Vipshop Holdings Limited

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

Thank you, Operator. Hello, everyone, and thank you for joining VIP Shop Second Quarter 2023 Earnings Conference Call. With us today are Eric Shen, our co-founder, chairman, and CEO, and Mark Wong, our CFO. Before management begins their prepared remarks, I would like to remind you that discussion today will contain forward-looking statements made under the safe harbor provisions of the US 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 statement in our earnings release 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 US GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen.

Good morning and good evening, everyone. Welcome and thank you for joining our second quarter 2023 earnings conference call. We delivered strong second quarter results on the top line with profitability well ahead of expectations. Our value proposition in discount retail is resonating with brand partners and custom leads by the well-executed merchandising strategy, which has been the key to drive the growth. The second quarter performance continued to be fueled by apparel category, which delivered over 30% GMV growth, reflecting broad-based strengths. At the time, when consumers are making more regional decisions based on value for money, customers are coming back more and shopping with us more often. Paid membership growth remained robust. By the end of the second quarter, active Super VIP members increased by 23%, contributing to about 44% of our online spending. We are also pleased with the build-out of merchandising capabilities and the optimizations of business processes throughout our organization. They have helped drive great efficiency. Profitability hit another new record high in the second quarter. More people look to us for value. More partners want to work with us to target their desired customers. This provides new levels for us to capture great mindshare. In everything we do, we put the customer at the center. We hope that discount retail for branded products is the one that VIP Shop stands for. And when people feel like buying clothes online, VIP Shop is the first place to go. With that in mind, we are committed to enhancing our core competence to offer a rich and diverse selection of great value, as well as worry-free custom service and experience. On merchandising, we have secured much more quality supply from co-brands. We are consistently adding new brands, more popular products, and a range of trendy categories. More high-end international brands become available. Our ability to present new, fresh, and fashionable items the one our customers long expect from us, has meaningfully improved. As a long-standing discount retailer, we were able to provide great pricing across every category, giving our best-in-class service to brand partners. But it's far beyond that. Differentiate merchandising is also pivotal to create value for customers. We are doing so through unique and the customized offerings, which have better conversions. And there's a lot more we can do with the made for VIP shop line. Our buyers team continue to deepen that knowledge and expertise. They have put in place a set of rules and the process making it more efficient for brand partners to increase the quality supply at a competitive pricing to cater for customer needs. We are moving steadily towards our goal to help every customer find what they need on our platform. On service commitment, we keep listening to our customers, analyze and understand their Involving needs, we are determined to deliver a worry-free experience by leveraging our merchandising, customer service, and the supply chain capabilities. For example, we are enhancing our merchandising efforts to make sure that everything is reliable sources, every product is of guaranteed quality. and every step along the value chain is properly monitored. We want every customer to feel that the experience of shopping with us is worry-free enough to prioritize their spending here. Then we keep looking at where we can deepen engagement with our customers, personalize the experience channel efficiency and the quality custom flows and the top priorities. We have been deep mining customer and product insights to improve accuracy and the prediction in personalized recommendations. We have also made several upgrades to our APP to increase the efficient of different channels. Engagement with SVIP customers has been quite encouraging. Penetrations into different cohorts of spending has improved year over year. As we navigate the external changes, we believe that our business model is structurally sound. The discipline and the dedication inherent in our day-to-day execution allow us to stand firm as a unique player in e-commerce. As long as we continue to optimize our merchandise portfolio, putting the custom at the center of every decision we make, we will attract quality customers and benefit from deeper custom loyalty and engagement. that will result in sustainable revenue and earning growth for the long term. