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spk11: Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings Limited's second 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.
spk07: Thank you, operator.
spk19: Hello, everyone, and thank you for joining VIP Shop's second quarter 2024 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 public filings with the Securities and Exchange Commission, which also applies to this call to extend any forward-looking statements may be made. Please note that certain financial merits used on this call, such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income per ADS, are not presented in accordance with US GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP merits to GAAP merits. With that, I would now like to turn the call over to Mr. Eric Shen.
spk06: Good morning and good evening, everyone. Welcome and thank you for joining our second quarter 2024 earnings conference call. In the face of multiple headwinds in the external environment, we had a slower momentum in our business. Our team focused on staying agile to respond quickly to external changes and achieving operational excellence. In the second quarter, Sales was under pressure of the high base and aimed cautions customer segment. Apparel categories held up relatively well. GMV generated from co-brands and SPF members showed resilience for the full quarter. We see this as an indication of the fundamental strengths of our business. Customer traction remained mounted. Reflecting our cautious approach to marketing spend aimed a challenging backdrop. However, Axios SVIP members increased by 11% from a year ago and accounted for 40% of our online spending. That's encouraging as a hardcore customer cohort with the most resilient spending power continues to recognize the unique value of shopping with us. Given that we are facing ongoing uncertainties in the near term, we focus on the long-term thinking that positions us for continued growth in the years ahead. Even as the patterns of spending evolving, the key factors that did mine where customers choose to shop have not changed. We are sharpening our focus on enriching merchandising offerings, highlighting Affordability throughout our assortment will ensure a worry-free experience. Together, these have been the co-competence that has helped us navigate difficult times. Among the business highlights, we are pleased with the steady flow of the quality blends inventory. Thanks to our merchandising capability from a strong team of talents across categories, We now adapt more quickly to emerging trends, which is important to driving growth by delivering what customers look for. In the first half, we select more than 600 well-known brands to our platform, including a mix of mass brands, new trendy brands, and affordable luxury brands in much richer selections. Our layered approach to brand portfolio is well suited to meet the ever-changing customer needs across income and age cohorts in different regions. We are also encouraged by the steadily progress in the Made for VIP line of customized products. In the second quarter, GME from Made for VIP increased more than 140% from a year ago. Our know-how and expertise in apparel enabled brand partners to customize more differentiated products at great price, which were welcomed by many customers. We see a meaningfully higher portion of customers repeatedly purchase customized products than they do in the general apparel category. and the conventions made for VIP have been consistently higher than the average levels seen within the same brand and the same category. Beyond that, we continue to focus on delivering value, providing the right brand of great pricing and quality to our customers. We consistently optimize the ways we work with brand partners to ensure we could generate more savings for our customers. Recently, we launched some new channels, future time-limited promotions and everyday low price. These are designed to help our customers make the most of their budget while also providing reliable resources for brand partners to present their best deals. On the other hand, in enhancing quality control, we have been working hard this year to help customers select a trusted portfolio of brand products by increasing quality inspection throughout our supply chain. In addition, we are adapting and refining our approach to customer engagement. In the second quarter, for SBIP members, we continue with the launch of provide sales and special offering, both online and offline. We intend to increase the deep of our loyalty program to serve there uniquely. For young customers, we tailored the layout and design of our homepage, created specialized channels, and made personalized recommendations that better cater to our performance. In the face of the temporary volatility on the top line, we continue to work on the long-term efficiency through process optimization, and technology enhancement across business lines, among other things. For example, we continuously upgrade our merchandise platform to further improve the productivity of our team while serving brand partners. This has motivated brand partners to invest while generating better ROI on technology. AI capabilities and are increasingly applied to search recommendation and intelligence shopping assistant to provide the customer with inspiration and improve conversions. We have a fundamentally solid business model that's also inherently flexible, but we have much more work to do and we are on it so that we can quickly pivot as customer priority changes. As we move ahead, we believe that as long as we stay close to our customers, continue investing in our merchandising capabilities, and consistently execute on the discount retail fundamentally, we will be positioned for continued growth over the long term. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.
spk08: OK. Thanks, Eric, and hello, everyone. We delivered another quarter of solid profitability despite ongoing pressure on the top line growth. As we remain responsive to the evolving environment to weather external challenge, we managed to optimize our operational efficiency and achieve healthy margins, specifically consolidated gross margin increased to 23.6% from 22.2% a year ago, thanks to higher margin category mixed from apparel sales and a series of cost saving matters. Non-gap net margin attributable to VIP shop shareholders remained at a high level at 8.1%. Reflecting our disciplined approach to managing our business. In the midst of macro and competition dynamics, our goals are to balance growth with profitability and protect the long-term health of our business. Well, our outlook for the near term has softened. We remain confident in our unique positioning. to drive sustainable and profitable growth in the long run. With that, we are committed to returning significant cash to our shareholders. We accelerated our pace of share buyback with over $200 million having been utilized during the second quarter. In addition, A new share repurchase program of up to $1 billion will be in place after we fully utilize the remaining amounts under the existing program. And as we mentioned on our last earning call, we plan to commit no less than 75% of our full year non-GAAP net income attributable to VIP shops shareholders through discretionary share repurchase and dividend distributions. