Vipshop Holdings Limited

Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings Limited's first quarter 2024 earnings conference call. At this time, I would like to turn the call to Ms. Jessie Zhang, VIP Shop's Head of Investor Relations. Please proceed.

Thank you, operator.

Hello, everyone, and thank you for joining VIP Shop's first quarter 2024 earnings conference call. With us today are Eric Chen, co-founder, chairman, and CEO. 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 Statement in our earnings release and public filing with the Securities and Exchange Commission, which also applies to this call to the extent any forward-looking statements may be made. Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income per ADS, are not presented in accordance with U.S. GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP merits to GAAP merits. With that, I would now like to turn the call over to Mr. Eric Chen.

Good morning and good evening, everyone. Welcome and thank you for joining our first quarter 2024 earnings conference call. We had a slow quarter in terms of business momentum, but profit grew much faster than sales. In the face of the shortfall of the top line, we stayed flexible to operate most effectively while focusing on priorities to enhance long-term strength. In the first quarter, sales growth moderated as the quarter progressed. after strong start seasonal demand for spring clothes was softer than expected in March. But for the full quarter, apparel category continued to stand out with double-digit GMV growth year over year. Custom spending proved resilient. In the first quarter, active Super VIP members increased by 11% from a year ago and accounted for 45% of our online spending. That's a healthy indication of the trust, value, and ease of the shopping we've created for them. We came into the year by responding to the changes in customer behaviors and continuously refining our approach to navigate a still dynamic environment. All that we do centers upon increasing our apparel to customers beyond our existing base. We expand into what customers like and what makes us different. We provide great value that customers are looking for every day. On merchandise expansion, we continue to see plentiful supply in the industry, and we are happy with our access to quality brand inventory. We are building a wide-ranged assortment based on our broad and deep brand relationships. A steady flow of select national and global brands keep us up to date to provide more treasure hunting deals for our customers. Our team merchandising expertise really feel better brand portfolio with product mix at a range of discount levels. We remain dominant in our share of deep discount branded products, even as consumers have to make this print buying choice. our customers continue to welcome affordable selections. The Made for VIP shop line further gives us the ability to meet the needs of customers who are more style and price cautious. Through 180 well-known brand partners, we managed to more than double the supply of customized products from a year ago. We are pleased to see that made-for-VIP shop products are more preferred by high-quality customers, who tend to place more repeat orders in apparel categories. Across geographies, we see people are closely looking for value. We've got a good chance to grow our share of value spending. We continue to drive value for our customers beyond compelling In addition to promotion, customers buy our brand offerings because they receive the combination of price, quality, and service. They are conscious of product authenticity, so they rely on our offerings. They like simplified promotions and seamless returns and exchanges. All these things make it easy in the shopping experience, which lead to great repeat purchase. That's how we're different from others. We are also taking initiatives to enhance the loyalty program. In the first quarter, we launched private sales and the special offering for Super VIP members to enjoy additional privileges. It's a good start to building more online and offline connections to our loyal customers. Initial results are encouraging. Within the company, we continue to reinforce our efforts to gain efficiencies. We are working to design better progress and deploy the latest technology in our business. For example, We are applying AI-generated model photos and product videos to optimize our marketing efforts and help brand partners engage with their customers more effectively. With the potential to improve engagement and innovation, we expect to drive further adoption of this solution over the course of the year. We are cautious in our near-term outlook. We remain confident in our ability to generate long-term results. Our unique value proposition allow us to service in the best interest of brand partners and grow high-quality customers across age and income cohorts. We believe we have the solid foundations to capture the opportunity we see to grow our business in the years ahead. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Okay, thanks, Eric, and hello, everyone. We are pleased to record another quarter of strong profit growth despite the tepid top-line performance. In the first quarter, our team executed well. moving quickly in response to the dynamic operating environment to drive efficiency gains. As a result, margins all remained very healthy. More specifically, consolidated gross margin increased to 23.7% from 21.4% a year ago, primarily with the help of higher margin category mix from apparel sales. Non-gap net margin attributable to VIP shops shareholders expanded to another record high of 9.3% from 7.5% a year ago, aided by our ongoing efforts to maintain operating discipline. As consumers remain budget conscious in value driving, we We're reinforcing our value proposition, of course, our merchandise offering to deliver the affordability that better fits into consumer preference. And we will focus on priorities to capture the growth opportunity we see with the brand partners and customers. We believe with solid business fundamentals and a great financial position, we are able to deliver quality growth, good profitability, as well as consistent shareholder return for the long term. Looking to 2025, for the benefit of our shareholders, we plan to commit no less than 75% of our full year 2024 non-GAAP net income attributable to VIP shops shareholders in discretionary share repurchase and for dividend distributions. 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 RMB. and all the percentage change are year-over-year change, unless otherwise noted. Total net revenues for the first quarter of 2024 increased by 0.4% year-over-year to RMB 27.6 billion from RMB 27.5 billion in the prior year period. Gross profit increased by 10.9% year-over-year to RMB 6.5 billion from RMB 5.9 billion in the prior year period. Gross margin increased to 23.7% from 21.4% in the prior year period. Total operating expenses increased by 0.6% year-over-year to RMB 4.09 billion from RMB 4.06 billion in the prior year period. As a percentage of total net revenues, total operating expenses for the first quarter of 2024 was 14.8%, compared with 14.7%. in the prior year period. Fulfillment expenses increased by 11.3% year-over-year to RMB 2.0 billion from RMB 1.8 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 7.2% compared with 6.5% in the prior year period. Marketing expenses decreased by 17.4% year-over-year to RMB 690.9 million from RMB 836.9 million in the prior year period. As a percentage of total net revenues, marketing expenses decreased to 2.5% from 3.0% in the prior year period. Technology and content expenses increased by 22.7% year-over-year to RMB 481.9 million from RMB 392.8 million in the prior year period. As a percentage of total net revenues, technology and content expenses was 1.7% compared with 1.4% in the prior year period. General and administrative expenses decreased by 11.3% year over year to RMB 929.1 million from RMB 1.0 billion. in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 3.4% from 3.8% in the prior year period. Income from operations increased by 39.0% year over year, growing to be $2.8 billion. from RMB 2.0 billion in the prior period. Operating margin increased to 10.0% from 7.2% in the prior period. Non-GAAP income from operations increased by 33.4% year-over-year to RMB 3.1 billion from RMB 2.3 billion in the prior period. Non-GAAP operating margin increased to 11.1% from 8.3% in the prior year period. Net income attributable to VIP shop shareholders increased by 24.6% year-over-year to RMB 2.3 billion from RMB 1.9 billion in the prior year period. Net margin attributable to VIP shop shareholders increased to 8.4% from 6.8% in the prior year period. Net income attributable to VIP shop shareholders per diluted ADF increased to RMB 4.18 from RMB 3.16 in the prior year period. Non-GAAP net income attributable to VIP shops shareholders increased by 24.8% year-over-year to RMB 2.6 billion from RMB 2.1 billion in the prior year period. Non-GAAP net margin attributable to VIP shops shareholders increased to 9.3% from 7.5% in the prior year period. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS increased to RMB 4.66 from RMB 3.52 in the prior period. As of March 31, 2024, the company had cash in the cash equivalents and the restricted cash of RMB 24.6 billion, and short-term investments of RMB 2.9 billion. Looking forward to the second quarter of 2024, we expected our total net revenues to be between RMB 26.5 billion and RMB 27.9 billion, representing a year-over-year decrease of approximately 5% to 0%. 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 poll to Q&A.