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Okay. Thanks, Eric, and hello, everyone. We are pleased to finish another quarter with strong profitable growth. During the second quarter, total net revenue increased by 13.6% year over year, and non-GAAP net income attributable to VIP shop shareholders increased by 15.8%, leading to margin expansions across the board. This set of results was achieved through our enhanced merchandising capability to offer quality products at great value. Our diligent execution to grow customer engagement, as well as company-wide efforts to optimize the efficiency of our business. Overall gross margin expanded to over 22% for the first time in three years, benefiting from much stronger momentum and a greater contribution from apparel and very healthy category margins. With continuous focus on managing controllable cost and achieving expenses leveraged where we could, Profitability took a meaningful step up and non-GAAP net margin attributable to VIP shops shareholders hit another record high at 8.6%. In addition, we continue to unlock value for our shareholders with $348.5 million of our ADS being repurchased during the quarter. We will keep executing the remaining amount of our $1 billion buyback program from time to time. Looking ahead, as Eric mentioned, we are operating in a retail environment where consumers place value at the top of their list. And we see the opportunity to gain customers' money share. Our team is working hard to ensure our operations are ready to deliver on our long-term vision, in addition to addressing near-term priorities. We are committed to maintaining quality and healthy growth in both top and bottom lines. 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 and lies otherwise noted. Total net revenues for the second quarter of 2023 increased by 13.6% year-over-year to RMB 27.9 billion from RMB 24.5 billion in the prior period. primarily attributable to the growth in active customers and spending driven by the recovery in consumption of discretionary categories. Growth profit increased by 23.4% year-over-year to RMB 6.2 billion from RMB 5.0 billion in the prior year period. Growth margin increased to 22.2% from 20.5% in the prior year period. Total operating expenses increased by 13.7% year over year to RMB 4.5 billion from RMB 3.9 billion in the prior year period. As a percentage of total net revenues, total operating expenses was 16.1% which stayed flat as compared with the prior year period. Fulfillment expenses increased by 22.8% year-over-year to RMB 2.2 billion from RMB 1.8 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 7.8% as compared with 7.2% in the prior year period. marketing expenses increased by 60.6% year over year to RMB 892.5 million from RMB 555.6 million in the prior year period. As a percentage of total net revenues, marketing expenses was 3.2% as compared with 2.3% in the prior year period. Technology and accounting expenses increased by 7.6% year-over-year to RMB $443.0 million from RMB $411.8 million in the prior year period. As a percentage of total net revenues, technology and accounting expenses decreased to 1.6% from 1.7% in the prior year period. General administrative expenses decreased by 19.4% year-over-year to RMB 963.1 million from RMB 1.2 billion in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 3.5% from 4.9% in the prior year period. Income from operations increased by 51.1% year-over-year to RMB 1.9 billion from RMB 1.3 billion in the prior year period. Operating margin increased to 6.9% from 5.2% in the prior year period. Non-GAAP income from operations increased by 48.2% year-over-year to RMB 2.3 billion from RMB 1.6 billion in the prior year period. Non-GAAP operating margin increased to 8.2% from 6.3% in the prior year period. Net income attributable to VIP shop shareholders increased by 63.5% year-over-year to RMB 2.1 billion from RMB 1.3 billion in the prior period. Net margin attributable to VIP shops shareholders increased to 7.5% from 5.2% in the prior period. Net income attributable to VIP shops shareholders per diluted ADS increased to RMB 3.75% from RMB 1.97 in the prior year period. Non-GAAP net income attributable to VIP shop shareholders increased by 50.8% year-over-year to RMB 2.4 billion from RMB 1.6 billion in the prior year period. Non-GAAP net margin attributable to VIP shop shareholders increased to 8.6% from 6.5% in the prior period. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS increased to RMB 4.30 from RMB 2.45 in the prior period. As of June 30, 2023, The company had cash and cash equivalents and a restricted cash of RMB 18.3 billion and short-term investments of RMB 1.5 billion. Looking forward to the third quarter of 2023, we expected our total net revenue to be between RMB 21.6 billion and RMB 22.7 billion, 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.

