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spk00: Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings Limited's third quarter 2023 earnings conference call. At this time, I would like to turn the call to Miss Jessie Zheng, VIP Shop's head of investor relations. Please proceed.
spk05: Thank you, operator. Hello, everyone, and thank you for joining VIP Shop's third quarter 2023 earnings conference call. With us today are Eric Shen, our co-founder, chairman, and CEO, and Mark Wang, our CFO. Before management begins their prepared remarks, I would like to remind you that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our safe harbor statements in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this Court to the extent any forward-looking statements may be made. Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income for ADS are not presented in accordance with U.S. GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen.
spk03: Good morning and good evening, everyone. welcome and thank you for joining our third quarter 2023 earnings conference call we continued to see decent momentum throughout the third quarter with sales and profit growth ahead of expectations while we accelerate our efforts on strategic priority to capture customer mindshare among the drivers Apparel categories continued to outperform with over 16% growth in GMV year-over-year. High-value customers increasingly relied on us as they looked for great deals. Active Super VIP members grew 17% from a year ago and accounted for 45% of our online spending in the third quarter. We continue to execute well and drive changes for the long term. We made it clear that we'd like to be the first go-to online shopping destination for Appello. To that end, we are pushing forward with a strategic improvement related to merchandise expansion, best value for money, and the worry-free service for our customers. Our merchandise team is more skilled at developing rich and diverse mix of branded products. Up to date, we have added several hundred trendy and high-end brands this year. And we have a complete system to help new brands grow their business faster by providing the right mix of resource support. including traffic allocation, customer analytics, and the channel promotion. Also, as a buyer-based platform that highlights carefully selected products, we will launch the contents like buyer's must-haves, which is tailored for a pedal category, and the customer behaviors on VIP shop to interest different types of users. On Made for BIP Shop, our team has done a better job of identifying product opportunities together with brand partners. We now have an enlarged supply of customized offerings with SKUs available for sale trending up every month. The customized series performs better in categories like clothing and shoes and bags. This has motivated brand partners to deepen their collaboration of customized products with us. While we are growing our merchandise selection, we are committed to providing our customers with effort ability. We are focused on seeking out the best deal for our customers to make sure they get value with great everyday price and also through unique and customized products and we provide additional saving opportunities through our popular loyalty programs. Lastly, we are improving customer shopping experience that includes an overall set of enhanced capabilities from the worry-free quality guarantee, enriched product detail page, integrated customer service together with brand partners to improve fulfillment efficiency through seamless process management. For example, as part of our enhanced quality assurance program, We recently reached a strategic collaboration with China Inspect and Certification Group to upgrade our quality control system. With all of these competencies at the core of our business, we are in a better shape to deepen engagement with our customers. Our super VIP members recognize our big strengths more than the others because of the trust, value, and ease they've enjoyed at every interaction. Super VIP members have consecutive quarters of double-digit growth. Overall, retention and the renewal rates are trending higher. Average spending is also ticking up. As we look ahead, We are confident that our business will stand firm in the face of a still challenging environment. We are encouraged to see a deepening level of trust we will establish with our brand partners and customers. And we are uniquely positioned to secure consistent product supply that is aligned with customer performance for value spending. We are confident about being a long-standing player with stable, sustainable, close prospects. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.
