Vipshop Holdings Limited

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

Thank you, Operator. Hello, everyone, and thank you for joining VIP Shop's First Quarter 2023 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 after results to differ materially from our current expectations. Potential risks and uncertainties include and are not limited to those outlined in our safe harbor statements in our earnings lease and public filings with the Securities and Exchange Commission, which also applies to this call to the extent 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 merits to GAAP merits. With that, I would now like to turn the call over to Mr. Eric Stern.

Good morning and good evening, everyone. Welcome and thank you for joining our first quarter 2023 earnings conference call. We were offered to a strong start into 2023. Our steadily leadership combined with the long-term merchandising strategy and the relentless focus on agility, execution, and the business fundamentals allow 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 broke the double-digit GMV growth year-over-year. Our abandoned and devised branded merchandise at great value were catered to customers' appetite for holiday and seasonal shopping along with a rebound in social activities. Customer trends remain 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 proven 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 continued to double down execution for efficiency with a number of measures in place. But our efforts are more on building the strategic and long-term capabilities related to merchandise expansion, customer engagement, and the service excellence that truly differentiates us. On merchandising, we focus on delivering a sense of freshness as customers and attract to all things new and trendy. On top of industry-leading co-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 of our merchandise offerings. We continue to optimize the parallel focused product portfolio within the made for VIP line. We will develop a general guideline for brand partners to customize the high quality products that can fill in the gap in certain categories and price brands on our platform. In addition, we will be investing in our merchandising talents 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 to expertise to take our merchandising capability to a new level. Customer engagement, especially with our high-value cohorts, is driven by a comprehensive set of upgrades. Our goal is to make VIP shops an enjoyable shopping destination, not just a shelf to search or belong. We are digging into the customer insights to provide more inspirations, relevant contents, and personalized offerings to our customers. We are creating innovative channels of promotion around customer lifestyles, product life cycles, and the trading categories. We expect these initiatives to increase repeat orders and cross-categories purchases. Service has been another source of differentiation. We will demonstrate our best-in-class service in worry-free returns or exchange, as well as efficient and reliable logistics, there is a lot more we can do in terms of enhanced customer mindshare as to price advantage, quality assurance, product authentic, as well as tailored service through our loyalty program. We will keep driving change as need to capture the opportunities in this environment as consumers manage household budgets more carefully. We are reinforcing our value for money perception across our quality branded merchandise to keep VIP Shop top of mind with customers. With that, we were positioned to grow the base of high-value customers 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 starting our earnest release, our CFO, David Tsui, 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 three years and wish him all the best in his endeavors. Mark Wong 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 Hsu 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 CFO. It has been a great honor to be part of a company that is enthusiastic and steadfast at what they do. The past three 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 positions 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 a pretty good sales upside as our teams responded to the fast-changing consumer needs and aggressively secured inventory for the opportunities ahead. And it sets us up in a good position going into the year. Margins remain 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 continued 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 $1 billion share repurchase program And today, we announced an increase in the amount of the existing Shared Buyback Program from $500 million to $1 billion. 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 first quarter of 2023 increased by 9.1% year-over-year to 27.5 billion RMB from 25.2 billion RMB 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 5.9 billion RMB from 5.0 billion RMB 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 4.1 billion RMB from 3.9 billion RMB in the prior year period. As a percentage of the total net revenues, 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 1.8 billion RMB from 1.7 billion RMB in the prior year period. As a percentage of a 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 836.9 million RMB from 759.3 million RMB in the prior year period. As a percentage of a 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 392.8 million RMB from 390.4 million RMB in the prior year period. As a percentage of a total net revenue 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 1.0 billion RMB from 1.1 billion RMB in the prior year period. As a percentage of a 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 2.0 billion RMB from 1.3 billion RMB 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 2.3 billion RMB from 1.5 billion RMB 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 VIP shops shareholders increased by 69.6% year over year to 1.9 billion RMB from 1.1 billion RMB in the prior year period. Net margin attributable to VIP shops shareholders increased to 6.8% from 4.3% in the prior year period. Net income attributable to VIP shops shareholders for diluted ADAs increased to 3.16 RMB from 1.61 RMB in the prior year period. Net income attributable to VIP shops shareholders increased by 40% 5.8% year-over-year to 2.1 billion RMB from 1.4 billion RMB in the prior year period. Non-GAAP net margins attributable to VIP shops shareholders increased to 7.5% from 5.6% in the prior year period. Non-GAAP net income attributable to VIP shops shareholders per diluted ADS increased to 3.52 RMB from 2.09 RMB in the prior year period. As of March 31, 2023, the company had cash and cash equivalents and restricted cash 18.9 billion RMB and short-term investment of 1.5 billion RMB. Looking forward to the second quarter of 2023, we expect our total net revenues to be between 27.0 billion RMB and 28.2 billion RMB. 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 presented at the call. him to say hello to everyone.

OK, thanks, David. Good morning, good evening, everybody. I'm Mark. I'm very glad to have this opportunity to attend the first quarter earnings release and to meet all of you. By way of short introduction, I have more than 15 years financial management experience. Previously, I was the CFO of Ben Lai Group. Prior to that, I'm the Vice President of Finance in Xiaomi Group. It's my great honor to take CFO in VIP Shop. 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 now like to open the call to Q&A.

