Vipshop Holdings Limited

ladies and gentlemen good day everyone and welcome to vip shop holdings limited's fourth quarter and full year 2023 earnings conference call at this time i would like to turn the call to miss jessie zeng vip shops head of investor relations please proceed

Thank you, operator.

Hello, everyone, and thank you for joining VIP Shop's fourth quarter and full year 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 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 the public filings with the Securities and Exchange Commission, which also applies to this court to the extent any forward-looking statements may be made. Please note that certain financial measures used on this court, such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income 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 Shen.

Good morning and good evening, everyone.

Welcome and thank you for joining our fourth quarter and full year 2023 earnings conference call. We delivered a strong finish to the year of 2023 with a set of results well ahead of expectations. This has been achieved with the successful execution of our merchandising strategy to seize the opportunities in value spending amid strong seasonal demand. In the fourth quarter, apparel categories were once again the bigger driver. with a 29% growth in GMV year-over-year. For the full year, appello categories have been consistently outperforming the industry average, up 24% from a year ago. That helped us close RMB $200 billion in total annual sales for the first time in our history. We also gained strong momentum with high-value customers. In the first quarter, Active Super VIP members increased by 14% from a year ago and accounted for 46% of our online spending. On an annual basis, we had 7.6 million Active Super VIP members who purchased 45% on our platform. Our strategy is simple. It's to be laser-focused on discounted retail for brands. We embrace changes and focus on retail fundamentals. We are consistently adapted so that customers can find the desired brand, seek great value, and enjoy worry-free service with us. That's how we try to gain further mindshare. When customers feel like shopping for clothing, they would come to us first. On merchandising expansion, we did well to enrich and diversify our brand portfolio. Our team brought in over 1,500 new brands last year, covering more trendy and high-end brands. A majority of apparel related sales came from the several hundred core brands who took advantage of our further channel like Super Brand Day Super Category Day and Today's Top Brands, which all hit record highs in sales last year. New brands also ramped up sales quickly, leveraging our target support from traffic allocations, customer engagement, to promotional campaigns. Our merchandising team is more skilled through our internal certificate program. They demonstrate the expertise to identify, select, and the negotiation for quality brand goods at a deep discount across the wider range of categories. They build strong relationships as they work closely with brand partners to address their business needs and challenges. We now have a talent pipeline ready for more opportunities to differentiate our product offerings. On Made4VIP Shop, brand partners are happy to deepen their collaboration with us after they see meaningful sales contribution. Currently, we have over 150 brand partners in this program. They provide a unique supplement to our value offering within trending category and a certain price range. Giving value is top of mind with most everyone right now. Being able to deliver affordable experience every day differentiate us in the market. The key is to better leverage merchandising capability to provide efficient and cost-effective inventory solution for brand partners. This has been and will continue to be the foundation for us to secure increased supply at competitive pricing, especially in unique and customized products. Lastly, we stay true to being customer-centric. We are making shopping easy for customers, taking a simple, clear, and direct way to interact with them. Also, leveraging the first-party model, we are gaining trust from customers who rely on us to bring them great brands and the real value. We continue to enhance product authenticity through upgraded supply chain management from all aspects. This also differentiates us in an environment where everyone is touting low pricing. We are happy to see customers coming back and spend more because of trust, value, and ease. They will enjoy it here. There is still a lot of potential in growing customer wallets here, and the loyalty program has been at the heart of it. Last year, Super VIP members renewed at high rent, and they spent a lot more with us. with average spending over eight times as much as non-SVIP members. When we look at our business today, we now have a more comparing foundation. We believe our business model is a dear little one that allow us to reinforce the value propositions that are most relevant to our brand partners and the customers. We will continue to be pragmatic efficiency and flexible to fuel the long-term growth. At this point, let me hand over the call to our CFO Mark Wang to go over our financial results.

Thank you Eric and hello everyone. We delivered another quarter of solid financial performance, ending 2023 as the most profitable year in our history. We are very pleased with the progress we have made over the past years in upgrading our platform from all aspects. We are acting faster, pushing forward company priorities and building greater synergies. This has been the foundation for us to regain growth momentum while achieving impressive profitability. Benefiting from a number of efficiency improvement initiatives, Growth margin improved quarter by quarter and on an annual basis reached the highest level since 2017. Operating and net profit margin on a non-GAAP basis hit all-time highs both quarterly and annually. With such healthy financial conditions, in addition to the existing buyback program, we are pleased to announce the annual cash dividend policy and approximately $250 million cash dividends for the fiscal year of 2023. This reflects our confidence in future growth and earnings, as well as our long-term commitment to delivering returns to shareholders. Looking ahead, while clear about strategic initiatives, while investing in areas that can better engage with brand partners and customers. We will continue to maintain operating discipline to drive organic and profitable growth. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers present below are in MMB. And all the percentage change are year-over-year changes, unlike otherwise noted. Total net revenues for the fourth quarter of 2023 increased by 9.2% year-over-year to RMB $34.7 billion from RMB $31.8 billion in the prior year period, mainly attributable to the growth in active customers and spending driven by the recovery in consumption of discretionary categories. Gross profit increased by 93% year over year to RMB 8.2 billion from RMB 6.9 billion in the prior period. Gross margin increased to 23.7% from 21.7% in the prior period. Total operating expenses increased by 4.8% year-over-year to RMB 4.9 billion from RMB 4.6 billion in the prior period. As a percentage of total net revenues, total operating expenses decreased to 14.0% from 14.6% in the prior period. Fulfillment expenses increased by 17.0% year-over-year to RMB 2.5 billion from RMB 2.2 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 7.3% as compared with 6.8% in the prior year period. Marketing expenses decreased by 10.7% year over year to RMB $843.2 million from RMB $944.1 million in the prior year period. As a percentage of total net revenues, marketing expenses decreased to 2.4% from 3.0% in the prior year period. Technology and content expenses increased by 21.5% year-over-year to RMB 496.4 million from RMB 408.5 million in the prior period. As a percentage of total net revenues, technology and content expenses was 1.4% as compared with 1.3% in the prior period. General and administrative expenses decreased by 11.7% year-over-year to RMB 1.0 billion from RMB 1.1 billion in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 2.9% from 3.6% in the prior year period. Income from operations increased by 46.2% year-over-year to RMB 3.7 billion from RMB 2.5 billion in the prior period. Operating margin increased to 10.6% from 7.9% in the prior period. Non-GAAP income from operations increased by 42.5% year-over-year to RMB 4.0 billion from RMB 2.8 billion in the prior year period. Non-GAAP operating margin increased to 11.4% from 8.7% in the prior year period. Net income attributable to VIP shops shareholders increased by 32.2% year-over-year to RMB 3.0 billion from RMB 2.2 billion in the prior year period. Net margin attributable to VIP shop shareholders increased to 8.5% from 7.0% in the prior year period. Net income attributable to VIP shop shareholders per diluted ADS increased to RMB 5.35 from RMB 3.66 in the prior year period. Non-GAAP net income attributable to VIP shop shareholders increased by 43.4% year-over-year to RMB 3.2 billion from RMB 2.2 billion in the prior year period. Non-GAAP net margin attributable to VIP shop shareholder increased to 9.2% from 7.0% in the prior year period. Non-GAAP net income attributable to VIP shop shareholder per diluted ADS increased to RMB 5.79 from RMB 3.65 in the prior year period. As of December 31, 2023, we had cash and cash equivalents in the restricted cash of RMB 26.3 billion and short-term investment of RMB 2.0 billion. Now, I will briefly walk through the highlights of our full year results. Total net revenues for the full year of 2023 increased by 9.4% year over year to RMB 112.9 billion from RMB 103.2 billion in the prior year. Gross profit increased by 19.0% year over year to RMB 25.7 billion from RMB 21.6 billion in the prior year. Gross margin increased to 22.8% from 21.0% in the prior year. Income from operations increased by 46.9% year-over-year to RMB 9.1 billion from RMB 6.2 billion in the prior year. Operating margin increased to 8.1% from 6.0% in the prior year. Non-GAAP income from operations increased by 43.3% year-over-year to RMB 10.6 billion from RMB 7.4 billion in the prior year. Non-GAAP operating margin increased to 9.4% from 7.2%. in the prior year. Net income attributable to VIP shop shareholders increased by 28.9% year-over-year to RMB 8.1 billion from RMB 6.3 billion in the prior year. Net margin attributable to VIP shop shareholders increased to 7.2% from 6.1% in the prior year. Net income attributable to VIP shop shareholders per diluted ADS increased to RMB 14.42 from RMB 9.83 in the prior year. Non-GAAP net income attributable to VIP shop shareholders increased by 39.1% year-over-year to RMB 9.5 billion from RMB $8 billion in the prior year. Non-GAAP net margins attributable to VIP shop shareholders increased to 8.4% from 6.6% in the prior year. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS increased to RMB 16.90 from RMB 10.67 in the prior year. Looking forward to the first quarter of 2024, we expect our total net revenues to be between the 27.5 billion and RMB 28.9 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. If you wish 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 one and one again. We ask analysts to repeat their questions in Mandarin after asking in English. Please stand by while we compile the Q&A roster.