spk02: Thanks, Eric. Good morning and good evening, everyone. We are delighted to see that third quarter results exceeded our expectations, leveraging elevated customer mindshare in apparel categories and value for money offering. We delivered satisfactory revenue growth despite the slow season in the third quarter. With continued focus on high quality growth, profitability remains strong. Growth margin increased by 2% points year over year to 23.6%. a record high in three years, primarily benefiting from favorable category mix and optimized merchandise portfolio. Non-GAAP operating margin hit an all-time high of 9.1%, as we stayed disciplined when managing every expense item. Non-GAAP net margin attributable to VIP shops shareholders maintained at a high level of 8.1%. Meanwhile, we value shareholder interest from long-term perspective. As of the end of the quarter, we have returned a total of approximately $2 billion to our shareholders since April 2021. We remain committed to executing our share repurchase program Going forward we are positive on the long-term growth outlook supported by the underlying strengths of our unique business model We believe our enhanced efforts from merchandising to supply chain will help us capture the opportunities presented by consumers' increasing needs for value-for-money offerings. 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 change are year-over-year change, unless otherwise noted. Total net revenues for the third quarter of 2023 increased by 5.3% year-over-year to RMB $22.8 billion from RMB $21.6 billion in the prior year period, primarily attributable to the growth in active customers and spending driven by the recovery in consumption of discretionary categories. Gross profit increased by 14.9% year-over-year to RMB 5.4 billion from RMB 4.7 billion in the prior period. Gross margin increased to 23.6% from 21.7% in the prior period. Total operating expenses increased by 9.6% year-over-year to RMB 4.0 billion from RMB 3.7 billion in the prior year period. As a percentage of total net revenues, total operating expenses was 17.6% as compared with 16.9% in the prior year period. Fulfillment expenses increased by 9.5% year over year to RMB 1.6 billion from RMB 1.6 billion in the prior period. As a percentage of total net revenues, fulfillment expenses was 7.8% as compared with 7.5% in the prior period. Marketing expenses increased by 17.0% year-over-year to RMB 669.6 million from RMB 572.4 million in the prior period. As a percentage of total net revenues, marketing expenses was 2.9% as compared with 2.6%. in the prior period. Technology and accounting expenses increased by 10.3% year-over-year to RMB 435.3 million from RMB 394.8 million in the prior period. As a percentage of total net revenues, Technology and accounting expenses was 1.9% as compared with 1.8% in the prior period. General and administrative expenses increased by 5.5% year-over-year to RMB 1.13 billion from RMB 1.07 billion in the prior period. As a percentage of total net revenues, general and administrative expenses was 5.0%, which stayed flat as compared with that in the prior year period. Income from operations increased by 34.8% year-over-year to RMB 1.5 billion from RMB 1.1 billion in the prior year period. Operating margin increased to 6.7% from 5.3% in the prior year period. Non-GAAP income from operations increased by 33.0% year over year to RMB 2.1 billion from RMB 1.6 billion in the prior year period. Non-GAAP operating margin increased to 9.1% from 7.2% in the prior year period. Net income attributable to VIP shops shareholders was RMB 1.2 billion, as compared with RMB 1.7 billion in the prior year period. Net margin attributable to VIP shops shareholders was 5.3% as compared with 7.8% in the prior year period. Net income attributable to VIP shop shareholders per diluted ADS was RMB 2.91 as compared with RMB 2.70 in the prior year period. Non-GAAP debt income attributable to VIP shop shareholders increased by 15.5% year-over-year to RMB 1.8 billion from RMB 1.6 billion in the prior year period. Non-GAAP debt margin attributable to VIP shop shareholders increased to 8.1% from 7.4% in the prior year period. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS increased to RMB 3.33 from RMB 2.56 in the prior year period. As of September 13, 2023, we had cash and cash equivalents and restricted cash of RMB 19.6 billion, and short-term investments of RMB 451.9 million. Looking forward to the fourth quarter of 2023, we expected our total net revenue to be between RMB 31.8 billion and RMB 33.3 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.
spk00: Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Thank you. We will now take our first question. Please stand by. First question is from the line of Thomas Chong from Jefferies. Please go ahead.
spk08: Hi, good evening. Thanks management for taking my questions. I have two questions. My first question is about the latest GMV trend that we are seeing in the month of October and so far in November and also our feedback on double 11. My second question is about 2024 outlook. Can management comment about how we should think about the outlook next year and also the competitive environment? 谢谢管理层介绍我的提问。 我的第一个问题是关于我们最近看到我们GMV的趋势的。 Can you share with us what you've seen in October and November? And for March 1st, can you share with us what you think of this year? The second question is about our GNV income in 2024. And what do you think about the competition pattern or the competition environment of the entire industry?