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented below are in人民币. and all percentage change year-over-year change, unless otherwise noted. Total net revenues for the second quarter of 2024 were RMB 26.9 billion, compared with RMB 27.9 billion in the prior year period. Gross profits increased by 2.2% year-over-year to RMB 6.3 billion from RMB 6.2 billion in the prior year period. Post-margin increased to 23.6% from 22.2% in the prior year period. Total operating expenses decreased by 4.2% year-over-year to RMB 4.3 billion from RMB 4.5 billion in the prior year period. As a percentage of total net revenues, total operating expenses decreased to 16.0% from 16.1% in the prior year period. Fulfillment expenses decreased by 0.8% year-over-year to RMB 2.16 billion from RMB 2.18 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 8.1% compared with 7.8% in the prior year period. marketing expenses decreased by 17.0% year-over-year to RMB 740.7 million from RMB 892.5 million in the prior year. As a percentage of total net revenues, marketing expenses decreased to 2.8% from 3.2% in the prior year period. Technology and accounting expenses increased by 10.0% year-over-year to RMB 487.2 million from RMB 443.0 million in the prior year period. As a percentage of total net revenues, technology and the content expenses was 1.8% compared with 1.6% in the prior year. General administrative expenses decreased by 6.5% year over year to RMB 900.7 million. from RMB 963.1 million in the prior period. As a percentage of total net revenues, general and administrative expenses decreased to 3.4% from 3.5% in the prior period. Income from operations increased by 16.5% year over year to RMB 2.2 billion or RMB 1.9 billion in the prior year period. Operating margin increased to 8.3% from 6.9% in the prior year period. Non-GAAP income from operations increased by 11.6% year-over-year to RMB 2.6 billion from RMB 2.3 billion in the prior year period. Non-GAAP operating margin increased to 9.5% from 8.2% in the prior year period. Net income attributable to VIP shop shareholders was RMB 1.9 billion, compared with RMB 2.1 billion in the prior year period. Net margin attributable to VIP shop shareholders was 7.2%, compared with 7.5% in the prior year period. Net income attributable to VIP shop shareholders per diluted ADS was RMB 3.49 compared with RMB 3.75 in the prior year period. Non-GAAP net income attributable to VIP shop shareholders was RMB 2.2 billion compared with RMB 2.4 billion in the prior year period. Non-gabinet margin attributable to VIP shop shareholders was 8.1%, compared with 8.6% in the prior year period. Non-gabinet income attributable to VIP shop shareholders for diluted ADS was RMB 3.91, compared with RMB 4.30 in the prior year period. As of June 30, 2024, the company had cash and cash equivalents and restricted cash of RMB 21.6 billion and short-term investments of RMB 1.9 billion. Looking forward to the third quarter of 2024, we expect our total net revenue to be between RMB 20.5 billion and RMB 21.6 billion, representing a year-over-year decrease of approximately 10% to 5%. Please note that this forecast reflects our current and a preliminary review of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A.
spk11: Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To retrieve a question, please press star 11 again. Dear analysts who are proficient in both languages, translate your question into Chinese as well. Thank you so much for your understanding. We'll take a few moments. And now we're going to take our first question. And it comes from line of Thomas Chong from Jefferies. Your line is open. Please ask a question.
spk03: Good evening, thank you for accepting my question. I have two questions. The first one is, can you share with us the current situation of Hong Kong, which is the impact of the economic crisis? Can you share with us the current situation of GMV in July and August, and the future of GMV? And my second question is about the real structure of the industry. Thanks management for taking my question. My first question is about the consumer sentiment in macro uncertainties. Any color that can be shared about the monthly GMV trend, our expectations for the full year? And my second question is about the competitive environment. Can management comment about how we should think about the apparel and the standardized category? And how is the GMV growth for these two categories according to date? And any color about the contribution about the apparel category right now? Thank you. 我回答一下,第一個問題就是問整體的大環境啊。
spk06: We have seen that the overall consumer sentiment is low. The overall consumer sentiment is that they think that they should buy early rather than buy casually like they did in the past. So in general, we see that the big environment is normal. In addition, what the analyst just asked is that from July to August, China China China China China China China Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Okay, in terms of our question on the macro environment,
spk19: We see that consumption continues to be quite muted due to macro uncertainties. We don't know whether the consumption momentum is going to be sustainable. And as consumers are being quite cautious, discerning, and selective, we feel that it's quite uncertain going forward. Quarter-to-date, we see such trend continue, and that's why we see GMV growth quarter-to-date is pretty comparable to what we have seen in Q2, not too much improvement from the prior quarter. On the second question, in terms of apparel and non-apparel trends, We continue to see apparel outperforming non-apparel categories. Quota debate, we only see a slight decrease in terms of GME in apparel categories versus a wider a larger decrease in non-apparel categories. This is pretty much due to heightened industry competition. Everybody is looking at price comparisons and offering subsidies, which we don't actually follow. We choose not to follow at all costs. That, to some extent, makes our standardized items more successful to competition. In the second half, we plan to continue to stabilize our competitive badges with a pair of categories. Especially, we're going to continue to grow our SBIP customers and improve their frequency and average ticket size. And on the other hand, we're making a series of adjustments As to standardized items, we're trying to narrow its loss, and we'll be trying to bring this business segment back to Plattage and List. We plan to leverage our SBIP members to increase their cross-category purchases, as well as increase the intention from non-SBIP customers as well.
spk09: Thank you.
spk11: Thank you. Now we're going to take our next question. And the question comes to Lan of Alicia Yap from CT. Your line is open. Please ask your question.
spk13: Hello. Thank you.
spk14: Um, Now, how many SKUs are there in our special brand? And how many GNVs are there in this quarter? And is the price and the rate relatively high? If you can share more information. And the second question is actually about uh uh Thanks, management, for taking my questions. I have two questions. First is that I'm just wondering if management can share some of the operating metrics for VIP, the customized products in terms of the number of SKU under these customized products and how much of that is actually contributing to this quarter GNV and also you know, the ASP and the margins is higher than the anonymized product. And then the second question is, just wondering, because I know that the SBIT members should be remaining very sticky and resilient, just wonder if management has also observed any change of their behavior recently For example, are these SVIP members also looking for more lower ASP, those value for money products, or they are actually buying slightly less frequent than before? Thank you.
spk06: Let me answer the first question about the special goods. On the whole website, if we sell more than 40% of the clothes, we are a product that is different from others. Some of them are custom-made for us by the brand. Some of them are custom-made for us by the brand. In fact, some brands give different brands, but they are custom-made for us. In this, we will continue to insist because what we want is a well-known brand. There are more good things and more discounts. In addition, we also try to hope that the goods sold by everyone are different. In this way, to avoid this kind of malicious competition, we will continue to strengthen in this. We will be doing special sales, which is good goods and low prices. This is what we will not change. So in the future, we will actively do big and do deep in this area. Then the second aspect is to ask about SVIP. Our SVIP is still relatively stable. But this year we will find that the price of the customer's unit price has not changed. Only in terms of shopping quality, Q2, Q3, we will continue to I don't want to ask you if you don't have them. I want to keep up. I don't want to ask you if you don't have them. I want to keep up. I want to keep up. So even if, because SVIP is actually more, it will increase our return rate, because SVIP buys more and retires more. But we think the overall calculation is still worth it, because our SVIP consumption up is much higher than non-SVIP consumption. The overall up is much higher. So overall, our current SVIP is basically stable. So we hope to continue to increase and expand.