This will take a few moments. We will take our first question. Your first question comes from the line of Alicia Yap from Citigroup. Please go ahead. Your line is open. Hi.

Can you hear me?

Hello? Yes, we can. Can you hear me? OK. Okay, all right. Thank you. Good evening, management. Thanks for taking my questions. Congrats on the really strong results. I have a couple questions. First is, do you anticipate most of the future growth will come from the higher frequency and higher wallet spend on the existing lawyer customer? Given there is some cautiousness on consumer spending in China, Are you worried any potential slowdown of the growth if your loyal customer base started to shop less frequently and spend at a smaller amount? Just wondering if you have any plans, targets for new user acquisition strategy. 我自己翻譯一下。 It's because we've grown very well, but a lot of users who have repurchased are actually very loyal users who have brought us here. I would like to ask the management team, because in such a background, in the background of Hong Kong, I don't know if the management team is worried that our loyal users will be more cautious in spending. 我回答一下这个问题,就是我们的

The real-time users are still relatively stable, including what we have seen in recent years, including our SVIP. Its sales ratio is already 45, so we expect that next year, in 2024, its sales ratio, the overall sales ratio is still improving. . . . Including what you just asked, we currently have room for customers. In fact, our overall customer growth in the past two or three years has not reached our ideal expectations. So this year, we will continue to explore how to better adhere to our brand special sales positioning, so that users can better realize our value, and we will continue to expand our users. . . . . . . . China China China China China China China We don't think that in 2024, this kind of customer purchase, including the frequency of customers, including their orders, will be affected.

Okay, first on the loyal customer base, actually I think our loyal customer group has been quite resilient in terms of spending. From the trend we have observed in the last couple of years, especially for our high value customer that is super VIP members their contribution in turn to our total spending has been increasing to 45% in 2023 and for 2024 we continue to expect that as VIP contribution will continue to grow very nicely in addition to driving the contribution of spending, we have also noticed that their ARPU trend has been going quite well. ARPU are driven mostly by frequency, and we still think there is a lot of potential in driving the frequency of SVIP members. And we only have 7.6 million annual active SVIP members. And we have a lot more with high potential in terms of spending to be converted into SVIP members. Actually, non-SVIP members, especially those high potential customers, have become the most productive channel for us to acquire And in terms of new customer acquisition, we think we still have a lot of potential. Actually, if you look at our annual active customer base in 2023, it hasn't lived up to our expectations. We think we can do better this year. We are tapping the potential on many fronts to see whether we help to better leverage our value proposition in branded discount retail to increase customer mindshare of VIP shop. We will take a number of initiatives in driving new customer growth. For example, in addition to the traditional channels, we will look at some emerging and new channels that we haven't been working closely with, and we will continue to focus on targeted marketing, mobile pre-installation, and we will also do some branded advertising. We will just take as many initiatives as possible to see whether we can better drive customer growth. And for general consumption environment, we are actually not very concerned, especially for our customer base, for those high value and the super VIP members. Because customers come to VIP shop, the average order size is not that high. It ranges from 200 to 300 RMB. We think that's an affordable range of price. So we are not too much concerned on that front. We think as long as we focus on the branded discount retail, we can do better in terms of driving customer growth and also customer wallet share.

Thank you. We will take our next question. Please stand by. Your next question comes from the line of Eddie Wang from Morgan Stanley.

Please go ahead. Your line is open.

Mr. Shen, Mr. Mark, Ms. Jessie, thank you for accepting my question. First of all, congratulations on your very good performance. I will use the Chinese question first, and then I will translate it in English. 我这边可能也是几个问题先请教一下。 第一个就是说,我看到我自己计算了一下, 就是说如果你们来看就是product sales每个order来算的话, In this quarter, I see that the trend is the same as the rise. In the first three quarters, it may be the same as the decline. So I don't know if there are any deeper changes in the trend behind this, including whether the users on our platform buy AFP or Kodan when they buy a product, Will we see in the fourth quarter or in the long term that consumption will be better and more expensive? Because I seem to have asked before, now the whole But do we see a different trend on the platform? This is the first question. The second question is, if you look at the cost of sales and marketing this quarter, I looked at the previous five to six years, and it is relatively rare to see that sales and marketing in the fourth quarter is lower than the absolute number in the second quarter. I don't know if we can say that with such a small amount of spending, our growth is actually very good. In 2024, I don't know if we can understand that there is no need to spend a lot of money on sales marketing, but the growth can be maintained. As Mr. Shen said earlier, although we still have a relatively high demand for user growth this year, there may not be a lot of sales marketing. This is the second question. Thank you management for taking my question. I have three questions. The first one is that If you look at the product sales per order, we find that in the fourth quarter last year, actually, we see a year-over-year increase. This trend actually is a little bit different from the first three quarters in last year, which we see a decline in the trend. So what's the reason behind that, especially given the overall consumption background is more focused on the consumption downgrade? And my second question is, if you look at the sales and marketing expense in the fourth quarter last year, actually in absolute dollar turn is lower than that in the second quarter of last year. This is quite sudden if you look at historical of the company. So I'm wondering what's our, you know, the expectation for sales and marketing spending in 2024? And the last question is, if you look at the growth gap between GMV and the revenue in fourth quarter, actually the gap is widening if you compare with the first three quarters. So just wonder, is there a significant change in terms of the return rates or is there any other reason behind that? Thank you.