Thank you. Dear participants, if you wish to ask a question, please press star 11 or telephone keypad and wait for your name to be announced. To withdraw a question, please press star 11 again. If you are bilingual, please ask your question in both languages. Thank you so much for your consideration. Please stand by. We'll compile the Q&A roster.

This will take a few moments. And now we're going to take our first question.

And it comes from Alicia Yap from Citigroup. Your line is open. Please ask your question.

Hi. Good evening, management. Thanks for taking my questions. I have a question regarding the guidance. So just curious in terms of what's you know the drivers and factors that you have been factored into your latest second quarter revenue guidance is that related to the demand has been a little bit sluggish or you actually factor in a higher return rate so any colors you can provide in terms of how you see the second quarter trends and demand would be helpful thank you

Alicia's question is about our guidance. What factors do you consider? Is it the delay of demand or a higher return rate? Any of them. Yes, our Q2 estimate will be relatively low.

Consider a few aspects. One is that because of the spring, especially because of the weather in March, Then the window of sales in the village is actually relatively short. Then we say that there is actually no opportunity to trade opportunities in Q2. The second point is that we actually consider last year's Q2. Our performance growth is actually quite good. That is to say, in fact, the overall opportunity is relatively high. Then the third point is that we are actually in that. That is to say, when we are in Q2, We are actually because of that, what is it called, on that investment, then we are actually more cautious. So because we think it is to look at the more stable basic disk and profits, then the overall Q2 market competition is still more intense. So we actually don't have a large-scale supplementary user, so the supplementary user, including the expansion user, actually some rock-solid users have been lost. So the fourth point we consider is actually our overall return rate. So in fact, we say that as the situation has been increasing over the past few years, including especially like our SVIP continues to increase, so its return rate is high. In addition, it is the habit of users in e-commerce shopping, that is, return is also relatively simple and convenient. So in general, we think probably these are the reasons.