To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. First question comes from Thomas Chung with Jefferies. Your line is open.

Hi, good evening. Thanks, management, for taking my questions. And 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 do we think about the monthly GMV trend recently and also our expectations for the coming quarters? And my second question is about the June 18th marketing campaign. Can management comment about how you are seeing the industry preparations for this event and our strategies for this year? Thank you, Wang Licheng, for introducing my question. Congratulations on your long-term success. My first question is about the consumer development process in recent months. Wang Licheng, can you share your views on this? Also, from the trend of GMV in the fourth and fifth months, we should also look at the trend of the year. The second question is still about 618. Mr. Guan, can you share with us the trend of the entire 618 industry this year? And then in terms of 618, can you also share our strategy this year? Thank you. Okay.

Let me answer three questions. The first one is the trend. We came back after the Spring Festival. Many people came back after the Spring Festival. We found that our clothing business is doing well. We think that That there are three years that we can't see each other often, so there are very few social activities for three years. So in fact, because of social activities, it has led to people's demand for clothing. So hurry up and buy new clothes. Then you have to meet different people. So in fact, the demand for clothing is relatively abundant. So then we see that this trend is still relatively continuous. In addition, from In April and May, this trend will continue to remain. We think it is possible that everyone will go out or go out to travel or meet friends, have a party, and socialize. This is what we have observed so far. In addition, June 18th is also a very important holiday in e-commerce. We actually saw that this June 18th is also a long day. It is estimated that the whole 618 will take nearly a month from start to finish. So all the e-commerce companies are actually preparing. We are also preparing. So we actually want to say that we still use our usual strategy. It is because we are especially in the clothing industry. We do brand special sales. So we want to use good products. Deep discount prices. Then continue to present to our consumers. So this is 618 with us. It's almost the same as the way we usually play. Then we are also actively preparing.

Okay. In terms of the general consumption recovery 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 three 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 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 18th promotion, of course, it's a very important promotional event in the e-commerce sector. This year it starts very early and it's going to be an extended length of period up to one month of promotion. I think everybody is making a lot of efforts to prepare for the promotional campaign. and we do nothing newer than before. We still focus on apparel-related categories. We are a branded discount retail, and we focus on securing a strong flow of branded merchandise and additive discounts. So we will be geared up for the campaign as well.

Thank you.

Please stand by for the next question.

The next question comes from Natalie Wu with Haitong International. Your line is open.

Hi. Good evening. Thanks for taking my question. Just one for the longer-term prospect. Just curious. So, Shenzhou, 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. Thank you.

His question is, in addition to the prosperity after opening, what is your expectation for the long-term growth? What is the normal long-term growth rate for microcosm? The second question is, the first quarter, the 7.5% of this profit rate reached a new high. Can it be maintained? Yes, we actually see that

For example, for the whole year, we actually still have hope. Because we think that after the opening of the epidemic in China, this kind of continuous behavior, we say that this kind of retail e-commerce actually has a positive effect. So we can't, because we can't say very boldly how much I want to do. But we are overall for the whole year's trend this year. So we still have a very optimistic attitude. Then the second one is to ask about the profit rate. The profit rate, we did 7.5% in Q1, because we are now. Indeed, we actually do high-quality development in the company. That is to say, we think that we are going to grow again, but we are not the kind of shrimp growth, or that we want quantity, not quality. So we actually have to clarify the internal management, including the calculation and control of various investment aspects. Then we actually Okay, in terms of long-term growth, our target

I think at least for this year, we still have very high hopes 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 four-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 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 the number of matters already in place in terms of efficiency gains, we are confident that we can still further expand our margins. And we also continue to be very disciplined in terms of costs 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 returns. So we are pretty confident that we can maintain a relatively high level of profitability.

Thank you, Mr. Shen.

Actually, I want to ask, after the COVID-19 pandemic, will we be able to achieve I'm just curious, post the re-open bonus in the next year and much longer term, can we still manage higher than average growth rate compared with other e-commerce players? Thank you.

As for the long-term, we can't say too much. To be honest, the competition between e-commerce companies is still very intense. In addition, all e-commerce companies are trying to attract users with discounts and subsidies. In addition, there are new live e-commerce companies that are stealing users' market. So we can't say too much. But we think that as long as we insist on doing our own brand special sales, then all of us focus on brand special sales, and make special sales more and more outstanding, then better products, better prices, then better experience to serve consumers. We believe that we may be smaller in scale than others, but we hope that we can do special and outstanding in this field. So we actually 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 peer peers in terms of promotion subsidies and also a lot of immersion formats like live streaming grabbing you know my time spent 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 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.

Understood. Much appreciated.

As a reminder, if you can please ask your question in English and Mandarin. Please stand by for our next question. The next question comes from Jay Longshear with Numora, your line is open.

OK. Thank you for accepting my question. I will talk about my question in Chinese first. The first question I would like to ask is, what is the number of Super VIP members in this quarter? I think I missed the number just now. How much is the contribution of Super VIP to our 1Q GNV? In the long term, How many of our active customers can become super VIP members? In addition, I would like to ask Mr. Shen. In your previous question, you mentioned that you are confident in the growth trend this year. But you also mentioned that there may be some this pent-up demand for our income. So I wonder if Mr. Shen can give us some tips on how we can see the growth of our income in the second half of this year. I will translate it myself. First of all, thank you very much for management for taking my questions. I have two questions here. My first question is about the Super VIP. So just wonder what is the latest number of quarterly Super VIP members and what was the GMV in one queue contributed by Super VIP member? In the long run, how many of VIP's 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 second half. Thank you.