Thank you. To ask a question, please press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Once again, the star 1 1 for questions. Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.

Hi, good evening. Thanks, management, for taking my question. I have two questions. The first question is regarding the consumer sentiment. Can management comment about how we think about it and the monthly GMV trend recently, as well as our expectations in coming quarters? And my second question is about our margin outlooks. Given the strong margin in Q2, how should we think about it in coming quarters? Thank you. 我來翻譯一下吧。 謝謝管理層接受我的提問。 我第一個問題是關於消費的情緒的。 管理層可以分享一下我們最近的GMV的趨勢, 還有就是未來幾個季度我們對GMV增速的一個看法。 另外一個問題是關於我們的margin的。 我们看到我们Q2也是做得非常的好 在未来几个季度 我们应该怎么看我们margin的趋势呢 谢谢 我先回答一下那个关于那个GMV的 GMV呢我们因为现在是Q3嘛 已经过去将近一个半月多 那么我们看见都比较正常吧 在我们的预期范围内 那么另外呢就是因为我们在对后面的

Q4. Q4. Then we said that customers will buy a lot of clothes. In addition, it is especially this kind of expensive clothes, so the clothes are cold, so in general, we have confidence in the Q4. Then in addition to the future of GMV, we feel that it is because the whole thing is stable now. There is no such thing as this kind of epidemic, so we actually have confidence in the future. 那么第二点是问关于利润啊 利润呢我们QR是做得不错 那么我们自己认为呢 我们其实整个公司经营了这么久 在整个利润的控制啊 在毛利净利的控制上面 比原来做得越来越好了 那么我们相信这是应该是个持久的能力 不是说一个季度好一个季度不好 所以说我们其实对未来的利润也是很有信心

Okay, in terms of GMV trend, as we enter into the third quarter, until now, it's been one and a half months. Everything is on track, and it's tracking in line with our guidance of 0 to 5% revenue growth. And we are pretty confident that the total GMV will continue to be on track. And especially for Q4, we still see a very good opportunity to ramp up the GMV growth because, as you know, Q3 is typically a slow season for apparel. Summer apparel has lower ticket size while entering into Q4 when people are going for winter clothes, which are typically a higher ticket size. And that presents a better opportunity for us to grow the GMV better because of the strength in the power categories. And for the longer term, we are very confident about the consistent and sustainable GMV growth because nowadays we don't have the COVID and everything is in normal operation and we are pretty confident about our merchandising capability to grow the GME for the longer term. In terms of the margin trend, In Q2, we did a pretty good job, and we think we now have a very good handle on all the margins, including GP margin, OP margin, NP margin. And it's a long-term capability that we had built out because of the discipline and dedication in our daily operations. And we are confident that we will maintain a consistent earnings growth and keep all the margins on a very healthy level.

All right. Thank you, Thomas. Our next question comes from Alicia Yap from CT Group. Please ask your question, Alicia.

Hi, good evening, Eric, Mark, and Jesse. Thanks for taking my question. I have two questions. First, can management share with us the reason for the improved gross margin this quarter? I mean, usually during the promotional period, gross margins tends to trend a little bit lower, but this quarter is actually exceptionally good. So could this improved margins be sustainable that this is a new gross margin level? going forward. And then second question is the consumption pattern. Specifically, within your apparel, what type of like, you know, fashions or kind of, you know, the design or anything that is particularly doing well, you know, just kind of wanted to get a sense of, you know, what the consumers are spending, are they more caters towards, you you know, apparel that is half a discount or actually more on the sportswear or any color you can share within the apparel category would be appreciated. Thank you.

There are two questions. The first question is about the GP margin. He thinks the GP margin is very good in the second quarter. Usually, in the first quarter, the GP margin may be a little low. We did a very good job. Is it a sustainable level? Is it a new trend for us? The second question is about the trend of consumption. When we talk about clothing, the performance is very good. Are there any details that can be shared? For example, which type of clothing is better? Is it a fashion type or a designer type? Or is it a deep discount? Or is it a physical type? Any details are fine. The first point is that because we are

Q2 is indeed a sales season, but now we are in the sales season, we want to catch sales, but we don't do this kind of blind subsidy. So we actually, that is to say, we don't waste a lot of money. So in addition, that is to say, in this case, we also received quite good results. So we say that we will no matter whether it is, for example, some seasons are big, some seasons are not big. So for us, we think We have found a relatively stable one. The cost-efficiency ratio is equivalent to this model, and it will not rise and fall. Then the second one is about the one we are talking about. At the current consumption of these clothes, we see QR words, then it is true that because of last year's QR, then we say that the epidemic is very serious. Many places are closed, then we see that in fact, This clothing growth is very strong. So from women's clothing, men's clothing, children's clothing, including physical use, including what we call the general one. We want to buy this kind of one that we call home-made underwear. These are actually growing very well. So we estimate that in fact, at the time of Q2, everyone's travel needs have been met. Everyone can't go out. But now we are talking about a lively society, and people don't wear masks. So it's actually better for people to wear clothes and demand clothes. In addition, like the clothes we just talked about, we did a very good job. In addition, like shoes and bags, in fact, their growth rate is similar to clothes, because a lot of people are here to match them. So when we see some details, for example, because we do a lot of deep discounting, So we also see that consumers like it relatively cheaper now, which is relatively more cost-effective. So we see that users who are in high discount will be more interested. In addition, now, for example, for the whole body, for example, for the fashion body, we say that this is a trend that started from one or two years ago. Yes, I don't know. I don't know. I don't know. I don't know. Okay. Going back to your first question on GP margin, we did have a very good performance on GP margin, even during the promotional period in Q2.