Okay, for the Q2 guidance, we actually have factored a number of considerations. First, we had an extended winter and also early summer, which actually shortened the window for apparel sales for spring clothing. And the apparel sales, you know, it really depends on the right timing, especially during the seasonal shift. And second, we face a tough comp, a high base from the same quarter last year, which we really did very well. That does not favor us. And third, we still have a very dynamic industry, so we focus on stabilizing our core business to maintain solid profitability. We have not invested, in large scale subsidies and marketing spend to acquire customers very aggressively. This has resulted in some loss of sales from customers who swing among different platforms. And lastly, the return rate you mentioned, yes, it's been up. It's primarily because of the higher contribution from our SBIP members. who are still growing very nicely. It also ties to customer behavior, who are used to, who likes to return and exchange when they shop among different e-commerce platforms.

Okay, thank you so much. Thank you.

Dear participants, as a reminder, if you wish to ask a question over the phone, please press star 11 on your telephone keypad and wait for your name to be announced.

Now we're going to take our next question. And the question comes in the line of Ronald Coon from Goldman Sachs.

Your line is open. Please ask your question.

Thank you, Mr. Shen, Mike, and the team.

I would like to ask two questions. First, we should see some softness in March, but our current second quarter guidance is actually because of the run rate in April, or we are considering the last year's technology in May and June. I just want to see if we are annual festival, 666. What are the expectations? And the second question is, I want to ask about the return of the share. I see that we may have a return of less than $12 million in the first quarter. But it says that it will cost $5 billion in this year. Do we expect that the return of the share in the next three quarters will increase? Let me translate it. thank you management for taking my question my first uh question is when i ask have we seen uh that was the first quarter kind of softness mainly due to march um and then as we guide this um zero to minus five are we basing this on on April trends, or are we expecting it's a base issue mostly for May and June, particularly the shopping festival, our June 16th festival into, that was last year. Second is on shareholder return. We've seen we've bought back around 11.9 million of shares, worth of shares in the first quarter, but then the announcement says we're committed to up to 500 million by the end of this year. Does that imply a significant step up in, the share buybacks in the remaining three quarters. Thank you.

Let me answer the first question. From April to now, we haven't reached our expectations for the overall sales situation. So we think we need to make some adjustments. In addition, we are also worried that because of the cancellation, including the current 618, it started from May 20th, so it has been running for a month. So, in fact, this kind of cancellation season is different from last year, so we actually still hold a cautious attitude. I think it's normal for us to have a little bit of business growth, but we still have to be relatively conservative to meet this expectation. So this is my first question. The second question is for Mark.

On your first question, as reported today, sales momentum has been faster than expected and we are doing our best to try to adjust the business and try to execute right. And given a lengthened, extended promotional season it started this year you start from May 20th it is going to last for one month and it is quite different from the situation we faced last year so we try to remain cautious about the sales momentum going forward and in ups and downs we will be try to be conservative in terms of the outlook. And also, we will continue to be quite disciplined in our operations.

OK. Thanks for your question for the second question regarding the shareholders' returns. Let me answer you in this way. We're committed to a long-term shareholder return policy.

And we'll continue to use the combination of buyback and the dividend to provide shareholders with a relatively stable and consistent annual returns. We have returned over $2.2 billion to shareholders since April 2021 in the form of buyback and dividends. For 2024, we have adopted an annual dividend policy and announced $215 million U.S. dollar dividend. In addition, we are steadily buying back shares and are committed to repurchasing approximately 500 million U.S. dollars by December 31, 2024. This implies that we will almost utilize the remaining amount of the existing 1 billion U.S. dollar two-year buyback program. by year end. Furthermore, looking into 2025, for the benefit of our shareholders, we plan to commit no less than 75% of our full year 2024 non-GAAP net income attributable to VIP shop shareholders in discretionary share repurchase and or dividend distributions. All I mentioned above regarding the history records and the future planning shows our determination and insistence to return value to our shareholder in a long-term, stable, and consistent way. Hope this answers your question. Thank you.

Thank you, Xintong and Mike.

Thank you. Now we're going to take our next question. And the next question comes in the line of Eddie Wang from Morgan Stanley.

Your line is open. Please ask your question.

Mr. Shen, Mark, Jesse, hello.