spk03: Thank you. Okay, I'll answer this question. The first question is about October, November, and December. As of October, because the weather is a bit abnormal, the weather is warmer, so it seems that the overall business of e-commerce
spk05: Okay, on the first question of the latest GME performance in recent months, actually I think entering into Q4 overall performance was a bit muted, especially for para categories because of the abnormal weather conditions. in October, and the seasonal shift for autumn and winter closing seemed to come in later, slower than expected. But para-categories have been picking up very nicely in recent weeks, especially during the Double 11 event. And the overall GM growth during our Double 11 has actually reached double-digit growth. outperforming the industry average quite meaningfully. So we still have some expectations for the rest of the quarter, but it still depends, especially on the weather conditions. If the winter kicks in colder than expected, we should have much better performance. For the year ahead, 2024, Our overall strategy continues to be focusing on achieving stable and healthy growth. I think a lot of the things through the last couple of years of development have reached a healthy level, especially for margins, no matter if it's gross margin or net profit margin, all are on the healthy track. But we are looking for better growth, especially on the customer front. We are trying different ways to boost our customer growth for the long term. And of course, uncertainty remains, especially as to the consumption environment and a lot of other factors, et cetera. But we remain focused on the current strategy And we believe that we will continue to be a very stable and healthy player in the industry for the year ahead.
spk01: Thank you. Thank you.
spk00: We will now take our next question. Please stand by. The question is from the line of Ronald Keung from Goldman Sachs. Please go ahead.
spk06: Thank you. Thank you, Cynthia, Mark, and Jesse. So I have two questions. First is we see that the growth margin has reached a new high. Where should we see kind of a parallel? I think this is a big quarter in terms of mix that should have boosted growth margins because of inflation. the apparel mix in the quarter. But how should we think about the growth margin upside into, let's say, 2024? What are the levers that we see for growth margin uplift from here with this new high level? And then my second question is on our buyback over the quarter. I think, management, you just reiterated the ongoing buyback plan, but the absolute amount spent during the quarter is quite small compared to, let's say, the second quarter. So I want to know, is our buyback a function of share price or our cash, which is onshore or offshore, or is it just an unusual quarter and we plan to have a pretty balanced kind of buyback schedule throughout each quarter? Let me try and tell you myself. Thank you, Manager Chen. I have two questions. The first one is about the interest rate. In the third quarter, we saw a new high. In the third quarter, we usually don't have big festivals. The proportion of clothing and clothing may be high. It also pulled the interest rate. I want to know how much interest rate we can see in a double space. In the new year, how should we think about the interest rate in the upper space? Secondly, if we look at our repurchase, in the third quarter, the amount of repurchase is still much less than in the second quarter. I would like to know if the repurchase between each quarter is due to the stock price, or maybe we have different considerations in advance, or will the repurchase between each quarter in the future be more stable, or how do you think? Thank you.
spk03: I will answer the first question, and then Mark will answer the second question. The first question is about the case of毛利. In fact, the毛利 of the third quarter was better than last year. In fact, the payment model for suppliers has not changed. Because now everyone's burden is relatively heavy, we have not increased the price and continue to maintain the original price. For example, how many deals does he do? We are relatively limited on the discount point. So in theory, our profit is to maintain the original level. I see it higher than last year. Because we are actually like Q3. We are actually more specific in terms of giving advice. But we also see that if we don't give advice on our own initiative, then the business is actually almost the same. What we are talking about is to find a relatively healthy way. So we are now in terms of profit, we feel that it is currently in a healthy state. So including Q4, including the future, we feel that there is little room for growth in profit. That is to say, because we can't raise prices anymore. So in addition, we also advise, but we think we still have room for progress. So including Q4, then we actually have a year of progress, which is the best every year. OK. On the first question about GDP margin expansion,
spk05: The GDP margin expansion in Q3 was actually primarily driven by the higher margin of paragraph, which had a higher contribution year over year. And also, our saving initiatives, especially on the customer incentives, have been well put in place. It's not that the take rate, how much we take from brand partners has actually not changed And instead of increasing the take rate from brand partners, we actually offered a lot of incentives for brand partners to grow their business together with us so that they can actually save a lot of money. And the GP margin has reached a relatively high level. So we think there is not that much room for it to improve further in Q4 or for the year ahead. Because we won't increase the take rates for brand partners. We won't issue that customer coupons as well. We think we find a better and a healthier way to grow our business as well as our customers. But on the other hand, in terms of NP margin, we think we still have some room for further expansion. And especially for Q4, it's typically a peak season for us in terms of margins, especially NP margins. So we should see a higher NP margin in Q4. And for 2024, we still have some economy of scale and some operating leverage. especially on the marketing expense front. We continue to be prudent and invest only when and where we feel there is a need and the returns are okay. So we think empty margin still has some room for expansion, but not as meaningful as we had seen for 2023 versus 2022.