spk19: In terms of customized products, actually, it's part of our unique offerings on our platform. Within apparel categories, we have over 40% unique offerings, including customized products, exclusive access to brand inventory, and deep discounted products like those SKUs with 70% of retail price. So it's a combination of the great merchandise, the great prices that we offer to our customers. And going forward, we will continue to deepen our differentiated product offerings to avoid direct competition with our peers. On the second question regarding SVIP customer traction, actually we see we have a very solid foundation of SVIP customers whose average ticket size remains quite stable. But we do see their shopping frequency has been slightly less than before, roughly about 2% to 3% compared to the time they used to shop on our platform. We think these frequencies, although antipressure is quite manageable, we don't see a very significant change. and the behavior of SDIP customers. And we do see a lot of potential of growing our SDIP customer base in the coming quarters, especially leveraging our service capabilities, leveraging their trust on our platform because we focus on quality branded offerings instead of, you know, and stay away from cheap knockoffs So that's why we are confident that we will continue to grow the base of SVIP customers as well as their R pool. Admittedly, with higher SVIP contribution, we will see return rates tick up a little bit, but mathematically, it's very attractive. We do have very attractive returns in terms of LPCs. Because in terms of ,, they spend much more as compared to a non-admin IP customer.
spk07: Thank you. Now we're going to take our next question.
spk11: And the next question comes from the line of Andre Chang from JP Morgan. Your line is open. Please ask your question.
spk05: Good evening, Manager Chen. I have two questions for you. The first is about how we will consider investment and our margins. If we look at the three seasons now, it is estimated that it will drop 5 to 10 points of revenue. This means that the company may still focus on using the financial resources in hand more carefully. It may not deliberately lower the price or increase the number of customers. It is still focused on using our goods to attract more natural customer feedback and transactions. Is the margin normal compared to the previous two seasons? How do we think about the margin in the second half of the year? Another question is about financial investment. I noticed that the cash flow in the second quarter Thank you management for taking my question. My first question is about margin and the investments. Judging from this 5% to 10% year-on-year decline over third quarter revenue, does that mean the company will remain highly disciplined on investment of marketing use acquisition? So the third quarter, second half margin will remain supported? Considering there's a normalization of margin in the second quarter versus the previous few quarters, how should we think about the margin trend in third quarter and the second half? And my second question is about the operating cash flow. Despite a very decent profit, we see operating cash outflow in the second quarter, which is rare. Can management highlight what's the reason behind it? Thank you. 我回答第一个问题就是关于整个公司对未来的这个发展的资金分配 就是说我们其实整体就是说还是会积极获客 只是呢我们公司有一个严格的标准就LTV评估的标准就是到了这个点 我们就停了就是说不再就是说因为我们觉得花过来的就是新客带回来的话太贵了
spk06: We can't go back for a few years, so we stopped. But our current strategy is a little bigger than last year's strategy. Because we feel that the environment is not good now, we still have to increase the number of customers. But there will be a degree, so this year we will also actively look for more new customer channels, right? Including cooperation with many platforms, etc. That is to say, more channels. But we still insist China China China China Thank you. In addition, the cost of logistics may be higher than the original normal, because the overall return rate is higher than the original, so the cost of logistics operation will be higher. So in general, our entire investment is still relatively stable. We expect that in the second half of this year, And we also have this principle, that is to say, because our current growth is negative growth, that is to say, we can't say that today we encountered this negative growth, we made a fool of ourselves, and we ended up losing our profits. So in general, we are still relatively stable. We ourselves estimate that Q3 to Q4 profits will not be as good as last year. But we think it's not bad. It must be a very stable state. So this is my answer to
spk19: Okay, first let me translate Eric's comments in terms of a question on investment. We continue to proactively acquire customers and we have to some extent relaxed our threshold as to ARTV in terms of customer acquisition. So we are prudently investing in new channels. But we continue to be quite disciplined. We continue to evaluate the effectiveness and the efficiency of customer acquisition from different perspectives. After all, we haven't found a very good channel for us to acquire customers. So we will remain disciplined in terms of marketing spend for the second half. Marketing wise, on the KP margin side, we are confident it's going to remain quite stable. And because our brand partners are under a lot of pressures nowadays, they have to bid for invest additional dollars for traffic and for returns of goods, et cetera. But our philosophy of working with brand partners is always to create a win-win situation. So we are not going to increase our takeaway for brand partners. We don't want to create additional burdens for them. So GP margin will remain quite stable. And on the expense side, we do foresee a little bit higher fulfillment expenses with the return rates still going slightly higher. So, we probably don't see too much operating leverage from fulfillment. Overall, we believe that in the second half, we will continue with our present investments. net profit in absolute dollar amount will be quite manageable as compared to last year. Although net profit may not be as good as the second half of last year, it should be quite comparable.
spk08: Okay. A second question regarding the operating cash flow. Let me answer your question.
spk24: Okay.
spk08: The net cash from operating activities for the second quarter decreased primarily due to the following reasons. The first one is the revenue decline year over year. And the second reason is this year, 618 promotion, I mean the shopping festival, started in the middle of May. So which means we need to pay the related costs and expenses to our suppliers in June instead of July. And the third reason is that state administration of taxation advocates the implementation of fully digitalized e-FAPL system this year, and which means the recipient of FAPL is earlier, a little bit earlier. So in this connection, we pay our supplier a little bit faster than that in last year. So these are the three main reasons for the operating cash flows change.
spk07: Excuse me, Andrew, any further questions?
spk09: No, thank you.
spk11: Thank you so much. Now we're going to take our next question. And the next question comes from the line of Ronald Kong from Goldman Sachs. Your line is open. Please ask your question.