I'll answer the first question. In Q1 2023, we had active purchase Super VIP, 6.3 million, which represents a 10% increase year over year, who contributed about 42% of our total revenue. So in response to your question regarding how many can be converted to 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 higher, you know, our pool, right? So, this could be a target for the conversion.

Yes, I will answer the second question. The first question is to make a small supplement. We will continue to make profits this year because we believe that SVIP China China China China China These good quality users, we continue to expand its scale. So the second point is to ask about the estimate for the second half of the year. So we are actually happy to see that our user growth has turned positive and the overall trend is good. So we see, for example, the user growth in the first quarter and the user growth in the second quarter will actually give the future Taiwan Taiwan Taiwan How much money will be invested? How much will be calculated? How much time will be spent? So we are still confident that we will get more users this year. In addition, we also have enough market costs. If we are scientific, we actually want to spend more. So in general, we have confidence in user growth. In addition, we actually In addition to user growth, in terms of goods, we hope that we are richer and superior, and the price is as low as possible. So, including our company, we also use that kind of attempt. We follow our personalized algorithm. So, we hope that the conversion rate of users is higher. So, including the users I just mentioned, we can actually buy more. So, including the purchase of cross-products. In addition, we can do some supplementation in different seasons between wear and label. So overall, we have a whole set of strategies. We hope that in 2023, we will continue to maintain a healthy growth pattern.

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 are 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 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 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 personalized offerings 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 non-apparel-related categories. So we do have a comprehensive set of initiatives to maintain a very good and healthy growth of our business momentum.

Please stand by for the next question.

The next question comes from Wei Sheng with UBS. Your line is open.

Thank you, Manager, for accepting my question. Congratulations on the very strong performance of this quarter. I have two questions for you. The first one is about the competition in the e-commerce industry. As Director Shen just said, we can see that the e-commerce industry has a long-term risk of competition. Recently, some of our main colleagues have also said in the next few years, especially in terms of user growth and their own commodity price competitiveness. So I would like to ask, in the face of this competitive pattern, is our judgment of this industry more cautious than before? And then what changes will our corresponding strategy make? For example, in the user side or the commodity side, and then maintain our current quality, that is, the trend of high quality growth, and then continue to maintain the advantage of differentiated competition with the same industry. 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? Thank you.

Let me answer the first question. Since the competition is so intense, we still insist on doing our own main business model. or choose a well-known brand. For example, because we are similar to a well-known brand, we all have traffic support, so we can ensure that well-known brands can be sold here and get more sales. In addition, in terms of the choice of goods, because we have our accumulation, we know what is easy to sell. In addition, in terms of the price of goods, we still require a relatively low price, so we can ensure that our users to buy the right product. In addition, we are also gradually increasing the difference in the custom design of our well-known brands. We hope that everyone does not compare. We still have our characteristics, so we try our best to create value for users, and try to create as much value as possible for them. What I just mentioned is that China China that the last user buys is the product. Is this product worth it or is the price an advantage? This is the final choice. So we actually don't think about anything else. So we actually focus on our products to invest more, to create products that are more distinctive and attractive. So this is what we say. There will be a lot of competition in the future. There will be long-term price war, but we actually still have to do things in these areas. So we have to invest the money to develop our products, etc. So this is the first part of the simple description. What is the second part? Market cost. Market cost. Don't worry too much about market cost. We actually see opportunities. For example, now because our goods are more scientific, the cost is more controllable, so we say increase investment. But for example, our Q1 market cost is three points. So you don't have to worry about it. We won't turn three points into four points or five points. I estimate that within 10% of the three points, it may become 3.2, 3.3 or 3.1. But all of these we are talking about are relatively scientific. So you don't have to worry about it. We may use six points to advertise this year.

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 than our platforms and 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 thirsty for, and we have very strict requirements in terms of pricing with brand partners. We want to make sure our product selection will cater to consumer demand needs in terms of product selection as well as 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 offerings 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 a 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. 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 price 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 selections. In terms of marketing expense, you don't have to worry too much about that. We are quite optimistic In terms of our marketing stand or it's going to be quite manageable in Q1 I think marketing stands as total as a percent of the percentage of total revenue is 3% It's not going to jump to 4% or 5% It's only going to be very incremental increase on the basis of the 3% probably a 10% increase to 3.3% at most.

Thank you. Very clear. Thank you, management.

Please stand by for the next question. Please stand by for the next question.

Our next question comes from Andre Chang with JP Morgan. Your line is open.

Thank you, Manager Chen, for accepting my question. Once again, I wish David a happy life. And I also welcome Mark to join the big family of the company. Let me translate my question into English. Thank you, management, for taking my question. I have two 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 this quarter? Two, we notice 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? Thank you.