I have one question. The first one is about the We're going to cut and jump about number woman don't be kind of cut and jump. I just be a woman being the number two in the queue for the cut and jump number woman condo. Don't you have be cheating. I go up you can you have go. No, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no. So many people have asked us if we have seen any similar consumer declines in our users recently. We also see that our customer price, including our ARP, has not changed much. There will also be an improvement. So we see that in our case, we have not seen any special consumer declines. The second point is to ask about market costs. Our Q4 sales volume is relatively large, so we see that the market cost ratio is relatively small. Overall, the market cost of our entire company is relatively stable. Because we have a strict LTE to control, for example, how much money a new customer needs, how much money an old customer needs, and how much time they need to pay back. So the overall is relatively stable Then in 2024 We will add a little bit Add a little bit of market cost That is to say, we hope to continue to win customers Then but The overall proportion is very limited So you don't have to worry about it The cost of our overall market cost Then it's ok Then if you come across a good channel For us We can spend more money Including that ltd return All aspects are In line with our expectations So the third point is about the return rate The return rate, we look at the return rate for the entire 23 years It's a lot higher than 22 years So we can see So it's in the gmv The ratio of income here can be seen So we currently see that it has increased by 3 to 4 points That is to say the entire return rate So although it does not affect our efforts Because we have run out of these fees Including return fees Sales are not counted But we see that there are several main reasons. One is that the proportion of clothes we wear continues to increase, because the return rate of clothes we wear is quite high. So this is especially true, for example, if the weather in Q4 is cold last year, clothes will sell better. We see that the proportion of clothes we wear in the past few years is constantly increasing. This is one. The second is that it is possible that the consumer we are talking about is now China China China China OK. On your question about average order size,

Actually, average order size has been relatively stable, and in Q4, we did see a slight increase on a year-over-year basis, primarily because we sold more winter clothing, which have higher ticket size. especially when a lot of people in cold weather, they would buy a higher ticket size down jacket, et cetera. So that's the primary reason behind the increase in average order size. And this also reflects that actually on our platform, there is not very significant sign that we have so-called consumption downgrade. At least the loyal and highly engaged customers with our platform, we have seen their average ticket size, they're actually stable or quite resilient, and Apple has been growing very nicely. So that's how we benefit from the very resilient consumption trend. among our customer cohorts. In terms of sales and marketing expense, in Q4, because we did much better than expected in terms of sales, that brought the sales and marketing expense ratio down a little bit. Actually, for this line, sales and marketing spend will continue to be relatively stable. Of course, we want to spend prudently, especially to acquire more high-quality customers in 2024. But we will continue to look at the effectiveness and the efficiency of customer acquisition from a number of perspectives, including LTV, ROI, payback period, et cetera. So sales and marketing expense ratio will continue to be very manageable. And we will continue to spend in a rational way to spend on those channels who can provide the best ROI. So basically, we don't worry too much about sales and marketing spend. And it's going to be very limited as a percentage of total revenue. On return rates, for the last year, return rates have been growing on a year-over-year basis. We think we did see a 3 to 4 percentage point growth in return rates. But we have mentioned this before, return and exchange services is a part of our a value proposition to provide the best-in-class services to our customers. And if building in our profitability model, it hasn't been impacting our profitability levels for the past several quarters. And the return rates are trending a little bit higher because a number of factors. One is apparel contribution. In the last couple of years, we have seen apparel contribution growing on our platform. And apparel, as you know, they naturally have higher return rates. And second, return on exchange has become a standardized practice within the industry. And a lot of customers are taking VIP shop as a fitting room. And the more they try, actually, the more likely they will buy. So it's not only us. As far as we know, the return rate within the industry is actually growing. That's the reality. And lastly, although we don't have accurate information about that, it's just our guess, we think that consumers are becoming more cautious and selective in terms of their spending. They want to spend money only on those essential pieces that they need. So that might be one of the reasons that return rate is going higher.

Thank you. We will take our next question. Your next question comes from the line of Ronald King from Goldman Sachs.

Please go ahead. Your line is open.

Thank you, Shandong, Mark, and team. I have two questions. Let me ask in Chinese first. 我有两个提问,那第一呢就是想听一下我们一季度这个revenue guidance呢,主要我们一二月合起来看到这个trend是怎样,然后我们这个预计三月这个尤其春节后我们看到这个消费情况怎样,然后想知道我们GMV和revenue这个gap在24年应该是会收窄,想知道那可能我们应该怎么去想这个GMV和revenue的gap。 Second, I would like to ask the shareholders for their feedback. We saw that the free cash flow of US$11 in 2023 was very good. But we didn't make much buyback in the past two weeks. Now we have announced a regular dividend of US$215. I would like to know if we can get a return on the free cash flow Thank you, management. I have two questions. One is I want to hear how our trends have been for the first quarter so far, January and February as a whole, and how do we see demand tracking since Chinese New Year? And how should we think about the gap between GMV and revenue for 2024? compared with the big gap in 2023. Second is shelter return. I've seen a $1 billion U.S. dollar free cash flow. We haven't done too much buybacks in the past two quarters. Now we have a $250 million U.S. dollars of regular dividends. So what is the plan for, let's say, the remaining free cash flow? Is there any room for further shelter return? Thank you.

. . . . Then the other is about now because the weather is relatively negative, for example, for a while and cold, then it is not really to say when the spring So the overall sound sound is still climbing, so we actually think that the sound of Q1 we are talking about is more stable So this is a second question about the question of the return rate, we ourselves estimate that because . . . . . . . . . . . .