spk17: Thank you, Mark.
spk16: I would like to ask two questions. First, there may be a gap foreign foreign I think it's a little bit different. Maybe people buy more to maintain the unit price, but in the end, they withdraw more. So our unit volume is down, GNP is flat, and the withdrawal rate seems to have improved. Secondly, I would like to ask about our technology and content. Maybe it's the only improvement in our commercial expenses. So I want to know where we invest. And now, with some pressure from the revenue, is there any Thank you, management. I have two questions. One is I see that the GMB and revenue has a gap, so that the return rate has gone up. When I see the order volume, it has gone down while GMB has been flat. So thinking about these relationships, is it fair to say people are still buying a bit more despite the macro environment to get the free delivery and then return more of the items? Is that some of the dynamics that we're seeing? Second is I see the technology and content cost has gone up versus the kind of muted revenues. So where are we investing in technology? Do we see some room to streamline or cut some of these costs given the sort of headwinds on the revenue side? Thank you. 我回答第一个问题就是我们看到就是说其实我们现在的退货率啊就是我们去年受退货率的影响比较大今年的退货率的影响比去年少那比如说啊大概如果财报上看啊
spk06: uh China China China China China China China So, In terms of your question on GME and the revenue gap, it's a result of the return rate. A return rate actually is trending a little bit higher, but has
spk19: moderated a lot from the growth of last year. It's translated into impact on revenue. Last year, we had 2% impact on revenue from return rate, 3% versus 2% for this year. So return rate has been managed relatively well and has started to stabilize on our platform. In terms of average order size versus the total number of orders, we actually don't see too much change with average order size as consumers are still sticking to the brand they prefer. So they don't intentionally buy cheaper. They're just buying slightly less as compared to before because they are becoming more selective and a little bit discerning, especially when they want to choose when and where to shop. So we don't see too much change in terms of consumer behavior, especially the SVIP customers. And the second question regarding technology and content investment. Since last year, we have made meaningful investments in large models, including talent, service, et cetera. We will continue to invest on this front because we believe technology enhancement is very important to driving long-term value, especially given our large scale of customers and data, we do see a lot of room for improvement. We believe a prudent investment in technology and content will be value accretive over the long term. As a percentage of total revenue, technology and content is going to be a little bit higher, but not too much, and it's totally manageable.
spk09: Thank you.
spk07: Thank you. Now we're going to take our last question for today.
spk11: And the question comes to the line of Jialong Shi from Nomura. Your line is open.
spk15: Please ask your question. Thank you, Manager Chen, for accepting my question. I have two questions. The first question is, we have recently heard some In terms of channels, since the beginning of this year, some e-commerce platforms seem to have reduced the demand for low-priced products, including clothing products. So I would like to ask, as Weiping, which is a very important channel in the clothing category, have we seen any changes in the demand for low-priced products have some slack. If there is slack, how will this affect us in the second half of this year? The second question is two follow-up questions. One is, what is the ratio of our current income and gross profit from the standard product? Then the second follow-up is the current number of SVIPs and the contribution ratio of its GNV. Thank you. I will translate it myself. I have two questions. One question is about our hearsay from our industry checks. We heard from some China check that some major Chinese e-commerce platforms appear to have loosened the requirement on low prices for certain categories, including apparel category. So just wondering if VI, VIPS has seen any changes in the operating environment and if there is a loosening on low prices by competitors, what are the possible impacts on VIPS second half outlook? And my second question is a follow up and just wonder what is the percentage of sales and the gross profit generated by the standardized items? And also, what is the latest quarterly number of SVIP customers and their contribution to the online GME? Thank you.
spk06: China China So, we think that we can better play our brand's advantage in the future. Because the competition will continue, we need to think of ways to do better. The second point is to ask about the trade-off between standard and non-standard. In general, the trade-off between standard and non-standard is higher. But if we look at the progress, because the return rate of the standard product is relatively low, so in general, the standard product has made a good profit for our company. So we are thinking about this year, that is, we have lost a lot of standard products, and we have lost a lot of clothes. So we are fighting to make more profit on the standard product, and to get more business back. So this is a good thing for our profit anyway. Okay, in terms of your first question on low-price strategy,
spk19: We continue to see low price competition going on within the industry. There are a lot of promotion subsidies and we will continue to see that momentum going forward. But for VIP shop, we continue to focus on quality brand. merchandise and we try to offer our customers with good products at great prices. we are not chasing for business scale. We focus on delivering value to our customers. And we'll continue with that strategy. And in addition, on the quality side, we focus on building a trusted portfolio of brands to our customers. Actually, starting from this year, we cleaned up quite a lot of merchants or brand partners with low-quality product offerings. So we only focus on those quality brands and focus on quality products. On the second question, regarding a GC margin for apparel and non-apparel, apparel carry a little bit higher GC margin than non-apparel categories. But to the bottom line, actually, because standardized items have much lower returns, so they have pretty good contribution flowing to the bottom line. In the second half, we'll try to bring the business of standardized items back to growth track so that they can have positive impact on the entry margin as well. Lastly, on SVIP customer base, we have 7.4 million active SuperVIP customers by the end of second quarter. They accounted for roughly 47% of our online spending.
spk07: Thank you.
spk11: Due to time constraints, this concludes today's Q&A session. At this time, I will turn the conference back to Jessie for any closing remarks.
spk19: Thank you for taking the time to join us today. If you have any questions, please don't hesitate to contact our IR team.
spk07: We look forward to speaking with you next quarter.
spk11: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day. Thank you. Thank you. Thank you.
spk01: Thank you. music music you
spk11: Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings Limited's second 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.
spk07: Thank you, operator.
spk19: Hello, everyone, and thank you for joining VIP Shop's second quarter 2024 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 call to extend any forward-looking statements may be made. Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income per ADS, are not presented in accordance with US GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen.