As we mentioned earlier, we have a very good cost control to help our GP margin grow. For example, we don't actually blindly participate in the industry-wide subsidy campaign. We don't want to waste money delivering unnecessary coupons or vouchers to our customers and still we are able to achieve a very good gross margin profile. And we are confident that we would maintain this level of a gross margin of a longer term We wouldn't expect big swings from quarter to quarter, no matter whether we have big promotions or not. In terms of the performance within the apparel categories, we had a very, very strong growth in the second quarter, partially because of the pent-up demand as compared to last year. And today we don't have COVID and everybody is going out for traveling and dining out, etc. So given such active social activities, we did see very good momentum within a pair of categories. And we actually see broad-based strengths across different categories, including women's wear, men's wear, kids' wear. underwear, et cetera. And for mix and match purposes, consumers also spend a lot on shoes and bags, which are also going very well. Of course, for deep discount products, we think consumers are more susceptible to These are product offerings because they now place value on the top of their list and they make very rational decisions and look for valuable money products. And if we look at more details within the para categories, As you mentioned, fashion, sportswear, a trend which started a couple of years ago has been growing very well. And for women's wear, we do see a very diverse trend for different styles, designs. And some of the designer brands are growing very well. And of course, some are not that popular. So basically, I think we're seeing very good momentum in the power categories.

Thank you.

Our next question comes from the line of Natalie Wu from Haitong International. Please ask your question, Natalie.

Hi. Thank you for taking my question. I have one regarding the future growth prospects. For the 0 to 5% younger growth guidance of the sub-quarter, this is mainly affected by macro or competition or simply the base effect. If the latter is safe to say, this number could indicate a similar normalized growth rate entering into 2024. or you will shift your strategy to increase sales and marketing for better goals by then? China. China. China. China. China. Thank you. Our estimate for Q2 is 0 to 5. We also consider that we are talking about, because Q3 is mainly the egg season, the egg season of the Sichuan era,

Then for us, that is to say, then we This is that our strength is to wear a belt So what we are talking about is that the overall guidance is not so strong Then the other thing is that we also see that is to say, in fact, our sharp growth is still good But because we sell too much clothing, the return rate is high So what we see is that the return rate of customers this year is much higher than last year So it's possible that customers foreign foreign uh The impact of Q2 and Q4 on the epidemic is relatively large. This is last year, so we think it is normal this year. In addition, we are in the future, is it 0 to 5 for the long term? Of course, we hope that we will continue to develop our brand special sales advantage and continue to grow, including our Q3. So we can get more users. So in general, because we can't disclose the expected numbers in the future, but our own requirements are our requirements are higher than these numbers.

Okay, in terms of the guidance for Q3, the 0 to 5% revenue growth is primarily because of the slow momentum in relatively slow season for apparel categories. And you know we are pretty strong in apparel, and when we enter into Q3, we will have slower GMV growth. But the GMV growth is actually much better. But apparel naturally carry higher return rates. And of course, we also find that consumers are more cautious about their spending. And when they place their orders, they have to think over and over, and then the return rate would be trending higher. Another reason for return rate is that we provide a worry-free series for returnable exchanges. And a lot of customers appreciate our series. And this is part of our initiative actually to provide excellent services to customers for the long term to gain their mind share. And it's already building our business model, and we actually don't care too much about its short-term impact. And going into Q4, we're definitely returning to a stronger growth rate. The basic fact is also in play, as I mentioned, because last year COVID impact was actually more than that meaningful in the third quarter. So we probably don't have an easy count to compare. For the longer term, of course, we are looking at a very much healthier growth rate. We still want to leverage our value proposition in discount retail for branded products and to grow our business. Already in this quarter, we are starting to prudently increase our marketing spending to try to capture the opportunity to grow more customers. So we are confident that we can grow better than the guidance we provided.

Thank you. Our next question comes from Eddie Wang from Morgan Stanley. Please ask your question, Eddie.

Hello, Mr. Shen, Mr. Mark, and Jesse. Thank you. This is my question. I would like to ask a follow-up question about the return rate. Because I do see that the rate of travel expenses in the second quarter is relatively high compared to the previous quarter, including last year. Then I would like to ask Mr. Shen, if we compare the trend of the entire return rate of the first quarter, second quarter and third quarter to the present, is it gradually going up or is the first quarter relatively lower than the second quarter? After the second quarter went up, does it look like there are some declines in the third quarter? Or is the proportion relatively stable and relatively high? Does it mean that when we look at the interest rate in the future, uh, uh, uh, uh, uh, Thank you, Benjamin, for taking my question. My question is also regarding the return rate. Can you share with us the trend of the return rate in first quarter, second quarter, and the third quarter so far? Because we have seen that if you look at the fulfillment rate in the second quarter, actually we see a little bit higher than the first quarter. So we expect that this fulfillment rate, fulfillment expense ratio to, you know, be a little bit higher going forward. Thank you.