Okay, first on your Q1 guidance, actually quarter to date, we have seen business, have seen decent business momentum. In January, actually benefiting from a very favorable weather because at that time, it was still quite cold. So our business performance was really quite well, quite good. And we continue to see recovery following the spring festival. Until recently, we've seen that our sales had been ramping up relatively slower than expected because of the unexpected weather conditions, sometimes very cold, which actually delay to some extent the seasonal shift to spring apparel but overall we think Q1 will continue to be another quarter of relatively stable growth and in terms of the revenue and GMV growth gap for this year we continue to expect a slightly higher return rate because of the still higher apparel contribution as well as SVIP contribution. The return rate is not going to be significantly higher as we saw for 2023. We expect at most it's going to be 1 to 1.5 percentage points higher, which means that there is a chance that we can narrowed the revenue and the GMV growth gap to some extent.

Okay, for the second question, let me answer a question. Thanks for your question regarding the cash dividends and also the share-buy-buy programs. Actually, we have been focusing on long-term capital policy and the combination of the dividend and buyback reflects our confidence in long-term growth and profitability, as well as our long-term commitment to create value to our shareholders. Regarding the total amount of the dividends, we considered multiple factors, such as working capital, for business development, capex, profitability, and cash flow. The dividend amount will be reviewed and determined annually. Well, as to buyback, we have repurchased a total of nearly $2 billion from April 2021 to the end of 2023. The existing U.S. $1 billion buyback program, which is effective through March 2025, has been utilized 400 452 million US dollars as of December 31, 2023. And the remaining parts will be executed from time to time, taking into account factors such as price, valuation, and the marketing fluctuations. So therefore, the cash dividends and the share buyback, I think that's the two ways we would like to provide return to our shareholders. And these two ways or two regimes will implement parallel. Thank you.

Thank you. We will take our next question. Your next question comes from the line of Andre Chang from JP Morgan. Please go ahead. Your line is open.

Good evening, Mr. Shen, Mr. Mark, and Jesse. I have three follow-up questions. The first one is that we hope to continue to invest in the acquisition of new users this year. There may not be a big expectation this year. I would like to ask, what is the source of the growth of new users that we see in the future? Can you briefly introduce us to the specific market and what kind of user groups there are? The second point is that ARPU has room for improvement. But last year, due to the COVID-19 pandemic, users may not be able to spend as much as they used to. This may also be due to the weather. I think ARPU will continue to improve in 2024 because we are able to provide our users with more choices in terms of brands, products, and so on, as well as other drivers. The last question is about the shareholder return. I would like to ask that since our cash is very strong, will the amount of cash in the end of last year continue to increase? If our buyback, according to what Mr. Marks just said, is based on the valuation of the market, will it not be implemented? Will the excess cash not necessarily go back to the shareholders? Let me translate the question here. Hi, I have three questions for the management. First is, we talk about the note, we will focus more on the user growth this year. Can you elaborate more about where are the areas that we can find new users to acquire? Second, we also talk about the further improvement on the R2 notes with the note rebounding standing from our loyal user last year, which was easy. What are the drivers for our user to spend more on our platform into 2024? And lastly, we talk about the, say, the share buyback will hinges on the market condition, valuation. It seems that, you know, with our cash flow continue to be strong, cash balance increase by the end of last year versus end of 2022. Does that mean that it's not necessary or we will use our strong cash flow to return to the shareholder? How do we think about that?

Thank you. I'll answer the first question, which is about the new customers. The new customers are basically the same as the old ones in two or three years. For example, we have some natural new customers, so we will invest For example, precision marketing on Douyin, on Headline, on Tencent, and on other media. In addition, we also have this kind of phone installation. So, this year, we will strengthen our brand image positioning and let everyone know more. or some users knew about WePingHui, but it didn't work, or the impression was different from the original, then we will strengthen this aspect. In addition, as I just said, for example, for those of us who didn't cooperate, or those who cooperated less, and the number of users was relatively large, such as Xiaohongshu and Bilibili, we feel that there is room for improvement, and so on. Therefore, we will continue to expand our new classes this year. In addition, We think that this kind of new class, including the overall flow of the new class that they got back, is still OK. The overall quality is still relatively healthy, so we don't think it's a problem to spend money on it. The second question is about ARP. We think that There was an increase in ARP last year due to the weather, but there is also a possibility that consumers will recognize us more. We think there is room for improvement in ARP this year. We hope that the clothing we make will have more and more characteristics. For example, women can buy clothes for their husbands, children, and parents. We can buy clothes, shoes, bags, and so on. In the next 24 years, we will also expand some standard products. We want to make some valuable standard products so that our customers can also buy them. Our SVIP believes that our standard products are better. We think there is still a chance to improve the up of users.

So on your first question on new customer acquisition, in last year actually we invested a lot of channels to acquire new customers. to drive the organic growth in new customers such as telemarketing on a number of platforms like Douyin, Toutiao, Tencent as well as mobile pre-installation. This year we would like to do better in terms of adding new channels especially to elevate the company brand image through more brand advertising, especially targeting those customers who are not familiar with VIP shop or who have heard of VIP shop but have never used. Basically, we want to leverage branding to increase customer mind share of VIP shops as a best place to shop for apparel, including some emerging and younger channels like Xiaohongshu, Bilibili, et cetera, where we think there is still quite a lot of potential there. For the new customers, we have acquired to our platform, we have actually seen the retention is pretty good, which means that the customers, we acquired a relatively higher quality. So we think our current customer acquisition strategy does work relatively well. In terms of output growth, Last year, we did benefit from favorable weather conditions in some of the seasons. But we also think that customers have become increasingly recognized the value proposition of VIP Shop as a discount platform for branded products. And especially through our best in class services, we find this is a great place to shop for apparel especially for women. They tend to not only shop for themselves, but also shop for the whole family, including children, parents, et cetera. They also shop not only apparel, but also other categories like standardized items. We have seen increasing cross-category purchases among our customers. And this year, in addition to driving the growth of apparel categories, we also want to build a stronger platform for standardized items so that we can increase the cross-sale opportunities for our high-value customers, especially Super VIP members.

OK, regarding the third question, for share buyback, I think the track record has already shown our insistence to return value to our shareholders. And for the buyback program, we will definitely evaluate the share price and also whether the market is in fluctuations. For example, if in the future the share price is lower than our expectation, lower than our Normal value. Okay, so we will definitely will do the share buyback continuously from time to time But that depends on the price and also depends on the other factors So I think the cash dividends regime is a way to give you a more predictable Share value buyback to a value back to the shareholders. Okay, so in the future we will have the annual cash dividends policy and of course we will evaluate our cash position and also our profitability and also our capex etc to make sure to determine how much money we would distribute to our shareholders. So I think the cash dividends policy is a way to complement our return to our shareholders policy. Thank you.

Thank you. Due to time constraints, that concludes today's Q&A session. At this time, I will 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, please don't hesitate to contact our RR team. We look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect. you Thank you.

Thank you. Thank you.

ladies and gentlemen good day everyone and welcome to vip shop holdings limited's fourth quarter and full year 2023 earnings conference call at this time i would like to turn the call to miss jessie zeng vip shops head of investor relations please proceed

Thank you, operator.