spk06: Good morning and good evening, everyone. Welcome and thank you for joining our second quarter 2024 earnings conference call. In the face of multiple headwinds in the external environment, we had a slower momentum in our business. Our team focused on staying agile to respond quickly to external changes and achieving operational excellence. In the second quarter, Sales was under pressure of the high base and aimed cautions customer sentiment. Apparel categories held up relatively well. GMV generated from co-brands and SPF members showed resilience for the full quarter. We see this as an indication of the fundamental strengths of our business. Customer traction remained mounted. Reflecting our cautious approach to marketing spend aimed a challenging backdrop. However, Axios SVIP members increased by 11% from a year ago and accounted for 40% of our online spending. That's encouraging as a hardcore customer cohort with the most resilient spending power continues to recognize the unique value of shopping with us. Given that we are facing ongoing uncertainties in the near term, we focus on the long-term thinking that positions us for continued growth in the years ahead. Even as the patterns of spending evolving, the key factors that did mine where customers choose to shop have not changed. We are sharpening our focus on enriching merchandising offerings, highlighting Affordability throughout our assortment will ensure a worry-free experience. Together, these have been the co-competence that has helped us navigate difficult times. Among the business highlights, we are pleased with the steady flow of the quality blend inventory. Thanks to our merchandising capability from a strong team of talents across categories, We now adapt more quickly to emerging trends, which is important to driving growth by delivering what customers look for. In the first half, we select more than 600 well-known brands to our platform, including a mix of mass brands, new trendy brands, and affordable luxury brands in much richer selections. Our layered approach to brand portfolio is well suited to meet the ever-changing customer needs across income and age cohorts in different regions. We are also encouraged by the steadily progress in the Made for VIP line of customized products. In the second quarter, GMV from Made for VIP increased more than 140% from a year ago. Our know-how and expertise in apparel enabled brand partners to customize more differentiated products at great price, which were welcomed by many customers. We see a meaningfully higher portion of customers repeatedly purchase customized products than they do in the general apparel category. and the conventions made for VIP have been consistently higher than the average levels seen within the same brand and the same category. Beyond that, we continue to focus on delivering value, providing the right brand of great pricing and quality to our customers. We consistently optimize the ways we work with brand partners to ensure we could generate more savings for our customers. Recently, we launched some new channels, future time-limited promotions and everyday low price. These are designed to help our customers make the most of their budget while also providing reliable resources for brand partners to present their best deals. On the other hand, in enhancing quality control, we have been working hard this year to help customers select a trusted portfolio of brand products by increasing quality inspection throughout our supply chain. In addition, we are adapting and refining our approach to customer engagement. In the second quarter, for SBIP members, we continue with the launch of provide sales and special offering, both online and offline. We intend to increase the deep of our loyalty program to serve there uniquely. For young customers, we tailored the layout and design of our homepage, created specialized channels, and made personalized recommendations that better cater to our performance. In the face of the temporary volatility on the top line, we continue to work on the long-term efficiency through process optimization, and technology enhancement across business lines, among other things. For example, we continuously upgrade our merchandise platform to further improve the productivity of our team while serving brand partners. This has motivated brand partners to invest while generating better ROI on technology. AI capabilities and are increasingly applied to search, recommendation, and intelligence shopping assistance to provide the customer with inspiration and improve conversions. We have a fundamentally solid business model that's also inherently flexible, but we have much more work to do and we are on it so that we can quickly pivoted as customer priority changed. As we move ahead, we believe that as long as we stay close to our customers, continue investing in our merchandising capabilities, and consistently execute on the discount retail fundamentally, we will be positioned for continued growth over the long term. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.
spk08: OK. Thanks, Eric, and hello, everyone. We delivered another quarter of solid profitability despite ongoing pressure on the top line growth. As we remain responsive to the evolving environment to weather external challenge, we managed to optimize our operational efficiency and achieve healthy margins, specifically consolidated gross margin increased to 23.6% from 22.2% a year ago, thanks to higher margin category mixed from apparel sales and a series of cost saving matters. Non-gap net margin attributable to VIP shop shareholders remained at a high level at 8.1%. Reflecting our disciplined approach to managing our business. In the midst of macro and competition dynamics, our goals are to balance growth with profitability and protect the long-term health of our business. Well, our outlook for the near term has softened. We remain confident in our unique positioning. to drive sustainable and profitable growth in the long run. With that, we are committed to returning significant cash to our shareholders. We accelerated our pace of share buyback with over $200 million having been utilized during the second quarter. In addition, A new share repurchase program of up to $1 billion will be in place after we fully utilize the remaining amounts under the existing program. And as we mentioned on our last earning call, we plan to commit no less than 75% of our full year non-GAAP net income attributable to VIP shops shareholders through discretionary share repurchase and dividend distributions. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented below are in人民币. and all percentage change year-over-year change, unless otherwise noted. Total net revenues for the second quarter of 2024 were RMB 26.9 billion, compared with RMB 27.9 billion in the prior year period. Gross profits increased by 2.2% year-over-year to RMB 6.3 billion from RMB 6.2 billion in the prior year period. Cost margin increased to 23.6% from 22.2% in the prior year period. Total operating expenses decreased by 4.2% year-over-year to RMB 4.3 billion from RMB 4.5 billion in the prior year period. As a percentage of total net revenues, total operating expenses decreased to 16.0% from 16.1% in the prior year period. Fulfillment expenses decreased by 0.8% year-over-year to RMB 2.16 billion from RMB 2.18 billion in the prior period. As a percentage of total net revenues, fulfillment expenses was 8.1% compared with 7.8% in the prior period. marketing expenses decreased by 17.0% year-over-year to RMB 740.7 million from RMB 892.5 million in the prior year period. As a percentage of total net revenues, marketing expenses decreased to 2.8% from 3.2% in the prior period. Technology and accounting expenses increased by 10.0% year-over-year to RMB 487.2 million from RMB 443.0 million in the prior period. As a percentage of total net revenues, technology and the content expenses was 1.8% compared with 1.6% in the prior year. General administrative expenses decreased by 6.5% year over year to RMB 900.7 million. from RMB 963.1 million in the prior period. As a percentage of total net revenues, general and administrative expenses decreased to 3.4% from 3.5% in the prior period. Income from operations increased by 16.5% year-over-year to RMB 2.2 billion or RMB 1.9 billion in the prior year period. Operating margin increased to 8.3% from 6.9% in the prior year period. Non-GAAP income from operations increased by 11.6% year-over-year to RMB 2.6 billion from RMB 2.3 billion in the prior year period. Non-GAAP operating margin increased to 9.5% from 8.2% in the prior year period. Net income attributable to VIP shop shareholders was RMB 1.9 billion, compared with RMB 2.1 billion in the prior year period. Net margin attributable to VIP shop shareholders was 7.2%, compared with 7.5% in the prior year period. Net income attributable to VIP shop shareholders per diluted ADS was RMB 3.49 compared with RMB 3.75 in the prior year period. Non-GAAP net income attributable to VIP shop shareholders was RMB 2.2 billion compared with RMB 2.4 billion in the prior year period. Non-gabinet margin attributable to VIP shop shareholders was 8.1%, compared with 8.6% in the prior year period. Non-gabinet income attributable to VIP shop shareholders for diluted ADS was RMB 3.91, compared with RMB 4.30 in the prior year period. As of June 30, 2024, the company had cash and cash equivalents and restricted cash of RMB 21.6 billion and short-term investments of RMB 1.9 billion. Looking forward to the third quarter of 2024, we expect our total net revenue to be between RMB 20.5 billion and RMB 21.6 billion, representing a year-over-year decrease of approximately 10% to 5%. Please note that this forecast reflects our current and a preliminary review of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A.