Thank you for accepting my question. I may have a few questions here. The first one is that Mr. Shen also mentioned competition. In the short term, I believe, as Mr. Shen said, the competition may be affected by some fluctuations. However, we have seen that some large e-commerce platforms, they may now use this, including subsidies, as a means of competition for long-term implementation. I don't know, from a slightly longer-term perspective, Mr. Shen, in terms of our strategy, will it be appropriate, for example, We can still say that we might be more insistent on focusing on our positioning and the better service in terms of SVIP to increase their resale and so on. This is my first question. The second question is also related to the first question, because I do see that users in level 1, if you look at the same ratio, there is still a decline. Of course, as I mentioned before, this is related to competition. I don't know. As Mr. Shen said before, we still have some demand for the entire customer base. I don't know if we will have some bigger measures to bring back those customers. The third one is a small follow-up question. Thank you for taking my question. So my first question is about the competition. As Shenzhou mentioned that we have seen a more intense competition from peers, especially in terms of the subsidy they granted. I understand in the short term we may stick to our current strategy, but if you take a relatively long-term view, will we also follow suit with the more aggressive, like the subsidy strategy, or we will continue to stick to our current strategy? And second is the user side. We record AOV decline for the user in the first quarter of this year. So just to hear your view on your user growth strategy in this year and in the longer term. And the third one is about the AOV. So we see that AOV in this quarter actually increased on a year-over-year basis. This is because of the proportion of the SVIP users coming up, so the AOV is higher, or any other reasons actually leads to a higher AOV in this quarter. Thank you.

I will answer these questions. The first point is to ask about our next direction. For us, We are doing brand special sales, so we actually continue to insist on doing brand special sales because there are a lot of e-commerce now. Then the competition is fierce, then each family has different characteristics, but the more we understand that we actually have to insist on doing our own brand special sales, then the other thing is that we have more good goods, then more good-priced products, then we say to our users, then in fact this is also Our users haven't left us for a long time. So this is our next direction. We will continue to work with many brands in depth. We will bring better products. This is the first question. The second question is, during Q1, We actually, because on the investment side, we are relatively strict with LTV cards. So, no matter how high it is, we don't invest. So, that means that we actually, after a lot of people don't invest, or add to the competition, there are some users who are sensitive to prices, who actually don't get it or leave. But our own SVIP and our core users are still very stable. So we will also adjust some strategies in Q2, that is, we will properly relax some of our LTV customer standards. So for us, we still hope to have more users come, but our requirements are high quality. So I just forgot the first question to reply, that is, it seems that I forgot because you asked that. You see, for example, our users' ARP is increasing, the overall ARP is increasing, but what we see in it is that our SVIP's overall ARP is really much higher than that of ordinary users. So we actually responded to the first question we just asked, which is that we still serve our SVIP better in the future. After all, these SVIPs are half of our business. Then we continue to serve well. In addition, we continue to expand our SVIP. So the struggle is that although our user technology is not as much as other platforms, but we believe that these long-term loyal users we are talking about can also create great value for us.

So on the first question, competition, actually our strategy has been and will continue to be laser focused on branded discount retail. There are many e-commerce platforms nowadays, but each has its unique value proposition. And our uniqueness lies in our ability, capability to serve in the best interest of brand partners. and to deliver better value to our customers. That's why we have so many loyal customers on our platform who have seldom leave us. And we will continue to broaden and deepen our relationships with more brand partners to bring in a steady flow of the right merchandise offerings to deliver value to our customers who are looking at brand quality and the product authenticity, etc. And in terms of subsidy, we wouldn't want to follow our industry peers to blindly investing in large scale subsidies. Of course, we will be prudently aggressive in customer acquisition, but we will continue to focus on acquiring high-quality customers. On your second question, in terms of the marketing spend, in Q1, we had a slight decline in active customers. That's because we have very strict requirements on LTVs. as long as it's higher than a certain level, we would stop investing in marketing spend. We realize that in the face of competition and especially in price competition, there are some customers who are more driven by subsidy or more price sensitive they actually have run to other platforms. But on the other hand, SBIP, the core customer base, has been quite resilient. They're still growing at double digit in terms of customer base, and their output is still going up faster than the average customer. Having said that, Entering into the Q2, we will be a little bit more aggressive in terms of acquiring customers. After all, we want to bring more new customers to our platform, but only those who are high quality. So we will cautiously relax our restrictions in terms of our LTV. to make sure we continue to acquire customers in an effective and efficient way. And lastly, on the GME per customer, the trend, actually, if we look at the upper trend, that's more representative of the customer momentum. SBIP members are still gaining very good traction As I mentioned earlier, there are growing factors and average customers. And it demonstrated that as long as we serve in the best interest of our SBIP members, providing them with the right merchandise offerings as well as the best in-class services, They will continue to shop with us and they will shop more and come more. So in the future, we will continue to drive the expansion of our SBIP customer base. We believe that our core customer cohorts are a very strong foundation for us to maintain quality growth as well as good profitability.

Excuse me, Eddie, do you have any further questions?

No, thank you.

Thank you.

Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Jessie Shen, 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 IR team. We look forward to speaking with you next quarter.

That does conclude our conference for today.