To answer the first question, we see that the growth is mainly due to the growth of the wearable brand. We also have standard products, but the standard products are not particularly strong. For example, we see that women's clothes and men's clothes are growing quite well. In addition, the clothes for children, including underwear, etc. are growing well. In addition, for example, shoes, bags, because everyone has the need to match, in fact, they also grow and grow. So the main category is such a category. In addition, in terms of the city, we actually see that the first-tier cities are slightly higher than ordinary cities and other cities. So in general, the first-tier cities will be stronger than them, but not too much. So this is the whole thing we see. than the original growth. So this is probably what you see. So instead of our MP increasing, our current MP, we are still more restrained because we consider that we give users products with high quality standards, or the overall service, brand, quality, and price that we are talking about must be reliable. So if we actually look at the recent QRs, then our entire MP ratio actually has not changed much.

In terms of category, overall apparel categories are doing much better at double-digit GMV growth into one than non-apparel categories. We did see broad-based recovery in subcategories like women's wear, men's wear, sportswear, cheap wear, and shoes and bags because people are going out more often and they need to mix and match. In terms of geographic Actually, recovery is seen across different tiers of cities, more or less with Tier 1 cities slightly outperforming, but not much. Understandably, they were also hit the most by the pandemic. On the GMV and the revenue gap, actually, it's not about NP. We have no change in our strategy as to NP. It's actually due to higher contribution from apparel categories in Q1, and apparel categories usually carry relatively higher return or rejection rates. But remember, return and exchange is key to achieving excellency in service and customer experience. Over time, this will elevate the trust and the loyalty of our customers and then translate into better customer revenue growth. Because we focus on high quality merchandising selections, services as well as price advantages. So those are the things that we are going to focus for the long term. Regarding NP, we don't actually see any change in terms of its contribution in the last several quarters.

Please stand by for the next question.

The next question comes from Ashley's show with Credit Suisse. Your line is open.

Thank you for accepting my question. I would like to ask about the user side.

Do we continue to observe the decline in sales on user behavior? And if so, will we change our product strategy? For example, the same brand, and then... 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 selection to focus more on lower price range to cater such demand? Thank you.

We actually haven't particularly seen this kind of decline in consumption yet, but because we have a general price of about $200 to $300, so in theory, we think that the current economic environment, in order to travel, everyone has to dress more beautifully. In fact, this money is still worth it. Then we are actually because of us The high-end products on the Vipshop are not very many For example, doing this kind of gold video What high-end watches are not our special strengths So we don't have the right to speak yet Is it on high-end consumption that we are talking about? Users are becoming more and more cautious now Then include what we see ourselves Our ARP and the price of the customer's purchase are actually the same There is nothing special then There are also a lot of people asking whether it is because people are still a little unclear about the economy, so now it is said that cheap things are easy to sell. We haven't come to a conclusion yet, but we can see that the entire user behavior on it is still the same. There is no obvious decline phenomenon.

Okay, in terms of consumption trend, I think we haven't seen very clear downgrade in terms of consumption among our current customers. Actually, average order size ranges from 200 to 300 yuan for our customers. And it seems that after the pandemic, they think it's worth it spending 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 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.

Please stand by for the next question.

The next question comes from Charlene Leo with the HSBC. Your line is open.

Thank you. I have two questions. First, I would like to ask about the users. I would like to know about the accumulated virus. Can you tell us more about it? And I would like to know about the main customer channels. The first question I wanted to ask is, you know, obviously we've seen simulated buyers of June positive growth from 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 wanted to get the latest thoughts on the topic of dividend. Thank you so much.

We also continue to optimize our personalization, including the personalization of new customers and products. In this way, we also ensure that the turnover rate of our new customers is higher. In addition, we still have to invest money. For example, we continue to do a better job like this kind of big TV series. For example, this kind of relatively popular TV series. We have a 15-second ad in it, so that everyone can often see it. including our social media. For example, we will also post our posts on our social media. But these posts are actually slowly accumulating Weipin Hui's volume and potential. We say that we are waiting for the future to change. So, in general, we have a whole set of solutions. We are constantly adjusting and optimizing to achieve the highest efficiency. In addition, the cost is controllable and the efficiency is the highest. Then the second point is to ask us to buy back, because we ourselves have considered that we actually have enough confidence in the development of our own overall company, including that we now see that our stock price is not very high, so we think the best investment is to invest in our own company, because we can see it and touch it, and we are in daily business. So, we actually insist on continuing to do this thing for a long time. We also heard a lot of feedback from investors, saying that they are also grateful that we said that through repurchase, we have increased the share and value of investors. So, we will continue to think in the right time. In terms of our customer acquisition strategy, actually we continue with our

different channels, including targeted marketing, which includes pre-installations, app store installations, etc. 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 proved 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 equity. 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 efficient enough in terms of customer acquisition. In terms of share repurchase programs, We have been returning our 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 stable return through investing in our company.

Excellent. Thank you so much.

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 Thank you. you Thank you. Bye. Thank you. Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings Limited First Quarter 2023 Earnings Conference Call. At this time, I would like to turn the call over to Ms. Jessie Chung, VIP Shop's Head of Investor Relations. Please proceed.

Thank you, Operator. Hello, everyone, and thank you for joining VIP Shop's first quarter 2023 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 and are not limited to those outlined in our safe harbor statements in our earnings lease and public filings with the Securities and Exchange Commission, which also applies to this call to the extent 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 Stone.