spk11: Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To retrieve a question, please press star 11 again. Dear analysts who are proficient in both languages, translate your question into Chinese as well. Thank you so much for your understanding. Mr. Ba will compile the Q&A. So this will take a few moments. And now we're going to take our first question. And it comes from Thomas Chong from Jefferies. Your line is open. Please ask a question.
spk03: Good evening, thank you for accepting my question. I have two questions. The first one is, can you share with us the current situation of Hong Kong, which is the impact of the consumption of waste? Can you share with us the current situation of GMV in July and August, and the future of GMV? And my second question is about the real pattern of the industry. My first question is about the consumer sentiment in macro uncertainties. Any color that can be shared about the monthly GMV trend, our expectations for the full year? And my second question is about the competitive environment. Can management comment about how we should think about the apparel and the standardized category? And how is the GMV growth for these two categories according to date? And any comment about the contribution about the apparel category right now? Thank you.
spk06: Let me answer the first question, which is to ask about the overall environment. We have seen that the overall consumer sentiment is low. The overall consumer sentiment is that they think that they should buy early rather than buy casually like they did in the past. So in general, we see that the big environment is normal. In addition, the analysis we just asked is that from July to August, We see that the situation continues to continue in July and August. We see that the overall consumer response is not much different from what we saw in 456. Basically, it's almost the same. Then the second one is what we see in the future. It's about our whole business. Because our business is divided into brand and standard products. Then we see it ourselves. For example, recently, Q2 and Q3. Actually, we ourselves. Taiwan Taiwan Taiwan OK, in terms of our question on the macro environment,
spk19: We see that consumption continues to be quite muted due to macro uncertainties. We don't know whether the consumption momentum is going to be sustainable. And as consumers are being quite cautious, discerning, and selective, we feel that it's quite uncertain going forward. Quarter-to-date, we see such trend continue, and that's why we see GMV growth quarter-to-date is pretty comparable to what we have seen in Q2, not too much improvement from the prior quarter. On the second question, in terms of apparel and non-apparel trends, We continue to see apparel outperforming non-apparel categories. Quarter to date, we only see a slight decrease in terms of GME in apparel categories versus a wider a larger decrease in non-apparel categories. This is pretty much due to heightened industry competition. Everybody is looking at price comparisons and offering subsidies, which we don't actually follow. We choose not to follow at all costs. That, to some extent, makes our standard sized items more successful to competition. In the second half, we plan to continue to stabilize our competitive badges with a pair of categories. Especially, we're going to continue to grow our SBIP customers and improve their frequency and average ticket size. And on the other hand, we're making a series of adjustments As to standardized items, we're trying to narrow its loss, and we'll be trying to bring this business segment back to Flattish and List. We plan to leverage our SBIP members to increase their cross-category purchases, as well as increase the intention from non-SBIP customers as well.
spk07: Thank you.
spk11: Thank you. Now we're going to take our next question. And the question comes from Lan of Alicia Yap from CT. Lan, is it open? Please ask your question.
spk13: Hello. Thank you.
spk14: um um And then the second question is, um um Thanks, management, for taking my questions. I have two questions. First is that I'm just wondering if management can share some of the operating metrics for the VIP, the customized products in terms of the number of SKU under these customized products and how much of that is actually contributing to this quarter GNV and also you know, the ASP and the margins is higher than an optimized product. And then the second question is, just wondering, because I know that the SBIT members should be remaining very sticky and resilient, just wonder if management has also observed any change of their behavior recently? For example, are these SVIP members also looking for more lower ASP, those value for money products, or they are actually buying slightly less frequent than before? Thank you. 我回答一下第一个问题就关于那个特殊商品,因为我们
spk06: On the whole website, if we sell more than 40% of our clothes, we are a product that is different from others. Some of them are custom-made for us by the brand. Some of them are custom-made for us by the brand. In fact, some brands give different brands, but they give us a special batch of goods. Then there are more good things, then more discounts. In addition, that is to say, we also try to hope that the goods sold by everyone are not the same. How can we avoid this kind of vicious competition? Then what we say is that we will continue to strengthen it in this. Because we say that Vipshop is doing special sales, which is good goods at a low price. So this is what we don't change. So in the future, we will also actively do big and do deep in this regard. Then the second aspect is to ask SVIP, that is, our SVIP and this plate is still basically more stable. But this year we will find that the customer price of users, that is, the price of customers, has not changed. Then there is only a very small drop in the shopping frequency, maybe two points to three points. So overall, we think it is controllable, that is, its annual, for example, a quarter of the shopping frequency, from just saying, maybe from 15 orders, It may become 14.5 units. It's just a small change, so we don't feel a special change. In addition, we will continue to increase our S-VIP ratio in Q2 and Q3 this year. We will convert more non-SVIP into S-VIP because we think that our S-VIP service is very good. 我们也给它精选 我们整个网站也不卖这种乱七八糟的东西 所以总体而言 我们认为把SVIP牢牢的巩固住 还是我们以后一个长期的策略 So even if, because SVIP is actually more, it will increase our return rate, because SVIP buys more and retires more. But we think the overall calculation is still worth it, because our SVIP consumption up is much higher than non-SVIP consumption. The overall up is much higher. So overall, our current SVIP is basically stable. So we hope to continue to increase and expand.