Hello, everyone, and thank you for joining VIP Shop's fourth quarter and full year 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 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 the public filings with the Securities and Exchange Commission, which also applies to this court to the extent any forward-looking statements may be made. Please note that certain financial measures used on this court, such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income 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 Shen.

Good morning and good evening, everyone.

Welcome and thank you for joining our fourth quarter and full year 2023 earnings conference call. We delivered a strong finish to the year of 2023 with a set of results well ahead of expectations. This has been achieved with the successful execution of our merchandising strategy to seize the opportunities in value spending amid strong seasonal demand. In the fourth quarter, apparel categories were once again the bigger driver. with a 29% growth in GMV year-over-year. For the full year, appello categories have been consistently outperforming the industry average, up 24% from a year ago. That helped us close RMB $200 billion in total annual sales for the first time in our history. We also gained strong momentum with high-value customers. In the first quarter, Active Super VIP members increased by 14% from a year ago and accounted for 46% of our online spending. On an annual basis, we had 7.6 million Active Super VIP members who purchased 45% on our platform. Our strategy is simple. It's to be laser-focused on discount retail for brands. We embrace change, and focus on retail fundamentals. We are consistently adapted so that customers can find the desired brand, seek great value, and enjoy worry-free service with us. That's how we try to gain further mindshare. When customers feel like shopping for clothing, they would come to us first. On merchandising expansion, we did well to enrich and diversify our brand portfolio. Our team brought in over 1,500 new brands last year, covering more trendy and high-end brands. A majority of apparel related sales came from the several hundred core brands who took advantage of our further channel like Super Brand Day Super Category Day and Today's Top Brands, which all hit record highs in sales last year. New brands also ramped up sales quickly, leveraging our target support from traffic allocations, customer engagement, to promotional campaigns. Our merchandising team is more skilled through our internal certificate programs. They demonstrated the expertise to identify, select, and the negotiation for quality brand goods at a deep discount across the wider range of categories. They built strong relationships as they worked closely with brand partners to address their business needs and challenges. We now have a talent pipeline ready for more opportunities to differentiate our product offerings. On Made for VIP Shop, brand partners are happy to deepen their collaboration with us after they see meaningful sales contribution. Currently, we have over 150 brand partners in this program. They provide a unique supplement to our value offering within trending category and a certain price range. Giving value is top of mind with most everyone right now. Being able to deliver affordable experience every day differentiate us in the market. The key is to better leverage merchandising capability to provide efficient and cost-effective inventory solution for brand partners. This has been and will continue to be the foundation for us to secure increased supply at competitive pricing, especially in unique and customized products. Lastly, we stay true to being customer-centric. We are making shopping easy for customers, taking a simple, clear, and direct way to interact with them. Also, leveraging the first-party model, we are gaining trust from customers who rely on us to bring them great brands and the real value. We continue to enhance product authenticity through upgraded supply chain management from all aspects. This also differentiates us in an environment where everyone is touting low pricing. We are happy to see customers coming back and spend more because of trust, value, and ease. They will enjoy it here. There is still a lot of potential in growing customer wallets here, and the loyalty program has been at the heart of it. Last year, Super VIP members renewed at high rent, and they spent a lot more with us. with average spending over eight times as much as non-SVIP members. When we look at our business today, we now have a more comparing foundation. We believe our business model is a dear little one that allow us to reinforce the value propositions that are most relevant to our brand partners and the customers. We will continue to be pragmatic, efficient and flexible to fuel the long-term growth. At this point, let me hand over the call to our CFO Mark Wang to go over our financial results.

Thank you Eric and hello everyone. We delivered another quarter of solid financial performance, ending 2023 as the most profitable year in our history. We are very pleased with the progress we have made over the past years in upgrading our platform from all aspects. We are acting faster, pushing forward company priorities and building greater synergies. This has been the foundation for us to regain growth momentum while achieving impressive profitability. Benefiting from a number of efficiency improvement initiatives, Growth margin improved quarter by quarter and on an annual basis reached the highest level since 2017. Operating and net profit margin on a non-GAAP basis hit all-time highs both quarterly and annually. With such healthy financial conditions, in addition to the existing buyback program, we are pleased to announce the annual cash dividend policy and approximately $250 million cash dividends for the fiscal year of 2023. This reflects our confidence in future growth and earnings, as well as our long-term commitment to delivering returns to shareholders. Looking ahead, while clear about strategic initiatives, while investing in areas that can better engage with brand partners and customers. We will continue to maintain operating discipline to drive organic and profitable growth. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers present below are in MMB. And all the percentage change are year-over-year changes, unlike otherwise noted. Total net revenues for the fourth quarter of 2023 increased by 9.2% year-over-year to RMB $34.7 billion from RMB $31.8 billion in the prior year period, mainly attributable to the growth in active customers and spending driven by the recovery in consumption of discretionary categories. Gross profit increased by 93% year over year to RMB 8.2 billion from RMB 6.9 billion in the prior period. Gross margin increased to 23.7% from 21.7% in the prior period. Total operating expenses increased by 4.8% year-over-year to RMB 4.9 billion from RMB 4.6 billion in the prior period. As a percentage of total net revenues, total operating expenses decreased to 14.0% from 14.6% in the prior period. Fulfillment expenses increased by 17.0% year-over-year to RMB 2.5 billion from RMB 2.2 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 7.3% as compared with 6.8% in the prior year period. Marketing expenses decreased by 10.7% year over year to RMB $843.2 million from RMB $944.1 million in the prior year period. As a percentage of total net revenues, marketing expenses decreased to 2.4% from 3.0% in the prior year period. Technology and accounting expenses increased by 21.5% year-over-year to RMB 496.4 million from RMB 408.5 million in the prior period. As a percentage of total net revenues, technology and content expenses was 1.4% as compared with 1.3% in the prior period. General and administrative expenses decreased by 11.7% year-over-year to RMB 1.0 billion from RMB 1.1 billion in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 2.9% from 3.6% in the prior year period. Income from operations increased by 46.2% year-over-year to RMB 3.7 billion from RMB 2.5 billion in the prior period. Operating margin increased to 10.6% from 7.9% in the prior period. Non-GAAP income from operations increased by 42.5% year-over-year to RMB 4.0 billion from RMB 2.8 billion in the prior year period. Non-GAAP operating margin increased to 11.4% from 8.7% in the prior year period. Net income attributable to VIP shops shareholders increased by 32.2% year-over-year to RMB 3.0 billion from RMB 2.2 billion in the prior year period. Net margin attributable to VIP shop shareholders increased to 8.5% from 7.0% in the prior year period. Net income attributable to VIP shop shareholders per diluted ADS increased to RMB 5.35 from RMB 3.66 in the prior year period. Non-GAAP net income attributable to VIP shop shareholders increased by 43.4% year-over-year to RMB 3.2 billion from RMB 2.2 billion in the prior year period. Non-GAAP net margin attributable to VIP shop shareholder increased to 9.2% from 7.0% in the prior year period. Non-GAAP net income attributable to VIP shop shareholder per diluted ADS increased to RMB 5.79 from RMB 3.65 in the prior year period. As of December 31, 2023, we had cash and cash equivalents in the restricted cash of RMB 26.3 billion and short-term investment of RMB 2.0 billion. Now, I will briefly walk through the highlights of our full year results. Total net revenues for the full year of 2023 increased by 9.4% year-over-year to RMB 112.9 billion from RMB 103.2 billion in the prior year. Gross profit increased by 19.0% year-over-year to RMB 25.7 billion from RMB 21.6 billion in the prior year. Gross margin increased to 22.8% from 21.0% in the prior year. Income from operations increased by 46.9% year-over-year to RMB 9.1 billion from RMB 6.2 billion in the prior year. Operating margin increased to 8.1% from 6.0% in the prior year. Non-GAAP income from operations increased by 43.3% year-over-year to RMB 10.6 billion from RMB 7.4 billion in the prior year. Non-GAAP operating margin increased to 9.4% from 7.2%. in the prior year. Net income attributable to VIP shop shareholders increased by 28.9% year-over-year to RMB 8.1 billion from RMB 6.3 billion in the prior year. Net margin attributable to VIP shop shareholders increased to 7.2% from 6.1% in the prior year. Net income attributable to VIP shop shareholders per diluted ADS increased to RMB 14.42 from RMB 9.83 in the prior year. Non-GAAP net income attributable to VIP shop shareholders increased by 39.1% year-over-year to RMB 9.5 billion from RMB $8 billion in the prior year. Non-GAAP net margins attributable to VIP shop shareholders increased to 8.4% from 6.6% in the prior year. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS increased to RMB 16.90 from RMB 10.67 in the prior year. Looking forward to the first quarter of 2024, we expect our total net revenues to be between RMB 27.5 billion and RMB 28.9 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. If you wish 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 one and one again. We ask analysts to repeat their questions in Mandarin after asking in English. Please stand by while we compile the Q&A roster.