spk02: okay hi reynolds this is mark and thanks for your great question regarding the share buyback uh i will answer your question okay well first we have been steadily executing our buyback programs uh at last quarter we have utilized around 448 of our current 1 billion us dollar share repurchase program and that is to see starting from the second quarter 2021, we have returned a total about $2 billion to our shareholders as of the third quarter, 2023. The remaining $551 million buyback is being executed. Secondly, we are committed to executing the buyback as it's a way to show confidence in our long-term growth prospect. And also, we think about providing relatively stable returns for shareholders and investors. The last but not least, we have been doing it from time to time. With some flexibility, factors into account volatility so that recording the Shared By-By programs.
spk01: Thank you.
spk00: Thank you. We'll now take our next question. Please stand by. Next question is from the line of Alicia Yap from Citigroup. Please go ahead.
spk04: Hi, good evening, management. Thanks for taking my questions. Very quickly, I wanted to ask, as we enter 2024, with demand for apparel and the discretionary spend likely to experiment the normalizing growth. So what are VIP strategies or plans to enhance your growth outlook? or your user purchasing frequency, what could be the normalized growth percentage for next year? And does management think the consumption sentiment will be improving from this year's level? Thank you.
spk05: The problem with it is the growth of the market in 2024. As the growth rate of the consumer goods, especially clothing, becomes normal, what specific measures will be taken to enhance the user's year-to-year supply and purchase? What kind of growth rate will it lead to next year? How do you see the big environment of consumption next year?
spk03: Then we generally look at the overall environment, because after all, we are relatively small in the scope of the entire e-commerce, so theoretically our space is far from the end. We are actually a very small user group, so we actually have a very strong confidence in the expansion of the user group, and we are also working hard to do this thing. Then what we said One is to attract more new customers, and the other is to attract more old customers. We are also thinking about marketing, but the most important thing is to play the advantage of our brand special sales website, including our goods. Then, especially differentiated goods, including the one in the bag, that is, we said that the price should have an advantage. Then, or some are exclusive, some are exclusive, some are bought, and so on. It's like this. We actually create value for our users through products. Then we think that in fact, both sides have to catch it. Then, but especially in terms of goods, we think it's more important to invest. So, in general, we are I still think that for us, the special sales of consumers, this is far from enough. Let's assume that there are less than 100 million users now. But in the future, we will actually play our advantage of wearing a belt. In terms of goods, we use various methods to make consumers feel that the value of Vipshop is different from that of the public. In addition, in terms of marketing, On the 2024 growth outlook, we are pretty confident that we can achieve stable and sustainable growth.
spk05: for the long term. We are still a very small player in China's e-commerce industry and with a limited number of active customers. So we still have a lot of potential to grow our customer base. We are very confident about that. On the one hand, we continue to attract new customers and improve the retention of existing customers and especially grow our SVIP members. And in addition to marketing spend, we think merchandising portfolio is a more important factor to help us grow faster. We continue to expand our merchandising portfolio, including unique offerings made for VIP shop, customized offerings, as well as buyouts offerings, we will continue to leverage the combination of these product offerings to add value to our customers. And speaking of customer base, we still have less than 100 million annual active customers. So we think as long as we can continue to upgrade our platform to focus on apparel categories, to be better and unique and the only one in the vertical retail segment. And as we continue to enhance our customer experience and services, we will grow our customer base from the current level very meaningfully.
spk01: Thank you.
spk00: As a reminder, if you would like to ask a question, you can press star 1 and 1 on your telephone. And to cancel your request, you can press star 1 and 1 again. Thank you. We'll now take our next question. This is from the line of Jialong Shi from Nomura. Please go ahead.