spk19: In terms of customized products, actually, it's part of our unique offerings on our platform. Within apparel categories, we have over 40% unique offerings, including customized products, exclusive access to brand inventory, and deep discounted products like those SKUs with 70% of retail price. So it's a combination of the great merchandise, the great prices that we offer to our customers. And going forward, we will continue to deepen our differentiated product offering to avoid direct competition with our peers. On the second question regarding SVIP customer traction, actually we see we have a very solid foundation of SVIP customers whose average ticket size remains quite stable. But we do see their shocking frequency has been slightly less than before, roughly about 2% to 3% as compared to the time they used to shock on our platform. We think these frequencies, although antipressure is quite manageable, we don't see very significant change. and the behavior of SDIP customers. And we do see a lot of potential of growing our SDIP customer base in the coming quarters, especially leveraging our service capabilities, leveraging their trust on our platform because we focus on quality branded offerings instead of, you know, and stay away from cheap knockoffs. So that's why we are confident that we will continue to grow the base of SVIP customers as well as their R pool. Admittedly, with higher SVIP contribution, we will see return rates tick up a little bit, but mathematically, it's very attractive. We do have very attractive returns in terms of LPC Because in terms of ,, they spend much more as compared to a non-SVIP customer.
spk07: Thank you. Now we're going to take our next question.
spk11: And the next question comes from the line of Andre Chang from JP Morgan. Your line is open. Please ask your question.
spk05: Good evening, Manager Chen. I have two questions for you. The first one is about how we will consider investment and our margins. If we look at the three seasons, it looks like the forecast may drop 5 to 10 points of revenue. This means that the company may still focus on using the financial resources in hand more carefully. It may not deliberately lower the price or increase the number of customers. It is still focused on using our goods to attract more natural customer feedback and transactions. Is the margin normal compared to the second quarter? How do we think about the margin in the second half of the year? Another question is that I noticed that the operating cash flow in the second quarter Thank you management for taking my question. My first question is about margin and the investments. Judging from this 5% to 10% young year decline over third quarter revenue, does that mean the company will remain highly disciplined on investment of marketing use acquisition? So the third quarter, second half margin will remain, you know, supported? Considering there's a normalization of margin in the second quarter versus the previous few quarters, how should we think about the margin trend in third quarter and the second half? And my second question is about the operating cash flow. Despite a very decent profit, we see operating cash outflow in the second quarter, which is rare. Can management highlight what's the reason behind it? Thank you.
spk10: Yes, I will answer the first question, which is about the entire company's funding allocation for future development.
spk06: That is to say, we are actually active customers overall. It's just that our company has a strict standard, which is the standard of LTV evaluation, which is that we will stop at this point. That is to say, it's not because we think the new customers brought back are too expensive. We can't go back for a few years, so we stopped. But our current strategy is a little bigger than last year's strategy. Because we feel that the environment is not good now, we still need to increase the number of customers. But there will be a degree. So this year we will also actively look for more new customer channels, including cooperation with many platforms, etc. That is to say, more channels. But we still insist on This degree, that is, if it exceeds our standards, then we will not vote. So in general, our market cost, we estimate that in the second half of this year, because we did not see some very good channels, if there are good channels, in fact, the cost is controllable. So in general, the market cost will not be too big. Then the other thing is that we are actually at the front end. In terms of labor, we are actually more stable. Then we are actually the overall Taiwan Taiwan Taiwan Taiwan In addition, the cost of logistics may be higher than the original normal. Because the overall return rate is higher than the original, so the cost of logistics operation will be higher. So overall, our entire investment is relatively stable. We expect that in the second half of this year, So this is my answer.
spk19: Okay, first let me translate Eric's comments in terms of a question on investment. We continue to proactively acquire customers and we have to some extent relaxed our threshold as LTV in terms of customer acquisition. So we are prudently investing in new channels. But we continue to be quite disciplined. We continue to evaluate the effectiveness and the efficiency of customer acquisition from different perspectives. After all, we haven't found a very good channel for us to acquire customers. So we will remain disciplined in terms of marketing spend for the second half. Marketing-wise, on the KP margin side, we are confident it's going to remain quite stable. And because our brand partners are under a lot of pressure nowadays, they have to bid for invest additional dollars for traffic and for returns of goods, et cetera. But our philosophy of working with brand partners is always to create a win-win situation. So we are not going to increase our takeaway for brand partners. We don't want to create additional burdens for them. So GP margin will remain quite stable. And on the expense side, we do foresee a little bit higher fulfillment expenses with the return rates still going slightly higher. So we probably don't see too much operating leverage from fulfillment. Overall, we believe that in the second half, we will continue with our present investments. So margins and net profit in absolute dollar amount will be quite manageable as compared to last year. Although net profit may not be as good as the second half of last year, it should be quite comparable.
spk08: Okay. For the second question regarding the operating cash flow, let me answer your question. The net cash from operating activities for the second quarter decreased primarily due to the following reasons. The first one is the revenue decline year over year. And the second reason is this year, 618 promotion, I mean the shopping festival, started in the middle of May. So which means we need to pay the related costs and expenses to our suppliers in June instead of July. And the third reason is that state administration of taxation advocates the implementation of fully digitalized e-FAPL system this year, and which means the recipient of FAPL is earlier, a little bit earlier. So in this connection, we pay our supplier a little bit faster than that in last year. So these are the three main reasons for the operating cash flows change.
spk07: Excuse me, Andrew, any further questions?
spk09: No, thank you.
spk07: Thank you so much.
spk11: Now we're going to take our next question. And the next question comes from the line of Ronald Kong from Goldman Sachs. Your line is open. Please ask your question.