Good morning and good evening, everyone. Welcome and thank you for joining our first quarter 2023 earnings conference call. We were offered to a strong start in 2023. Our steadily leadership combined with the long-term merchandising strategy and the relentless focus on agility, execution, and the business fundamentals allow 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 broke the double-digit GNV growth year-over-year. Our abandoned and devised branded merchandise at greater value were catered to customers' 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 average spending also grew nicely on more frequent purchases. Paid membership growth proven even stronger. We ended the first quarter with 15% growth in Super VIP members, who represented about 42% of our online spending. Profitability was exceptionally strong as we continued to double down execution for efficiency with the number of measures in place. but our efforts are more on building the strategic and long-term capabilities related to merchandise expansion, customer engagement, and the service excellence that truly differentiates us. On merchandising, we focus on delivering a sense of freshness as a customer and attract to all things new and trendy. On top of industry-leading co-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 differentiating our merchandise offerings. We continue to optimize the parallel-focused product portfolio within the Made for VIP line. We will develop a general guideline for brand partners to customize the high-quality products that can fill in the gap in certain categories and price brands on our platform. In addition, we will be investing in our merchandising talents 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 to expertise to take our merchandising capability to a new level. Customer engagement, especially with our high-value cohorts, is driven by a comprehensive set of upgrades. Our goal is to make VIP shop an enjoyable shopping destination, not just a shelf to search or belong. We are digging into the customer insights to provide more inspirations, relevant contents, and personalized offerings to our customers. We are creating innovative channels of promotion along the customer lifestyles, product life cycles, and trending categories. We expect these initiatives to increase repeat orders and cross-categories purchases. Service has been another source of differentiation. We will demonstrate our best-in-class service in worry-free returns or exchange, as well as efficient and reliable logistics. There is a lot more we can do in terms of enhanced customer mindshare as to price advantage, quality assurance, product authentic, as well as tailored service through our loyalty program. We will keep driving change and need to capture the opportunities in this development as consumers manage household budgets more carefully. We are reinforce our value for money perception across our quality branded merchandise to keep VIP Shop top of mind with customers. With that, we were positioned to grow the base of high-value customers and paid members, and also grow engagement levels across customer cohorts. We believe we are in better shape to achieve quality and consistent growth in both top and bottom line for the long term. Lastly, as start in our earnest release, our CFO, David Tsui, will step down from his current position for personal reasons. On behavior of the board of directors and the management team, I would like to thank David for his contributions and tireless work over the past three years. and wish him all the best in his endeavors. Mark Wong 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 Tsui 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 CFO. It has been a great honor to be part of a company that is enthusiastic and steadfast at what they do. The past three 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 positions 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 continued to expand meaningfully year over year. We continued to be disciplined in expenses and held fast to our high-quality growth strategy. As a result, we saw decent expense leverage, non-gap, 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 US$1 billion share repurchase program, and today, we announced an increase in the amount of the existing share buyback program from $500 million to $1 billion. 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 first quarter of 2023 increased by 9.1% year-over-year to 27.5 billion RMB from 25.2 billion RMB 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 5.9 billion RMB from 5.0 billion RMB 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 4.1 billion RMB from 3.9 billion RMB in the prior year period. As a percentage of the total net revenues, 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 1.8 billion RMB from 1.7 billion RMB in the prior year period. As a percentage of a 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 836.9 million RMB from 759.3 million RMB in the prior year period. As a percentage of a 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 392.8 million RMB from 390.4 million RMB in the prior year period. As a percentage of the 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 1.0 billion RMB from 1.1 billion RMB in the prior year period. As a percentage of a 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 2.0 billion RMB from 1.3 billion RMB 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 2.3 billion RMB from 1.5 billion RMB 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 VIP shops shareholders increased by 69.6% year over year to 1.9 billion RMB from 1.1 billion RMB in the prior year period. Net margin attributable to VIP shops shareholders increased to 6.8% from 4.3% in the prior year period. Net income attributable to VIP shops shareholders for diluted ADAs increased to 3.16 RMB from 1.61 RMB in the prior year period. Net income attributable to VIP shops shareholders increased by 40%. 5.8% year-over-year to 2.1 billion RMB from 1.4 billion RMB in the prior year period. Non-GAAP net margins attributable to VIP shops shareholders increased to 7.5% from 5.6% in the prior year period. Non-GAAP net income attributable to VIP shops shareholders per diluted ADS increased to 3.52 RMB from 2.09 RMB in the prior year period. As of March 31, 2023, the company had cash and cash equivalents and restricted cash 18.9 billion RMB and short-term investment of 1.5 billion RMB. Looking forward to the second quarter of 2023, we expect our total net revenues to be between 27.0 billion RMB and 28.2 billion RMB. 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 presented at the call. him to say hello to everyone.

OK, thanks, David. Good morning, good evening, everybody. I'm Mark. I'm very glad to have this opportunity to attend the first quarter earnings release and to meet all of you. By way of short introduction, I have more than 15 years financial management experience. Previously, I was the CFO of Ben Light Group. Prior to that, I'm the Vice President of Finance in Xiaomi Group. It's my great honor to take CFO in VIP Shop. I would like to take this opportunity to thank David for his great effort 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 now like to open the call to Q&A.