This will take a few moments. We will take our first question. Your first question comes from the line of Alicia Yap from Citigroup. Please go ahead. Your line is open.

Hi. Can you hear me? Hello? Yes, we can. Can you hear me? OK.

Okay, all right. Thank you. Good evening, management. Thanks for taking my questions. Congrats on the really strong results. I have a couple questions. First is, do you anticipate most of the future growth will come from the higher frequency and higher wallet spend on the existing lawyer customer? Given there is some cautiousness on consumer spending in China, Are you worried any potential slowdown of the growth if your loyal customer base started to shop less frequently and spend at a smaller amount? Just wondering if you have any plans, targets for new user acquisition strategy. 我自己翻譯一下。 It's because we've grown very well, but a lot of users who have repurchased are actually loyal users who have brought us here. I would like to ask the management team, because in such a background, in the background of Hong Kong, I don't know if the management team is worried that our loyal users will be more cautious in spending. If so, will it affect our subsequent growth? In addition, this year, in terms of new user growth, do you have any ideas or ideas on how to grow new users? Thank you.

Let me answer this question. The real-time users are still relatively stable, including what we have seen from the trend in recent years, including our SVIP. Its sales ratio is already 45, so we expect that next year, in 2024, its sales ratio, the overall sales ratio is still improving. Svip What you just asked is that we currently have room for customers. In fact, our overall customer growth in the last two or three years, we think, has not yet reached our ideal expectations. So this year we continue to explore how to better adhere to our brand sales positioning, so that users can better realize our value, so that we can continue to expand our users. . . . . . . . China China China China China We don't think that in 2024, this kind of customer purchase, including customer frequency, including their unit price, will be affected.

Okay. First, on the loyal customer base, actually, I think our loyal customer group has been quite resilient in terms of spending. From the trend we have observed in the last couple of years, especially for our high value customer that is super VIP members their contribution in turn to our total spending has been increasing to 45% in 2023 and for 2024 we continue to expect that as VIP contribution will continue to grow very nicely in addition to driving the contribution of spending, we have also noticed that their ARPU trend has been going quite well. ARPU are driven mostly by frequency, and we still think there is a lot of potential in driving the frequency of SVIP members. And we only have 7.6 million annual active SVIP members. And we have a lot more with high potential in terms of spending to be converted into SVIP members. Actually, non-SVIP members, especially those high potential customers, have become the most productive channel for us to acquire And in terms of new customer acquisition, we think we still have a lot of potential. Actually, if you look at our annual active customer base in 2023, it hasn't lived up to our expectations. We think we can do better this year. We are tapping the potential on many fronts to see whether we help to better leverage our value proposition in branded discount retail to increase customer mindshare of VIP shop. We will take a number of initiatives in driving new customer growth. For example, in addition to the traditional channels, we will look at some emerging and new channels that we haven't been working closely with, and we will continue to focus on targeted marketing, mobile pre-installation, and we will also do some branded advertising. We will just take as many initiatives as possible to see whether we can better drive customer growth. And for general consumption environment, we are actually not very concerned, especially for our customer base, for those high value and the super VIP members. Because customers come to VIP shop, the average order size is not that high. It ranges from 200 to 300 RMB. We think that's an affordable range of price. So we are not too much concerned on that front. We think as long as we focus on the branded discount retail, we can do better in terms of driving customer growth and also customer wallet share.

Your next question comes from the line of Eddie Wang from Morgan Stanley. Please go ahead. Your line is open.

Mr. Shen, Mr. Mark, Ms. Jessie, thank you for accepting my question. First of all, congratulations on your very good performance. I'll use the Chinese question first, and then I'll translate it in English. I also have a few questions to ask. The first one is, I've calculated it myself. If you look at each order of product sales, In this quarter, I see that the trend is the same as the rise. In the first three quarters, it may be the same as the decline. So I don't know if there are any deeper changes in the trend behind this, including whether the users on our platform buy AFP or Kodan when they buy a product, Will we see in the fourth quarter, or in the long term, that the consumption will be better and more expensive? Because I think there was a question before, that is, the entire environmental consumption is declining, but do we see a different trend on the platform? This is the first question. The second question is, if you look at the cost of this quarter's sales and marketing, In the past five to six years, I have seen that sales marketing in the fourth quarter is still lower than sales marketing in the second quarter. I don't know if it's because of the cost of sales marketing, but our growth is very good. In 2024, I don't know if we can understand that there is no need to spend a lot of money on sales marketing, but the growth can be maintained. As Mr. Shen said, although we still have a relatively high demand for user growth this year, the number of sales marketing will not rise much. This is the second question. Thank you management for taking my question. I have three questions. The first one is that if you look at the product sales per order, We find that in the fourth quarter last year, actually, we see a year-over-year increase. This trend actually is a little bit different from the first three quarters in last year, which we see a decline in the trend. So what's the reason behind that, especially given the overall consumption background is more focused on the consumption downgrade? And my second question is, if you look at the sales and marketing expense in the fourth quarter last year, actually, the absolute dollar turn is lower than that in the second quarter of last year. This is quite sudden if you look at historical of the company. So I'm wondering what's our, you know, the expectation for sales and marketing spending in 2024? And the last question is, if you look at the growth gap between GMV and the revenue in fourth quarter, actually the gap is widening if you compare with the first three quarters. So just wonder, is there a significant change in terms of the return rates or is there any other reason behind that? Thank you.