The answer to the first question is that we see that the return rate of Q1 is also increasing. But Q2 is not so strong. So we also see that basically the current return rate of Q3 Then Q4, we estimate that it may be a little higher, it may not be, but it will not be because we think that the return rate has risen a lot, so it is not necessary to say that this is a major transformation. So in general, we think that this return rate may be brought to next year. So we are thinking about this kind of trend of this kind of client, including him to try He wants to pick more, then it is not suitable, he will withdraw. In addition, it is possible that he just said that he wants to calculate. So we think that this trend may be brought to next year. So we may have this GNV next year. With the whole proportion of net income, we estimate that it will be different from a few years ago. So from now on, the numbers can basically be understood. Then there is the question just now. Thank you. So in general, we think that the growth of the lease fee has something to do with this, but it is not an absolute relationship, not all of these relationships. So we look at the future of this lease fee, we are also able to control the whole thing, and we will not say where it will go. So it is possible that, for example, when it comes to shopping, because our entire order volume has increased very much, so that is to say, the lease fee we are talking about will be greatly reduced.

Okay, in terms of the gap between revenue and GMV, actually we have seen return rate has starting to trend up from the first quarter. And in the second quarter is going up quite significantly. So we expect that Q3 would maintain a similar level as Q2 and Q4. It's hard to tell. Potentially, it could be higher, but it should not be much higher because we have started to take some initiative to bring the return rate to a much more normalized level. But having said that, the gap between our revenue and the GMV that we have seen for the past several quarters could be the benchmark for your estimate for future revenue versus GMB. It's going to be a little bit different than the level we have seen in the past several years. And the return rate we had mentioned earlier, one of the reasons is that many consumers as VIPs, they love They love to shop on our platform. They enjoy trying on. And if they are not satisfied, they would just return or exchange through our worry-free services. And another reason is that, potentially, consumers are more cautious on spending nowadays because they manage their household budgets more carefully. And in terms of fulfillment expense, return rate is part of the reason that fulfillment may trended higher in the second quarter. But the cost associated with return for exchanges are mostly delivery costs back and forth. So it's just part of the model, the business model we have built in. For the full year or the longer term, we think the human expense ratio is still manageable. It's not going to be extremely high. Probably in some slower seasons, it's going to be high. But in peak season, especially for apparel, it's totally manageable.

Thank you. Our next question comes from the line of Andre Chang from JPMorgan. Please ask your question, Andre. Okay.

Thank you, Mr. Shen, Mr. Mark, and Jesse. I have a question about the return on shares and the return on shares. And then the amount of our repurchase is probably the same as the free cash flow of this quarter. So I would like to ask Mr. Shen if he can share with us a set of thoughts and philosophy on the repurchase of shares and share with shareholders. That is, how do we consider what kind of local rhythm to repurchase and then let some of our shareholders understand what kind of return. I have a question for shareholder return and share buyback. I noticed that the company has bought back $350 million around of ADS this quarter versus a current program of US $1 billion over two years. So the pace is significantly faster than the average pace of the program. And also the buyback amount is equivalent to our free cash flow. So my question is about what's the philosophy and the strategy of our share buyback and the shareholder return? Can management share with us what the principle for you to buy at what kind of level, what kind of pace, so investors can understand the shareholder return you can get from here? Thank you.

Okay. Okay.

Yeah, OK. Actually, we don't have a specific philosophy or rules as to the buyback program. We just buy back when the share price is much underappreciated as compared to fair value. So we don't have specific pays. We are just very committed.

OK. This is Mark. Thanks for your question. We would like to return value to our shareholders. So we have been steadily executing our buyback programs. And as of the second quarter, we have utilized around $435 million of our current $1 billion share repurchase program. And that means starting from second quarter to 2021, we have returned a total of about $2 billion to our shareholders as of the second quarter of 2023. I think we will continue to execute this program from time to time. And yes, so another thing that just mentioned by Eric that we will also focus on the share price. and also our enterprise values. If we believe that the share price, if we believe the market cap is really below the value, and then we will do our share buyback from time to time. Thank you.

Thank you. Our next question comes from Jialeng Shi from Nomura. Please ask your question, Jialeng.