To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. First question comes from Thomas Chung with Jefferies. Your line is open.

Hi, good evening. Thanks, management, for taking my questions. And 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 do we think about the monthly GMV trend recently and also our expectations for the coming quarters? And my second question is about the June 18th marketing campaign. Can management comment about how you are seeing the industry preparations for this event and our strategies for this year? Also, in terms of the GMV trend in May, we should also look at the year-round outlook. My second question is still about 618. Can you share with us the trend of the entire 618 industry this year? And then in terms of 618, can you also share with us the strategy this year? Thank you. Okay.

Let me answer three questions. The first one is the trend. We came back after the Spring Festival. Many people came back after the Spring Festival. We found that the business, especially in clothing, is doing well. That there are three years that we can't see each other often, so there are very few social activities for three years. So in fact, because of social activities, it has led to people's demand for clothing. So hurry up and buy new clothes. Then you have to meet different people. So in fact, the demand for clothing is relatively abundant. So then we see that this trend is still relatively continuous. In addition, from In April and May, this trend will continue to remain. We think it is possible that everyone will go out or go out to travel or meet friends, have a party, and socialize. This is what we have observed so far. In addition, June 18th is also a very important holiday in e-commerce. We actually saw that this June 18th is also a long day. It is estimated that the whole 618 will take nearly a month from beginning to end. Then, all the e-commerce companies are actually preparing. We are also preparing. Then we actually want to say that we still use our usual strategy. It is because we are especially in the clothing industry. We do brand special sales. Then we want to use good products. Deep discount prices. Then continue to present to our consumers. So this 618 is going to do the promotion with us. The whole approach is basically the same as we usually do. Then we are also actively preparing.

Okay. In terms of the general consumption recovery 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 three 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 18th promotion, of course, it's a very important promotional event in the e-commerce sector. This year it starts very early and it's going to be an extended length of period up to one month of promotion. I think everybody is making a lot of efforts to prepare for the promotional campaign. And we do nothing newer than before. We still focus on apparel-related categories. We are a branded discount retail. And we focus on securing a strong flow of branded merchandise and additive discounts. So we will be geared up for the campaign as well.

Thank you.

Please stand by for the next question.

The next question comes from Natalie Wu with Haitong International. Your line is open.

Hi. Good evening. Thanks for taking my question. Just one for the longer-term prospect. Just curious. So, Shenzhou, I don't know what kind of the expectation do you have post the reopen 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. Thank you.

His question is, in addition to the prosperity after opening, what is your expectation for the long-term growth? What is the normal long-term growth rate for the microcosm? The second question is, the first quarter's 7.5% of this profit rate reached a new high. Can it be maintained? Yes, we actually see that

For example, we still have hope for the whole year, because we think that after the opening of the epidemic in China, this kind of continuous behavior will lead to the fact that our retail e-commerce is actually popular. So we can't say how much we want to do because we can't say how much we want to do. But overall, we still have an optimistic attitude towards the whole year. Then the second one is to ask about the profit rate. The profit rate, we did 7.5% in Q1, because we are now. Indeed, we actually do high-quality development in the company. That is to say, we think that we are going to grow again, but we are not the kind of blind growth, or that we want quantity, not quality. So we are actually in the internal management of the fine-tuning, including the calculation and control of various investment aspects. Then we actually Okay, in terms of long-term growth, our target

I think at least for this year, we still have very high hopes because we do benefit from the current environment, especially in branded discount retail, and 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 four-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 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 the number of measures already in place in terms of efficiency gains, we are confident that we can still further expand our margins. And we also continue to be very disciplined in terms of costs 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 returns. So we are pretty confident that we can maintain a relatively high level of profitability.

Okay, thank you, Mr. Shen.

Actually, I want to ask, after the pandemic is over, will we be able to continue to achieve Just curious, post the re-open bonus in the next year and much longer term, can we still manage higher than average growth rate compared with other e-commerce players? Thank you.

In the long term, we can't say too much. To be honest, the competition between e-commerce companies is still very intense. In addition, all e-commerce companies are crazy about promoting and attracting users. In addition, new live e-commerce companies are stealing users' market. So we can't say too much. But we think that as long as we insist on doing our own brand special sales, then all of us focus on brand special sales, and make special sales more and more outstanding, then better products, better prices, then better experience to serve consumers. We believe that we may be smaller than others in terms of scale, but we hope that we can do a special job in this field. So we actually think about the future, 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 peer peers in terms of promotion subsidies and also a lot of immersion formats like live streaming grabbing you know my time spent 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 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.

Understood. Much appreciated.

As a reminder, if you can please ask your question in English and Mandarin. Please stand by for our next question. The next question comes from Jay Longshear with Numora, your line is open.

Okay. Thank you for accepting my question. I will start with my question in Chinese. The first question I would like to ask is, how many Super VIP members are there in this quarter? I think I missed the number just now. How much is the contribution of Super VIP to our 1Q GNV? In the long term, How many of our active customers can become super VIP members? In addition, I would like to ask Mr. Shen. You mentioned in the last question that you are confident in the growth trend this year. But you also mentioned that there may be some this kind of help for our income. So I wonder if Mr. Shen can give us some tips on how we can see the growth of our income in the second half of this year. Then I will translate it myself. First of all, thank you very much for management for taking my questions. I have two questions here. My first question is about the Super VIP. So just wonder what is the latest number of quarterly Super VIP members and what was the GMV in one queue contributed by Super VIP member? In the long run, how many of VIP's active customers may be converted into Super VIP member? And my second question is about the growth outlook for second half. I just wonder if management can provide any colors as to how much the top line may be able to grow in second half. Thank you.