I have one question. The first one is about the We're going to cut and jump about number woman don't be kind of cut and jump has to be a woman being the number two in the queue for the cut and jump number woman condo. I mean I beat you and I go up to 10 and I go and make it just to me and the cut and jump it can be a high call number woman that's how you can just don't get the one key. That's a high might be a good thing to come along the home. I don't wait the good you got to the room for them. Number three to the kind of woman. A lot of people have asked us if our users have seen a similar decline in consumption recently. We also see that the price of our customer units, including our ARP, has not changed much. In addition, there will be an improvement, so we see that the overall situation here is that we have not seen any special decline in consumption. The second point is to ask about market costs. We see that the market cost is relatively low because our Q4 sales volume is relatively large. Overall, the market cost of our entire company is relatively stable. Because we have a strict LTE to control, for example, how much money a new customer needs, how much money an old customer needs, and how much time they need to pay back. So overall, it is relatively stable. Then in 2024, we will add a little bit, add a little bit of market cost. That is to say, we hope to continue to win customers, but the overall proportion is very limited. So you don't have to worry about the cost of our overall market cost. Then it's still OK. Then if we come across a good channel, for us, we can spend more money, including LTD refunds, etc. foreign foreign But we see that there are several main reasons. One is that the proportion of clothes we wear is constantly increasing. Because the return rate of clothes we wear is quite high. So this is especially true. For example, if the weather is cold last year, clothes are sold more and better. We see that the proportion of clothes we wear in the past few years is constantly increasing. This is one. The second is that Then there is a possibility, that is to say, the consumers we are talking about now think that if I buy a dress today and try it on, I will treat it as a dresser or a dressing room. Then this kind of service, this kind of service matching in China seems to be a normal behavior. So everyone thinks it's OK. If the platform can provide such a service, they will continue to test the size or the style or the wear and tear effect. So we think that this will also improve the entire e-commerce. As far as I know, it seems that the entire e-commerce is actually improving. So the third point is that we don't have accurate information. It is possible that users think that money should still be saved. That is, if it is not appropriate, don't force it. But we haven't proven this yet. It's just a guess. There may be a little bit of such a reason.

OK, on your question about average order size, actually, average order size has been relatively stable. And in Q4, we did see a slight increase on a year-over-year basis, primarily because we sold more winter clothing, which have higher ticket size. especially when a lot of people in cold weather, they would buy a higher ticket size down jacket, et cetera. So that's the primary reason behind the increase in average order size. And this also reflects that actually on our platform, there is not very significant sign that we have so-called consumption downgrade. At least the loyal and highly engaged customers with our platform, we have seen their average ticket size, they're actually stable or quite resilient, and Apple has been growing very nicely. So that's how we benefit from the very resilient consumption trend. among our customer cohorts. In terms of sales and marketing expense, in Q4, because we did much better than expected in terms of sales, that brought the sales and marketing expense ratio down a little bit. Actually, for this line, sales and marketing spend will continue to be relatively stable. Of course, we want to spend prudently, especially to acquire more high-quality customers in 2024. But we will continue to look at the effectiveness and the efficiency of customer acquisition from a number of perspectives, including LTV, ROI, payback period, et cetera. So sales and marketing expense ratios will continue to be very manageable. And we will continue to spend in a rational way to spend on those channels who can provide the best ROI. So basically, we don't worry too much about our sales and marketing spend. And it's going to be very limited as a percentage of total revenue. On return rates, for the last year, return rates have been growing on a year-over-year basis. We think we did see a 3 to 4 percentage point growth in return rates. But we have mentioned this before, return and exchange services is a part of our a value proposition to provide the best-in-class services to our customers. And this building in our profitability model, it hasn't been impacting our profitability levels for the past several quarters. And the return rates are trending a little bit higher because a number of factors. One is apparel contribution. In the last couple of years, we have seen apparel contribution growing on our platform. And apparel, as you know, they naturally have higher return rates. And second, return on exchange has become a standardized practice within the industry. And a lot of customers are taking VIP shop as a fitting room, and the more they try, actually the more likely they will buy. So it's not only us, as far as we know, the return rate within the industry is actually growing. That's the reality. And lastly, although we don't have accurate information about that, it's just our guess, We think that consumers are becoming more cautious and selective in terms of their spending. They want to spend money only on those essential pieces that they need. So that might be one of the reasons that return rate is going higher.

Thank you. We will take our next question. Your next question comes from the line of Ronald Kieng from Goldman Sachs.

Please go ahead. Your line is open.

Thank you, Shandong, Mark, and team. I have two questions. Let me ask in Chinese first. I have two questions. First, I would like to hear about the revenue guidance in the first quarter. We will see how the trend will be in the first and second months. And then we expect to see how the consumption will be in the third month, especially after the Spring Festival. And then I would like to know how we should think about the gap between GMV and revenue in 2024. Secondly, I would like to ask the shareholders for their feedback. We saw a free cash flow of about $11 in 2023, which is very good. But we didn't make much buyback in the past two weeks. Now we have announced a regular dividend of $2.5 billion. I would like to know if we may be able to make some changes in the future Thank you, management. I have two questions. One is I want to hear how our trends have been for the first quarter so far, January and February as a whole, and how do we see demand tracking since Chinese New Year? And how should we think about the gap between GMV and revenue for 2024? compared with the big gap in 2023. Second is shelter return. I've seen a $1 billion U.S. dollar free cash flow. We haven't done too much buybacks in the past two quarters. Now we have a $250 million U.S. dollars of regular dividends. So what is the plan for, let's say, the remaining free cash flow? Is there any room for further shelter return? Thank you.

Then I answer the first question. The first question is about the business at the end of Q1. So overall, it's January of Q1. So that's the whole thing. Because of the weather, the business is still good. So we say that after the spring festival comes back, it will resume. Then the other is about now because the weather is relatively retroactive, that is, for example, it is cold for a while, so it is not really when the spring is coming, so the overall sound sound is still climbing, so we actually think that the sound of Q1 we are talking about is relatively stable. Then this is a second question is about the situation of the return rate, we ourselves estimate that because . . . . . . . . . . . . .

