the Spring Festival, actually a lot of people
spk08: coming back and we've seen a stronger momentum than expected in terms of their spending on apparel and other categories. And this momentum is going to continue into the second quarter, which we expect to have a stronger recovery, partially because of a low base last year, especially If you remember last year, from March to May, we had a lot of problems such as supply chain disruption, lockdowns, and the Shanghai incident. So a lot of drag-downs for the second quarter of last year. And for the second half, for Q3 and Q4, With the COVID thing cleared away, we think the momentum should continue into the second half, and we are quite optimistic about our growth outlook.
spk01: Thank you. Our next question comes from Natalie Wu with HPI.
spk05: The line is open.
spk10: Oh, is that me? Oh, sorry. Good evening. Thanks for taking my question. My question is related with the standing power or AOV of the existing users. Just wondering post the pandemic reopen, is there any chance that can be observed regarding that kind of operating metrics? And also the second question is regarding the active paying customers. I think that the number of the active paying customers should return to positive growth in the first quarter if that is true. I'm just wondering if they are target of your active paying customer growth this year. Thank you, Manager Chen.
spk03: The first question, we see that users are more active, so we are talking about an overall increase. But the price of special items will be almost the same, there will be a significant increase. Then we also hope that in the current situation, their shopping frequency will increase. Then because it may be what we said, if the activity increases, they should buy more clothes, clothes to wear. Then this is the current trend we have seen. Then we also hope that this trend can continue throughout the year. The second question is about user growth. We are currently able to achieve user growth during the Q1 period. Currently, it is easy for us to achieve user growth during the Q2 period. Last year, our users fell by about 17%. Last year's Q2, our users fell by 17%. So we think there is no problem with Q2. We are optimistic about the trend of the whole year, so we hope to achieve a better growth of users this year, but we still require a very healthy growth of users.
spk08: On customer trend, we've seen apparently customers are becoming more active than before because of the lifting of the COVID restrictions and And they have become more comfortable with moving around or traveling around So we've seen the shop a lot more than before but the order size average order size remains remains quite stable and Yes, we are saying that customer active customer members are going to book positive growth in the first quarter and and It will continue to grow in the second quarter because of the low base for the second quarter of last year, which we had 17% decline in customer numbers because of the COVID impact. And for the full year, we are pretty positive on the customer trend. We will achieve quality customer growth.
spk01: Thank you.
spk05: As a reminder, to ask a question, please press star 11. Our next question comes from Tian Hao with TH Data Capital. Your line is open.
spk02: Hi, Mr. Shen, David, and Jessie. There is a question about our top line. In the past three years, it may have been related to the epidemic. Our top line has not grown much. Margin is doing very well. One assumption is that our margin has now reached a fairly high position. It's not very realistic to let it go up again. In the last three years, the top-line growth, maybe due to the COVID, really didn't grow that much. So the margin actually went up a lot. So I assume the margin, the room to improve is limited going forward. So under this condition, the top-line growth become critical. So can Mr. Shen share some details or your thoughts about how to improve the top-line growth in 2023? What's the strategy? Thank you.
spk03: In terms of our profit margin, the profit margin of the front end and the brand, because we don't increase the price now, so theoretically, we don't have much space. In 2022, we didn't make any unnecessary subsidies, so the profit margin for 2023 will be basically the same. We hope to continue to reduce the cost-effectiveness, including the space we think there is still some space We believe that there are still some opportunities. But in fact, the most important growth depends on the growth of the business. Our users grow very fast. Businesses grow very fast. In the end, the whole profit will grow because of sales. Other fixed costs will be greatly reduced. So in general, we have to catch both hands. On the one hand, we still need to manage our own efficiency. So on the map,
spk02: is a strategy for income growth, a strategy for sales growth.
spk03: What is the strategy for sales growth? You just said sales, right?
spk02: You just said new and old customers. Is there any other way? In fact, this is the main one.
spk03: No, the other one is about product expansion. Then we will expand, but it will not lead to revolutionary changes. In addition, for example, we require that the price of our goods should be better, which may lead to a higher exchange rate. In addition, for example, our personalization, we think our space is quite large. The whole personalization space is very large. In addition, we hope that more users will visit our website, including those who like our clothes. Thank you, Mr. Shen.
spk08: On the margin side, we think there is limited room for us to improve gross margin because we don't increase the take rates from brand partners in the past year, and we also were very restrained about providing unnecessary subsidies, so gross margin would be stable for the future. And net margin side, we think there is still some room for us to improve the cost structure and increase the efficiency gains. So there is still opportunity for us to improve net profit margin. But the most important thing is, of course, how to grow the customers and the GME. And that should provide the most upside for any margin expansion. So we will focus on dedicated management of our business operations. We look at quality growth of our customer base. We will continue to increase repeat orders from existing customers and add quality new customers and expand our super VIPs to improve up on the average order size and also we want to improve customer stickiness through innovative use cases, channels, and also improve conversions through personalization. So there are a lot of ways to increase our business, to build our business momentum, and we are pretty confident that we can achieve quality growth this year.
spk05: Thank you. Due to time constraints, that concludes today's question and answer session. At this time, I will turn the conference back to Jessie for any closing remarks.
spk08: 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. Thank you.
spk05: This concludes the conference. You may now disconnect. Everyone, have a great day.
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