I'll answer the first question. In Q1 2023, we had active purchase Super VIP, 6.3 million, which represents a 10% increase year over year, who contributed about 42% of our total revenue. So in response to your question regarding how many can be converted to 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 higher, you know, our pool, right? So this could be a target for the conversion.

Yes, I will answer the second question. The first question is a small supplement. We will continue to make profits this year because we believe that SVIP China China China China China China These good quality users, we continue to expand its scale. So the second point is to ask about the estimate for the second half of the year. So we are actually happy to see that our user growth has turned positive and the overall trend is good. So we see that the user growth in the first quarter and the user growth in the second quarter will actually give the future We are How much do we need to calculate? How much time do we need to pay back? So we are still confident that we will get more users this year. In addition, we also have enough market costs. If we are scientific, we actually want to spend more. So in general, we have confidence in the growth of users. In addition, we actually In addition to the growth of users, we hope that we will be richer and superior in terms of goods and products, and the price will be as low as possible. So, including our company, we also use that kind of attempt. We follow our personalized algorithm. So, we hope that the conversion rate of users will be higher. So, including the users I just mentioned, we can actually buy more. So, including the purchase of cross-products. In addition, we can do some supplementation in different seasons So overall, we have a whole set of strategies. We hope that in 2023, we will continue to maintain a healthy growth pattern.

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 are 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 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 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 personalized offerings 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 non-apparel-related categories. So we do have a comprehensive set of initiatives to maintain a very good and healthy growth of our business momentum.

Please stand by for the next question.

The next question comes from Weisheng with UBS. Your line is open.

Thank you, Manager, for accepting my question. Congratulations on your very strong performance this quarter. I have two questions for you. The first one is about the competition in the e-commerce industry. As Director Shen just said, we can see that the e-commerce industry has a long-term risk of competition. Recently, some of our main colleagues have also said in the next few years, especially in terms of user growth and their own commodity price competitiveness. So I would like to ask, in the face of this competitive pattern, is our judgment of this industry more cautious than before? And what changes will our corresponding strategy make? For example, in the user side or the commodity side, we can maintain the trend of high quality growth and maintain the advantage of differentiating competition with the same industry. Thank you, Madison, for taking my question. 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? Thank you.

is to choose a well-known brand. For example, because we are a well-known brand, we have traffic support. To ensure that well-known brands can be sold here and get more sales. In addition, in terms of the choice of products, because we have our accumulation, we know what is easy to sell. In addition, in terms of the price of the product, we still require a relatively low price. To ensure that our users to buy the right product. In addition, we are also gradually increasing the difference in the custom design of our well-known brands. We hope that people do not compare, we still have our characteristics, so we try our best to create value for users, and try to create as much value as possible for them. What I just mentioned is that In the case of a fierce competition in e-commerce, including the live e-commerce we mentioned, we think that e-commerce like us, the luxury e-commerce, is better than what we call SKU, which we call rich. Rich means that we think customers have more choices. But now, live e-commerce also has its advantages. So what we are talking about is thinking about How to get the last customer to buy a product? Is this product valuable or is the price advantageous? This is the last choice. So we don't think about anything else. We actually focus on our products. Invest more, make the product more distinctive and attractive. So this is what we said. There will be a lot of competition in the future. There is a long-term price war for everyone. But we still need to be in these aspects. We have to invest our money in the development of our products, etc. So this is the first part of the simple description. The second part is market cost. Don't worry too much about market cost. We actually see opportunities. For example, now because our goods are more scientific and cost-effective, Then we said to increase the investment, but for example, our Q1 market cost is three points. Then you don't have to worry about it. Then we actually won't change three points to four points, not to five points. We actually, I guess, should increase within 10% on three points. It may become 3.2, 3.3 or 3.1. But all of these we are talking about are actually relatively scientific. So you don't have to worry about saying that we may

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 than our platforms and 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 thirsty for, and we have very strict requirements in terms of pricing with brand partners. We want to make sure our product selection will cater to consumer demand and needs in terms of product selection as well as pricing. In addition, we actually work very closely with some of our core brands to customize high-quality product offerings for our customers. our merchandising offerings 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 a 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 price 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 selections. In terms of marketing expense, you don't have to worry too much about that. We are quite optimistic in terms of our marketing spend. Aurora is going to be quite manageable in Q1. I think marketing spend as a percentage of total revenue is 3%. It's not going to jump to 4% or 5%. It's only going to be very incremental increase on the basis of the 3%. probably a 10% increase to 3.3% at most.

Thank you. Very clear. Thank you, management.

Please stand by for the next question. Please stand by for the next question.

Our next question comes from Andre Chang with JP Morgan. Your line is open.