Thank you for participating. You may now all disconnect. Have a nice day. you Thank you. Thank you. Thank you. music music

Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings Limited's first quarter 2024 earnings conference call. At this time, I would like to turn the call to Ms. Jessie Zhang, VIP Shop's Head of Investor Relations. Please proceed.

Thank you, operator.

Hello, everyone, and thank you for joining VIP Shop's first quarter 2024 earnings conference call. With us today are Eric Chen, 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 Statement in our earnings release and public filing with the Securities and Exchange Commission, which also applies to this call to the extent any forward-looking statements may be made. Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income per ADS, are not presented in accordance with U.S. GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP merits to GAAP merits. With that, I would now like to turn the call over to Mr. Eric Chen.

Good morning and good evening, everyone. Welcome and thank you for joining our first quarter 2024 earnings conference call. We had a slow quarter in terms of business momentum, but profit grew much faster than sales. In the face of the shortfall of the top line, we stayed flexible to operate most effectively while focusing on priorities to enhance long-term strength. In the first quarter, sales growth moderated as the quarter progressed. after strong start seasonal demand for spring clothes was softer than expected in March. But for the full quarter, apparel category continued to stand out with double-digit GMV growth year over year. Custom spending proved resilient. In the first quarter, active Super VIP members increased by 11% from a year ago and accounted for 45% of our online spending. That's a healthy indication of the trust, value, and ease of the shopping we've created for them. We came into the year by responding to the changes in customer behaviors and continuously refining our approach to navigate a still dynamic environment. All that we do centers upon increasing our apparel to customers beyond our existing base. We expand into what customers like and what makes us different. We provide great value that customers are looking for every day. On merchandise expansion, we continue to see plentiful supply in the industry, and we are happy with our access to quality brand inventory. We are building a wide-ranged assortment based on our broad and deep brand relationships. A steady flow of select national and global brands keep us up to date to provide more treasure hunting deals for our customers. Our team merchandising expertise really feel better brand portfolio with product mix at a range of discount levels. We remain dominant in our share of deep discount branded products, even as consumers have to make this print buying choice. our customers continue to welcome affordable selections. The Made for VIP shop line further gives us the ability to meet the needs of customers who are more style and price cautious. Through 180 well-known brand partners, we managed to more than double the supply of customized products from a year ago. We are pleased to see that made-for-VIP shop products are more preferred by high-quality customers, who tend to place more repeat orders in apparel categories. Across geographies, we see people are closely looking for value. We've got a good chance to grow our share of value spending. We continue to drive value for our customers beyond compelling In addition to promotion, customers buy our brand offerings because they receive the combination of price, quality, and service. They are conscious of product authenticity, so they rely on our offerings. They like simplified promotions and seamless returns and exchanges. All these things make it easy in the shopping experience, which lead to great repeat purchase. That's how we're different from others. We are also taking initiatives to enhance the loyalty program. In the first quarter, we launched private sales and a special offering for Super VIP members to enjoy additional privileges. It's a good start to building more online and offline connections to our loyal customers. Initial results are encouraging. Within the company, we continue to reinforce our efforts to gain efficiencies. We are working to design better progress and deploy the latest technology in our business. For example, We are applying AI-generated model photos and product videos to optimize our marketing efforts and help brand partners engage with their customers more effectively. With the potential to improve engagement and innovation, we expect to drive further adoption of this solution over the course of the year. We are cautious in our near-term outlook. We remain confident in our ability to generate long-term results. Our unique value proposition allows us to service in the best interest of brand partners and grow high-quality customers across age and income cohorts. We believe we have the solid foundations to capture the opportunity we see to grow our business in the years ahead. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