Okay, first on your Q1 guidance, actually quarter to date, we have seen business, have seen decent business momentum. In January, actually benefiting from a very favorable weather because at that time, it was still quite cold. So our business performance was really quite well, quite good. And we continue to see recovery following the spring festival. Until recently, we've seen that our sales had been ramping up relatively slower than expected because of the unexpected weather conditions, sometimes very cold, which actually delay to some extent the seasonal shift to spring apparel but overall we think Q1 will continue to be another quarter of relatively stable growth and in terms of the revenue and GMV growth gap for this year we continue to expect a slightly higher return rate because of the still higher apparel contribution as well as SVIP contribution. The return rate is not going to be significantly higher as we saw for 2023. We expect at most it's going to be 1 to 1.5 percentage points higher, which means that there is a chance that we can narrowed the revenue and the GMV growth gap to some extent.

Okay, for the second question, let me answer a question. Thanks for your question regarding the cash dividends and also the share-buy-buy programs. Actually, we have been focusing on long-term capital policy and the combination of the dividend and buyback reflects our confidence in long-term growth and profitability, as well as our long-term commitment to create value to our shareholders. Regarding the total amount of the dividends, we considered multiple factors, such as working capital, for business development, capex, profitability, and cash flow. The dividend amount will be reviewed and determined annually. Well, as to buyback, we have repurchased a total of nearly US$2 billion from April 2021 to the end of 2023. The existing US$1 billion buyback program, which is effective through March 2025, has 452 million US dollars as of December 31, 2023. And the remaining parts will be executed from time to time, taking into account factors such as price valuation and the marketing fluctuations. So therefore, the cash dividends and the share buyback, I think that's the two ways we would like to provide return to our shareholders. And these two ways or two regimes will implement parallel. Thank you.

Thank you. We will take our next question.

Your next question comes from the line of Andre Chang from JP Morgan. Please go ahead. Your line is open.

Good evening, Mr. Shen, Mr. Mark, and Jesse. I have three follow-up questions. The first one is that we hope to continue to invest in new users this year. It may not be as expected last year. I would like to ask, what is the source of the growth of new users that we see in the future? Can you briefly introduce us to the specific market and how to use the user group? The second point is that ARPU has room for improvement. But last year, due to the COVID-19 pandemic, users may have to spend more. There may be weather issues as well. I think ARPU will continue to improve in 2024 because we are able to give our users more choices in terms of brands, products, and so on, or other drivers. And the last one is about the shareholder return. I would like to ask, our cash is very strong. Last year's cash contract continued to increase. If our buyback, according to what Mr. Marks just said, is based on this valuation market situation, then it may not necessarily execute. Then our excess cash may not necessarily go back to the shareholders. I will translate three questions here. Hi, I have three questions for the management. First is, we talk about the note, we will focus more on the user growth this year. Can you elaborate more about where are the areas that we can find new users to acquire? Second, we also talk about further improvement on the output. So with the note rebounding spending from our loyal user last year, which was easy, What are the drivers for our user to spend more on our platform into 2024? And lastly, we talk about the share buyback will hinges on the market condition, valuation. It seems that with our cash flow continue to be strong, cash balance increased by the end of last year versus end of 2022. Does that mean that it's not necessary or we will use all our strong cash flow to return to the shareholder? How do we think about that?

Thank you. I'll answer the first question, which is about the new customers. The new customers are basically the same as the old ones in the first two or three years. For example, we have some natural new customers, so we will invest For example, precision marketing on Douyin, on Headline, on Tencent, and on other media. In addition, we also have this kind of phone installation, so we can pre-install the phone directly, and so on. So this year, we will strengthen our brand image and positioning, so that everyone can know more about it. Then or say that some of the original users know that I will, but it is useless or the impression of the original is not the same, then we will strengthen this aspect of the library. Then the other one just said, for example, like we are in the original, some are not cooperating or cooperating less, the kind called the number of users is relatively large, like this kind of small red book. On the B station, we feel that there is actually space, etc., so we will continue to expand the new class this year. Then we are also We think this kind of new class, including the overall flow of the new class that they got back, is still OK. The overall quality is still relatively healthy, so we don't think it's a problem to spend money here. The second question is about ARP. In ARP, we think Up last year was due to the weather, but we also think that consumers are more accepting of us. We think there is room for improvement in Up this year. We hope that the clothing we make will have more and more characteristics. For example, women can buy clothes for their husbands, children, and parents. We can buy clothes, shoes, bags, and so on. In the next 24 years, we will also expand some standard products. We want to make some valuable standard products so that our customers can buy them, including our SVIP, who think our standard products are better. We think we still have a chance to improve the up of the users.

So on your first question on new customer acquisition, in last year actually we invested a lot of channels to acquire new customers. to drive the organic growth in new customers such as telemarketing, a number of platforms like Douyin, Tokyo, Tencent, as well as mobile pre-installation. This year we would like to do better in terms of adding new channels especially to elevate the company brand image through more brand advertising, especially targeting those customers who are not familiar with VIP shop or who have heard of VIP shop but have never used. Basically, we want to leverage branding to increase customer mind share of VIP shops as the best place to shop for apparel, including some emerging and younger channels like Xiaohongshu, Bilibili, et cetera, where we think there is still quite a lot of potential there. For the new customers, we have acquired to our platform, we have actually seen the retention is pretty good, which means that the customers, we acquired a relatively higher quality. So we think our current customer acquisition strategy does work relatively well. In terms of output growth, Last year, we did benefit from favorable weather conditions in some of the seasons. But we also think that customers have become increasingly recognized the value proposition of VIP Shop as a discount platform for branded products. And especially through our best in class services, we find this is a great place to shop for apparel especially for women. They tend to not only shop for themselves, but also shop for the whole family, including children, parents, et cetera. They also shop not only apparel, but also other categories like standardized items. We have seen increasing cross-category purchases among our customers. And this year, in addition to driving the growth of apparel categories, we also want to build a stronger platform for standardized items so that we can increase the cross-sale opportunities for our high-value customers, especially Super VIP members.

OK, regarding the third question, for share buyback, I think the track record has already shown our insistence to return value to our shareholders. And for the buyback program, we will definitely evaluate the share price and also whether the market is in fluctuations. For example, if in the future the share price is lower than our expectation, lower than Normal value. Okay, so we will definitely will do the share buyback continuously from time to time But that depends on the price and also depends on the other factors So I think the cash dividends regime is a way to give you a more predictable Share value buyback to a value back to the shareholders. Okay, so in the future we will have the annual cash dividends policy and of course we will evaluate our cash position and also our profitability and also our capex etc to make sure to determine how much money we will distribute to our shareholders. So I think the cash dividends policy is a way to complement our return to our shareholders policy. Thank you.

Thank you. Due to time constraints, that concludes today's Q&A session. At this time, I will 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, please don't hesitate to contact our RR team. We look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.