Thank you, Manager Chen, for accepting my question. Once again, I would like to wish David a happy life and welcome Mark to join the big family of the company. Let me translate my question into English. Thank you, management, for taking my question. I have two 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 this quarter? Two, we notice 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? Thank you.

To answer the first question, we see that the growth is mainly due to the growth of the wearable brand. We also have standard products, but the standard products are not particularly strong. For example, we see that women's clothes and men's clothes are growing quite well. In addition, the clothes for children, including underwear, etc. are growing well. Then in addition, for example, for example, for example, for example, for example, for example, for example, for example, for example, for example, for example, for example, for example, So this is the first one. The second one is to ask about whether MP will increase, right? So in fact, the difference we see here should be that we see that because the stock market is growing fast, but the return rate of the stock market is high. So we also see that because especially our current service is without worries, the return rate of our stock market, especially in the current peak, the peak of growth, than the original growth, so this is probably what you see. So instead of our MP increasing, our current MP, we are still more restrained because we consider that we give users products with high quality standards, or we say that the overall service, brand, quality, and price are all reliable. So if we actually look at the recent QRs, then our entire MP ratio has not changed much.

In terms of category, overall apparel categories are doing much better at double-digit journey growth into one than non-apparel categories. We did see broad-based recurring in subcategories like women's wear, men's wear, sportswear, shoes wear, and shoes and bags because people are going out more often and they need to mix and match. In terms of geographic Actually, recovery is seen across different tiers of cities, more or less with Tier 1 cities slightly outperforming, but not much. 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 usually carry relatively higher return or rejection rates. But remember, return and exchange is key to achieving excellency in service and customer experience. Over time, this will elevate the trust and the loyalty of our customers and translate into better customer revenue growth. And because we focus on high-quality merchandising selections, services, as well as price advantages, so those are the things that we are going to focus for the long term. Regarding NP, we don't actually see any change in terms of its contribution in the last several quarters.

Please stand by for the next question.

The next question comes from Ashley's show with Credit Suisse. Your line is open.

My question is related to consumer behavior that we have seen. Do we see continuous signs of consumption downgrade? And would we be changing our strategy in product selection to focus more on lower price range to cater such demand? Thank you.

We actually haven't seen this kind of consumption decline yet, but because we have a general customer base price of about 200 to 300, so in theory, we think that the current economic environment, in order to travel, everyone has to dress more beautifully. In fact, this money is still worth it. In fact, because there are not many expensive products on our Vipshop, such as gold accessories and high-end watches, which are not particularly strong for us, we do not have the right to say whether the users are becoming more and more cautious in terms of high-end consumption. Including what we see ourselves, the price of our ARP and the price of the current customer purchase are actually the same, there is nothing special. There are also a lot of people asking whether it is because people are still a little bit unclear about the economy, so now it is said that cheap things are easy to sell. So we can't get a conclusion yet, but we can see that our current overall user behavior is almost the same. There is no obvious decline phenomenon.

Okay, in terms of consumption trend, I think we haven't seen very clear downgrade in terms of consumption among our current customers. Actually, average order size ranges from 200 to 300 yuan for our customers. And it seems that after the pandemic, they think it's worth it spending 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 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.

Please stand by for the next question.

The next question comes from Charlene Leo with the HSBC. Your line is open.

Thank you. I have two questions. First, I'd like to ask about the users. I'd like to know about the accumulation of virus. Can you tell us more about it? And I'd like to know about the main customer channels. The first question I wanted to ask is, you know, obviously we've seen simulated buyers of June positive growth from 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 wanted to get the latest thoughts on the topic of dividend. Thank you so much.

The first question is the way we deliver goods. In fact, the way we deliver goods is basically the same as it used to be. For example, we deliver goods accurately. We are actually making adjustments recently to strive for the efficiency of this kind of accurate delivery. For example, we have, for example, it used to have this kind of installation machine, various application markets, and so on. Anyway, we continue to follow suit. In addition, we We also continue to optimize our personalization, including the personalization of new customers and products. In this way, we also ensure that the turnover rate of new customers is higher. In addition, we still have to invest money. For example, we continue to do a better job like this big drama. For example, this relatively popular TV drama. We have a 15-second ad in it, so that everyone can often see it. Then include us in fact with various social media Then for example, we will also post in various media Then but these posts we are actually It is also slowly accumulating Weipinghui's volume and market power Then we say waiting for the future transformation So we are actually a whole set of solutions Then we are also constantly adjusting Continuously optimize to achieve the highest efficiency Then the other cost is controllable, the highest efficiency Then the second point is to ask us to repurchase, repurchase, because we ourselves have considered that we actually have enough confidence in the development of our own overall company, including that we now see that our stock price is not very high, so we think the best investment is to invest in our own company, because we can see it, but we can't touch it, and we are in the market every day. So, we actually insist on continuing to do this thing for a long time. We also heard a lot of feedback from investors, saying that they are also grateful that we have increased the share and value of the investors through repurchase. So, we will continue to think in the right time In terms of our customer acquisition strategy, actually we continue with our

different different channels including targeted marketing which includes pre-installation app store installation etc 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 sponsorships. Those 15-second sponsorships in TV dramas proved 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 equity. 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 efficient enough in terms of customer acquisition. In terms of share repurchase programs, We have been returning our 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 stable return through investing in our company.

Excellent. Thank you so much.

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