OK, thanks, Eric, and hello, everyone. We are pleased to report another quarter of strong profit growth is by the top-line performance. In the first quarter, our team executed well. moving quickly in response to the dynamic operating environment to drive efficiency gains. As a result, margins all remain very healthy. More specifically, consolidated gross margin increased to 23.7% from 21.4% a year ago, primarily with the help of higher margin category mix from apparel sales. Non-gap net margin attributable to VIP shops shareholders expanded to another record high of 9.3% from 7.5% a year ago, aided by our ongoing efforts to maintain operating discipline. As consumers remain budget-conscious in value driving, We're reinforcing our value proposition, of course, our merchandise offering to deliver the affordability that better fits into consumer preference. And we will focus on priorities to capture the growth opportunity we see with the brand partners and customers. We believe with solid business fundamentals and a great financial position, we are able to deliver quality growth, good profitability, as well as consistent shareholder return for the long term. Looking to 2025, for the benefit of our shareholders, we plan to commit no less than 75% of our full year 2024 non-GAAP net income attributable to VIP shop shareholders in discretionary share repurchase and or dividend distributions. 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 RMB. and all the percentage hints are year-over-year hints, unless otherwise noted. Total net revenues for the first quarter of 2024 increased by 0.4% year-over-year to RMB 27.6 billion from RMB 27.5 billion in the prior year period. Gross profit increased by 10.9% year-over-year to RMB 6.5 billion from RMB 5.9 billion in the prior year period. Gross margin increased to 23.7% from 21.4% in the prior year period. Total operating expenses increased by 0.6% year-over-year to RMB 4.09 billion from RMB 4.06 billion in the prior year period. As a percentage of total net revenues, total operating expenses for the first quarter of 2024 was 14.8%, compared with 14.7%. in the prior year period. Fulfillment expenses increased by 11.3% year-over-year to RMB 2.0 billion from RMB 1.8 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 7.2% compared with 6.5% in the prior year period. Marketing expenses decreased by 17.4% year-over-year to RMB 690.9 million from RMB 836.9 million in the prior year period. As a percentage of total net revenues, marketing expenses decreased to 2.5% from 3.0% in the prior year period. Technology and content expenses increased by 22.7% year-over-year to RMB 481.9 million from RMB 392.8 million in the prior year period. As a percentage of total net revenues, technology and content expenses was 1.7% compared with 1.4% in the prior year period. General and administrative expenses decreased by 11.3% year over year to RMB 929.1 million from RMB 1.0 billion. in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 3.4% from 3.8% in the prior year period. Income from operations increased by 39.0% year over year, growing to be $2.8 billion. from RMB 2.0 billion in the prior period. Operating margin increased to 10.0% from 7.2% in the prior period. Non-GAAP income from operations increased by 33.4% year-over-year to RMB 3.1 billion from RMB 2.3 billion in the prior period. Non-GAAP operating margin increased to 11.1% from 8.3% in the prior year period. Net income attributable to VIP shop shareholders increased by 24.6% year-over-year to RMB 2.3 billion from RMB 1.9 billion in the prior year period. Net margin attributable to VIP shop shareholders increased to 8.4% from 6.8% in the prior year period. Net income attributable to VIP shop shareholders per diluted ADF increased to RMB 4.18 from RMB 3.16 in the prior year period. Non-GAAP net income attributable to VIP shops shareholders increased by 24.8% year-over-year to RMB 2.6 billion from RMB 2.1 billion in the prior year period. Non-GAAP net margin attributable to VIP shops shareholders increased to 9.3% from 7.5% in the prior year period. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS increased to RMB 4.66 from RMB 3.52 in the prior year period. As of March 31, 2024, the company had cash in the cash equivalents and the restricted cash of RMB 24.6 billion, and short-term investments of RMB 2.9 billion. Looking forward to the second quarter of 2024, we expected our total net revenues to be between RMB 26.5 billion and RMB 27.9 billion, representing a year-over-year decrease of approximately 5% to 0%. 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. Dear participants, if you wish to ask a question, please press star 11 on the telephone keypad and wait for your name to be announced. To withdraw a question, please press star 11 again. If you are bilingual, please ask your question in both languages. Thank you so much for your consideration. Please stand by. We'll compile the Q&A roster.

This will take a few moments. And now we're going to take our first question.

And it comes from Alisha Yap from Citigroup. Your line is open. Please ask your question.

Hi. Good evening, management. Thanks for taking my questions. I have a question regarding the guidance. So just curious in terms of what's you know, the drivers and factors that you have been factored into your latest second quarter revenue guidance. Is that related to the demand has been a little bit sluggish or you actually factor in a higher return rate? So any colors you can provide in terms of how you see the second quarter trends and demand would be helpful. Thank you.

Alisha's question is about our guidance. What factors should we consider? Is it the delay of demand or a higher return rate? Any of them. Yes, our Q2 estimate will be relatively low.

Let's consider a few aspects. One is because of the spring, especially because of the weather in March. Then the window of sales in the village is actually relatively short. Then we say that there is actually no chance of changing machines in Q2. The second point is that we actually consider the Q2 of last year. We actually have a pretty good performance growth. That is to say, in fact, the overall number of machines is relatively high. Then the third point is that we are actually in that. That is to say, when we are in Q2, We are actually more cautious because we are looking at the more stable basic disk and profits. The overall Q2 market competition is still relatively intense, so we actually don't have a large-scale supplementary user. Supplementary users, including expansion users, actually some rocketing users have been lost. Then the fourth point we consider is actually our overall return rate. In fact, we say that as the situation has been increasing over the past few years, including especially our SVIP continues to increase, its return rate is high. In addition, it is the habit of users in e-commerce shopping, that is, return is relatively simple and convenient. So in general, we ourselves think that there are probably several reasons.