Thank you very much, Eric, Mark, Jesse for taking my questions and good evening. I will ask my question in Chinese first and then I will translate it myself. The first question is also a follow-up question, which is about the return rate. I would like to know more about it. Mr. Shen just said that the return rate has risen from the beginning of this year, and the second quarter has also risen significantly. Then I have two small questions. The first one is that I don't know if we observe the return rate of our Vipshop compared to the return rate of the same clothing of some friends. I don't know how our return rate is compared to the return rate of the clothes of friends. How is it compared to the industry? Does the industry also see a similar trend? The second small problem is that when Mr. Shen was commenting on the return rate, I don't know if I understood it correctly. It seems to be hinting at the higher return rate and the more cautiousness of customers. I don't know if there are other reasons besides the cautiousness of customer consumption. For example, is there a possibility of competition? This is the first question. The second question is to ask, how much is the share of our latest super VIP members in this quarter? And how much is the share of their contribution to GMV? I will translate it myself. I have two questions. The first one is a follow-up question on this return rate. So just wondering how's VIPS return rate for the apparel category compared to those of the peers or compared to the apparel industry, the average return rate for the apparel industry in China during the same period? And also for this increasing return rate since this year, other than this, you know, consumers' cautiousness, just wondering whether or not the competition may have also played a role in this increasing return rate for the power category. My second question is about the Super VIP member. Just wonder what is the latest number of quarterly Super VIP members and how much of your GMV in second quarter was contributed by SuperBIT. Thank you.

So my answer to the first question is about the return rate. In fact, our return rate is higher than others' because we are doing special sales and shopping. But not much higher. But it won't be much higher. But recently, because of the loss rate, many platforms only have individual data. They won't see the overall phenomenon. So we are still researching. The second question you asked is whether customers choose to be cautious. To be honest, we are just guessing. But this is not good evidence. That is, so we did not get the final conclusion that it is not the customer, that is, maybe the consumer's wallet is less or that one. Then the other one is that you asked about the competition problem. I feel bad about this. It's a competition problem because he has paid for it. After paying for it, for example, he bought three goods, leaving one in the past, leaving two in the past, leaving one now, but he paid for all three goods. So in theory, there is no advantage or difference in price because it has already made a good choice. So this is not a competition problem. So what I just said is that in the case of a high return rate, we actually don't have a final conclusion. We just see that this trend is actually continuing. So the second question you asked about SBIP. SBIP, we are By June 30, 630, we are 6.7 million sbp Contributed 44% of our sales Then the other is the increase of our sbp That is, we are actually increasing sbp every quarter Then the other sbp return rate Will be much higher than ordinary users Because for them They like us very much I often buy it and buy it Then he made it into our similar kind of mall In terms of return rate as to the VIP shop versus peers,

You know, we are a shelf-based e-commerce player, and our business model is quite unique. We are a discount retailer, and we often offer flash sales, and consumers have to make real-time decisions. And their shopping cart, if they put any products in it, they only have 10 minutes to decide whether to buy or not. And our peers, they have some ways to motivate their customers not to return. For example, they would deliver coupons or vouchers through their customer service staff. So we are running on a very different business model. And typically, our return rate is two to three percentage points higher than our peers according to our estimate. Whether it's industry-wise a phenomenon as to return rate trending up, we are still doing some research because we don't have the full set data from all the industry players. We just have some of them. We don't have a conclusion on that. We're still evaluating the situation. As to consumer sentiment, we mentioned probably part of the reason is that consumers are becoming more cautious, but that's also our estimate. We don't have a solid concrete scientific way to determine whether it's because consumers' wallet is shrinking. So we don't have a conclusion on that, but it's our best estimate that probably they are becoming more rational. And as to the competition, we don't think it's behind the return rate. Because typically consumers pay for all the items they put in their shopping cart and then they decide whether to keep them all or to return one or two. So they've already made their decision to shop on our platform and they just need to consider whether to keep all the items or they need to return some of So it's not because of the competition. So in summary, we don't have a final conclusion on why the return rate is trending up. And as of June 30, we have a total of 6.7 million active super VIP members. who contributed to 44% of our online spending. If in terms of GME, that should be a little bit higher. Again, SVIPs have a much higher return rate than non-SVIP members because they One of the reasons they love to shop on our platform is because we offer worry-free return on exchanges. And they think this is a place that is very reassuring for their customer experience. So that's one of the reasons why the return rate is trending up.

Thank you. Due to time constraints, that concludes today's question and answer session. At this time, I'll 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. Thank you. This concludes today's conference call.

Thank you for participating. You may now disconnect.