spk17: Thank you, Mark. I would like to ask two questions.
spk16: The first is, between GMP and revenue, A. I think it's a little different in the red-light environment. Maybe people buy more to maintain the unit price, but in the end, they return more. So our unit volume is down, GNP is flat, and the return rate seems to be improving. Secondly, I would like to ask about our technology and content. Maybe it's the only improvement in our commercial cost. So I want to know where we invest, and now there may be some pressure in terms of revenue. Is there any Thank you, management. I have two questions. One is I see that the GMB and revenue has a gap, so that the return rate has gone up. When I see the order volume, it has gone down while GMB has been flat. So thinking about these relationships, is it fair to say people are still buying a bit more despite the macro environment to get the free delivery and then return more of the items? Is that some of the dynamics that we're seeing? Second is I see the technology and content cost has gone up versus the market So where are we investing in technology? Do we see some room to streamline or cut some of these costs given the headwinds on the revenue side? Thank you.
spk06: The first question I will answer is that we see that our current return rate, that is, we were affected by the return rate last year. Taiwan Taiwan Taiwan China China China China After all, we have so many users on it, so much data, including so many things that can be improved, using big models to improve, track and so on. So we think it's still valuable. So recently, we haven't cut the investment in this area. So just let them happen. Because after all, seeing the overall technical cost ratio will be high. But it's not much higher. We think we hope the future will bring us value. So we will continue to invest in this area.
spk19: In terms of your question on GME and the revenue gap, it's a result of the return rate. A return rate actually is trending a little bit higher, but has moderated a lot from the growth of last year. It's translated into impact on revenue. Last year, we had 2%. impact on revenue from return rate versus 3% versus 2% for this year. So return rate has been managed relatively well and has started to stabilize on our platform. In terms of average order size versus the total number of orders we actually don't see too much change with average order size as consumers are still sticking to the brands they prefer. So they don't intentionally buy cheaper. They're just buying slightly less as compared to before because they are becoming more selective and a little bit discerning, especially when they want to choose when and where to shop. So we don't see too much change in terms of consumer behavior, especially the SVIP customers. And the second question regarding technology and content investment. Since last year, we have made meaningful investments in large models, including talent, service, et cetera. We will continue to invest on this front because we believe technology enhancement is very important to driving long-term value, especially given our large scale of customers and data. We do see a lot of room for improvement. We believe a prudent investment in technology and content will be value-attractive over the long term. As a percentage of total revenue, technology and content is going to be a little bit higher, but not too much.
spk07: And it's totally manageable.
spk09: Thank you.
spk07: Thank you. Now we're going to take our last question for today.
spk11: And the question comes from the line of Jialong Shi from Nomura. Your line is open. Please ask your question.
spk15: Thank you for accepting my question, Manager Chen. I have two questions. The first question is, we have recently heard some channels say that since the beginning of this year, some e-commerce platforms seem to have reduced the demand for low-price products, including clothing products. So I would like to ask, as Weiping is a very important channel in the clothing category, Have we seen a drop in the price of clothing? If there is a drop, what will be the impact on us in the second half of this year? The second question is two follow-ups. One is our current income I have two questions. One question is about our hearsay from our industry checks. We heard from some channel check that some major Chinese e-commerce platforms appear to have loosened the requirement on low prices for certain categories, including apparel category. So just wondering if Vips has seen any changes in the operating environment and if there is a loosening on low prices by competitors, what are the possible impacts on Vips second half outlook? And my second question is a follow-up. And we just wonder what is the percentage of sales and the gross profit generated by the standardized items? And also, what is the latest quarterly number of SVIP customers and their contribution to the online GNV? Thank you.
spk06: Then the first question is to ask the overall situation of the current low price. So in general, we look at this year, this year, because the overall environment is really bad. So each platform is actually looking for a low price. So we have been looking at the situation recently. It's still going on. That is to say, everyone is still looking for a low price. In addition, the discount activities are done twice or three times. So each platform is as low as possible. Then so we say that we generally see the future should still be such a situation that for us to say that we actually overall because we are We are a well-known brand so we are a well-known brand low price so so we hope So as much as possible to provide good things to users, not bad things, including our own In fact, this year, we also cleared a lot of unreliable brands and merchants on the website, etc. So in theory, we don't think we are pursuing business, but we are pursuing users who feel valuable after buying. So we ourselves think that how can we better play our brand special sales advantage in the future? Because this competition will continue, so we actually have to find a better way to do it. Then the second point is to ask about China China China Currently, we have lost a lot of trademarks, and we have lost a lot of money. So we are trying to make a profit on trademarks, and get more business back. So this is a good thing for our profits. The third one is to ask, our SVIP is now 7.4 million. So we have these users, because we have 8-9 million annual users, but these 7.4 million users will contribute 47% of their sales per year.
spk19: Okay, in terms of your first question on low-price strategy, we continue to see low-price competition going on within the industry. There are a lot of promotion subsidies, and we will continue to see that momentum going forward. But for VIP shop, we continue to focus on quality brands. merchandise and we try to offer our customers with good products at great prices. We are not chasing for business scale. We focus on delivering value to our customers and we'll continue with that strategy. In addition, on the quality side, we focus on building a trusted portfolio of brands to our customers. Actually, starting from this year, we cleaned up quite a lot of merchants or brand partners with low quality product offerings. So we only focus on those quality brands and focus on quality products. On the second question, regarding GC margin for apparel and non-apparel, apparel carry a little bit higher GC margin than non-apparel categories. But to the bottom line, actually, because standardized items have much lower returns, so they have pretty good contribution going to the bottom line. In the second half, we'll try to bring the business of standardized items back to growth track so that they can have positive impact on the entry margin as well. Lastly, on SVIP customer base, we have 7.4 million active super VIP customers. by the end of second quarter, they accounted for roughly 47% of our online spending.
spk07: Thank you.
spk11: Due to time constraints, this concludes today's Q&A session. At this time, I will turn the conference back to Jessie for any closing remarks.
spk19: Thank you for taking the time to join us today. If you have any questions, please don't hesitate to contact our IR team.
spk07: We look forward to speaking with you next quarter.
spk11: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
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