Okay, for the Q2 guidance, we actually have factored a number of considerations. First, we had an extended winter and also early summer, which actually shortens the window for apparel sales for spring clothing. And the apparel sales, you know, it really depends on the right timing, especially during the seasonal shift. And second, we face a tough comp, a high base from the same quarter last year, which we really did very well. That does not favor us. And third, we still have a very dynamic industry, so we focus on stabilizing our core business to maintain solid profitability. We have not invested in large scale subsidies and marketing spend to acquire customers very aggressively. This has resulted in some loss of sales from customers who swing among different platforms. And lastly, the return rate you mentioned, yes, it's been up. It's primarily because of the higher contribution from our SBIP members. who are still growing very nicely. It also ties to customer behavior, who are used to, who like to reach and then exchange when they shop among different e-commerce platforms.

Okay, thank you so much. Thank you.

Dear participants, as a reminder, if you wish to ask a question over the phone, please press star 11 on your telephone keypad and wait for your name to be announced.

Now we're going to take our next question. And the question comes in the line of Ronald Kuhn from Goldman Sachs.

Your line is open. Please ask your question.

Thank you, Mr. Sun, Mike, and the team. I want to ask two questions.

The first is that we should see some softness in March, but the guidance of our second quarter is actually because the run rate in April is still what we considered in May and June last year. I just want to see if we are annual festival, 666. Do you have any expectations? And the second question is, I want to ask about the return of the show. I see that we may have a return of less than $12 million in the first quarter. But it says that it will cost $5 billion in the year. Do we expect that the return of the next three seasons will increase? Let me translate it. Thank you, Manish, for taking my question. My first question is, have we seen that was the first quarter kind of softness mainly due to March? And then as we guide this zero to minus five, are we basing this on April? trends or are we expecting it's a base issue most mostly for May and June particularly the shopping festival our June 16th festival into that would last year and second is on show to return we've seen we've bought back around at 11.9 million of shares worth of shares in the first quarter but then the announcement says we're committed to up to 500 million by the end of this year does that imply a significant step up in the share buybacks in the remaining three quarters. Thank you.

Let me answer the first question. From April to now, we haven't reached our expectations for the overall sales situation. So we think we need to make some adjustments. Then in addition, we are also worried that it will be canceled later, including the fact that the current 618 has been started from May 20, so it has been working for a month, so in fact, this kind of cancellation season is different from last year, so we are actually still holding a cautious attitude. On your first question, I actually wanted to say

Sales momentum has been softer than expected, and we are doing our best to try to adjust the business and try to execute right. And given a lengthened, extended promotional season, this year it started from May 20, It's going to last for one month, and it's quite different from the situation we faced last year. So we try to remain cautious about the sales momentum going forward. And in ups and downs, we will try to be conservative in terms of the outlook. And also, we will continue to be quite disciplined in our operations.

OK. Thanks for your question for the second question regarding the shareholders' returns. Let me answer you in this way. We're committed to a long-term shareholder return policy.

And we'll continue to use the combination of buyback and the dividend to provide shareholders with a relatively stable and the consistent annual returns. We have returned over 2.2 billion U.S. dollars to shareholders since April 2021 in the form of buyback and dividends. For 2024, we have adopted an annual dividend policy and announced a 250 million U.S. dollar dividend. In addition, we are steadily buying back shares and are committed to repurchasing approximately $500 million by December 31, 2024. This implies that we will almost utilize the remaining amount of the existing $1 billion two-year buyback program by year end. Furthermore, looking into 2025, for the benefit of our shareholders, we plan to commit no less than 75% of our full year 2024 non-GAAP net income attributable to VIP shop shareholders in discretionary share repurchase and or dividend distributions. All I mentioned above regarding the history records and the future planning shows our determination and insistence to return value to our shareholder in a long-term, stable, and consistent way.

Hope this answers your question. Thank you.

Thank you, Xintong and Mark.

Thank you. Now we're going to take our next question. And the next question comes in the line of Eddie Wang from Morgan Stanley.

Your line is open. Please ask your question.

Mr. Shen, Mark, Jesse, hello.