spk07: Thank you, Guanlin. Thanks for taking my question. I will first ask my questions in Chinese, then I will translate them myself. Thank you, Guanlin, for accepting my question. I have some questions here. The first one is, someone just asked about our buyback. I want to ask, if we use up the remaining buyback of more than $500 million, After that, can we expect the management or the board of directors to approve a new buyback? Will our buyback last for a long time? Will it continue every year? And then, can the management give us some general, even if it's a rough guidance, that is, if we have a general goal every year, that is, how much amount will be repurchased or how much, This is the first question. The second question is, as Eric mentioned, our growth margin is very high now, of course, which is 23% to 24%. There may not be much room for improvement in the future. I would like to ask if this growth margin will be able to maintain its level of 23% to 24% in the future and maintain stability. So I just asked three questions to the management. The first question is the follow-up question on the buyback. I just wonder if we should expect the company VIPS to continue to top up the buyback program when the current 500 million plus U.S. dollar buyback authorization is fully utilized. And also just wonder if management can provide some rough ideas. What is the size of buyback a company may consider or a company board may consider on an annual basis? The second question is a follow up on the management earlier remark on the growth margin. So I just wonder if VIPS will be able to maintain the current 23 to 24% growth margin stable going forward. And the third question is about the number of Super VIP member. Just wonder what is the growth, the exact growth of the Super VIP member in this quarter and also the revenue contribution from Super VIP member in Q3. Thank you.
spk03: The first question is, I'll answer half of it. Regarding that, because we still have more than $500 million in revenue, our board of directors is also very supportive of our repurchase, because for now, it is indeed more cost-effective. So we can wait until we use up more than $500 million, or when we use it up to the middle, we can apply to them at any time. For example, if we want another $500 million, or even $1 billion, there is no problem, because we all have the same view on this. Okay. Okay. In 2024, it is impossible for us to increase the discount of the brand. So, in theory, the profit margin in 2024 should be similar to what it was in 2023. So, what we just said is that we still think there is room for progress. That is to say, through many methods, we can finally continue to improve our progress. The third point is about our current SVIP. We also have a good growth. Our current SVIP has 6.7 million users, which contributes 45% of our business. And we see that these SVIPs, including its ARP, and its other aspects, perform well. So we will also actively maintain this batch of users and make use of the advantages of our medium-sized users.
spk05: Okay, first on the buyback, we still have $500 million left in our existing buyback program, and we will continue to execute that. The board is very supportive of the current buyback plan, and the Europractice Fund in the past is that as we are close to fully utilizing the current buyback program, we will ask the board for the approval of the next buyback program. As the board and the management has reached a consensus on the buyback, especially given the share price is still deeply undervalued, we will continue to approve new buybacks as soon as we finish that or even during the process. As to how we are going to execute the buyback program, it's too much detail. You just have to remember that we will be executing the buyback program from time to time. and on a continuous basis. On the GP margin, we have reached a three-year high of over 23%. But as we mentioned earlier, there is not so much room for us to further expand our GP margin because we are not going to increase the take rates for brand partners Instead, we are going to incentivize them to grow their business faster with a VIP shop. So there is not too much room for us to improve growth margin. But for the next year, the growth margin will be maintaining at a similar level as compared to 2023. especially in the quarters with relatively good growth margins. And I've also mentioned that on the NP margin, we still have a good chance of expanding that because of the economy scale and operating leverage. We are pretty confident on that. On the SVIP, we currently have 6.7 million active SVIP customers accounting for 45% of our online spending, and they have maintained a double-digit growth for several quarters so far. And all the operating metrics for SVIP members are outperforming, including output, frequency, et cetera. So we will continue to focus our efforts on maintaining the SBIP customer base and elevating their loyalty and trust with our platform so that they can spend much more for the longer term.
spk02: OK. This is Mark. Jialong, I will give some supplement comments regarding your question for the share buyback. We would like to create and return value to our shareholders. And we have confidence in our long-term growth prospect. Therefore, we will execute the share buyback program from time to time. And we do not have accurate target volume or amount for the share buyback every quarter. But I think one thing is that we have $1 billion share buyback program lasting for two years. I think that can give you a concept regarding your question.
spk01: That's all. Thank you.
spk00: Thank you. Due to time constraints, that concludes today's question and answer session. At this time, I will turn the conference back to Jesse for any closing remarks.
spk05: Thank you for taking the time to join us today. If you have any follow-up questions, please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.
spk00: Thank you. That does conclude the conference for today. Thank you for participating and you may now disconnect.
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