Thank you for accepting my question. I have a few questions. The first one is that Mr. Shen also mentioned competition. In the short term, I believe, as Mr. Shen said, there may be some fluctuations in the impact of competition. But we see that some relatively large e-commerce platforms, they may now use this, including subsidies, as a means of competition for long-term implementation. I don't know, from a slightly longer-term perspective, Mr. Shen, in our strategy, will it be appropriate, for example, we can still say that we might be more insistent on focusing on our positioning and better service for the entire SVIP to increase their repurchase, and so on. This is my first question. The second question is also related to the first question, because I do see that users in the first quarter, if you look at the same ratio, there is still a decline. Of course, as I mentioned earlier, this is related to competition. I don't know, because as Mr. Shen said before, we still have some demand for the entire customer base. I don't know if we will have some bigger measures to pull those customers back. The third one is a small follow-up question. Thank you for taking my question. So my first question is about the competition. As Shenzong mentioned that we have seen a more intense competition from peers, especially in terms of the subsidy they granted. I understand in the short term we may stick to our current strategy, but if you take a relatively long-term view, will we also follow suit with the more aggressive, like the subsidy strategy, or we will continue to stick to our current strategy? And secondly is the user side. We record AOV decline for the user in the first quarter of this year. So just to hear your view on your user growth strategy in this year and in the longer term. And the third one is about the AOV. So we see that AOV in this quarter actually increased on a year-over-year basis. So this is because of the proportion of the SVIP users coming up, so the AOV is higher, or any other reasons actually leads to a higher AOV in this quarter. Thank you.

I will answer these questions. The first point is to ask about our next direction. For us, We are doing brand special sales, so we actually continue to insist on doing brand special sales because there are a lot of e-commerce now. Then the competition is fierce, so each family has different characteristics, but the more we understand that we actually have to insist on doing our own brand special sales, then the other thing is that we have more good goods, so more good-priced products, then we say to our users, then in fact this is also Our users haven't left us for a long time. So this is our next direction. We will continue to cooperate with many brands. We will bring better products. This is the first question. The second question is, during Q1, Actually, because we are more strict with LTV cards when it comes to investing, we don't invest as much as we can. So, after many people don't invest, or add to the competition, there are some users who are sensitive to prices who don't get it or leave. But our own SVIP and our core users are still very stable. So we will also adjust some strategies in Q2, that is, we will properly relax some of our LTV customer standards. So for us, we still hope to have more users come, but our requirements are high quality. So I just forgot the first question to reply, that is, it seems that I forgot because you asked that. Is it that we are also supplementing? But we think we don't need to supplement. So for us, other people's supplementing is more lively. We don't supplement. We still haven't used it much in the past. But that is to say, we are actually in the customer side. We may be appropriate in the future. It's not a mess. So this is my second question. Answer the second question. The third question is about GNV. BNV, you see, for example, our users' ARP is increasing, the overall ARP is increasing, but what we see in it is that our SVIP's overall ARP is really much higher than that of ordinary users. So we actually responded to the first question we just asked, which is that we still serve our SVIP better. After all, these SVIPs are half of our business. Then we continue to serve well. In addition, we continue to expand our SVIP. Although our user technology is not as good as other platforms, we believe that these long-term loyal users can also create great value for us.

So on the first question, competition, actually our strategy has been and will continue to be laser focused on branded discount retail. There are many e-commerce platforms nowadays, but each has its unique value proposition. And our uniqueness lies in our ability, capability to serve in the best interest of brand partners. and to deliver better value to our customers. That's why we have so many loyal customers on our platform who seldom leave us. And we will continue to broaden and deepen our relationships with more brand partners. to bring in a steady flow of the right merchandise offerings to deliver value to our customers who are looking at brand quality and the product authenticity, et cetera. And in terms of subsidy, we wouldn't want to follow our industry peers to blindly investing in large scale subsidies. Of course, we will be prudently aggressive in customer acquisition, but we will continue to focus on acquiring high-quality customers. On your second question, in terms of the marketing spend, in Q1, we had a slight decline in active customers. That's because we have very strict requirements on LTV. as long as it's higher than a certain level, we would stop investing in marketing spend. We realize that in the face of competition and especially in price competition, there are some customers who are more driven by subsidy or more price sensitive they actually have run to other platforms. But on the other hand, SBIP, the core customer base has been quite resilient. They're still growing at double digit in terms of customer base, and their output is still going up faster than the average customer. Having said that, Entering into the sector 2.2, we will be a little bit more aggressive in terms of acquiring customers. After all, we want to bring more new customers to our platform, but only those who are high quality. So we will cautiously relax our restrictions in terms of our LTV. to make sure we continue to acquire customers in an effective and efficient way. And lastly, on the GME per customer, the trend, actually, if we look at the upper trend, that's more representative of the customer momentum. SBIP members are still gaining very good traction As I mentioned earlier, there are growing factors and average customers. And it demonstrated that as long as we serve in the best interest of our SBIP members, providing them with the right merchandise offerings as well as the best in-class services, They will continue to shop with us and they will shop more and come more. So in the future, we will continue to drive the expansion of our SBIP customer base. We believe that our core customer cohorts are a very strong foundation for us to maintain quality growth as well as good profitability.

Excuse me, Eddie, do you have any further questions?

No, thank you.

Thank you.

Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Jessie Shen, 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 IR team. We look forward to speaking with you next quarter.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.