Vipshop Holdings Limited

Ladies and gentlemen, good day, everyone, and welcome to the VIP Shop Holdings Limited Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, I'd like to turn the call to Ms. Jessie Zheng, VIP Shop's Head of Investor Relations. Please proceed.

Thank you, Operator. Hello, everyone, and thank you for joining VIP Shop's Fourth Quarter and Full Year 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 relief and public filings with the Securities and Exchange Commission, which also applies to this call to the expense that 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 attributable to VIP shop shareholders, 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 measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen.

Good morning and good evening, everyone. Welcome and thank you for joining our fourth quarter and full year 2024 earnings conference call. We delivered a set of results well above our expectations in the fourth quarter to finish a challenging year, while consumers still spend cautiously in these central categories. Our team has proactively driven changes to address growth priorities with a focus on retail fundamentally and strong execution. At the category level, we saw some strength in apparel, which turned into positive growth in the first quarter of a high base. Our team moved swiftly to include more unique, off-price seasonal offerings that meet custom needs, especially in sportswear and outdoor products. For the full year, apparel categories were up 2% from a year ago, accounting for 75% of our total GMV. the highest level in our history that helped us once again across RMB 200 billion in total annual sales. Our non-apparel business also clearly narrowed its loss of sales in the fourth quarter, driven in part by the outperformance in home appearance and digital products as we capture growth opportunities from the government trade-in programs. On the custom front, Super VIP memberships extended its double-digit growth, which is a strong validation of our team's commitment to delivering a differentiated experience. In the fourth quarter, active Super VIP increased by 50% from a year ago and accounted for 51% of our online spending. On an annual basis, We had a total of 8.8 million active SVIP members who contributed 49% of our online spending last year. We are encouraged by this initial improvement after we identified key near-term actions in each area and moved with urgency. In merchandising, we are getting shaped on brand and product portfolio to stay highly relevant to customer needs Value is on the full display through a serious operational adjustment and target incentives that help our customers shop for holidays and seasonal promotions. And we are engaging more with family shoppers with a more balanced assortment of apparel and non-apparel products to drive in sentimental growth in frequency and multi-category purchases. With these changes, we are better positioned going into 2025. Importantly, we remain very committed to our long-term strategy in discount retail for brands, and we dedicate our efforts to the long-standing factors that have been successful in driving quality growth. That includes our unique business model, A merchandising approach with no compromise on quality and authenticity. A strong focus on values that include low price and compelling views and suits of the service that highlights reliability. All these are put together through a differentiated strategy. More specifically, the business highlights We continue to invest in our merchandising capabilities to become even more reliable destinations for our customers. Following three years' initial enhancement program, our team has been reshaped, developed new expertise and mastered how to work in more impactful ways. We brought in over 1,500 new brands last year, including officially partners with many high-profile global brands. We built deeper relationships with several hundred co-brands, secured great in-demand value for money offerings throughout the year, and managed our product portfolio on a great level of breadth and depth. Most recently, our team has started to dive deeper, category by category, to seek opportunities by further expanding in the brand supply that we expect customers to truly feel the terrier hunting excitement. Another area of focus has been adding more unique supply to make our differentiated product offering even better and bigger. The made-for-VIP line did become a meaningfully driver for more than 200 brands who have joined the program last year. We saw persistent strength in sales all year long, benefiting from quality custom and repeat orders, as well as clearly better conventions and compared to the general merchandising within the same brand categories and price range. with some brands up to 20% of their sales on our platform came from made-for-VIP last year. Turning to customers, they remain largely pressured but were willing to spend when they find the right balance of quality products and a compelling price. Our SVIP customers are clearly more resilient and have a strong response to promotions and subsidies because of the real value we provide for them. In addition, they find it enticing to get even better deals through the provided sales and special offers. We are happy to see that SVIPs continue to spend much more and more frequently than the regular custom, and the vast majority of them have renewed their memberships with us. Given how fast things are changing, it is all the more important to put technology to work to drive growth and efficiency. We have made relentless efforts to optimize search and recommendations. which starts to incrementally improve customer experience and the conventions. In addition, we are using the last general AI model to help our team work in the more productivity way, enable them to serve brand partners and the customer with greater efficiency. We have made initial attempts and applications case such as shopper guide, marketing contents, customer service, and analyze tools for brand partners. Despite ongoing uncertainty, we are confident in a long-term development of our business, giving the continuity of our strategy, the merchandising strengths we are building upon, and the growth initiatives we are taking in merchandise expansion and deepened engagement with different companies customer cohorts. Most importantly, we have infused more flexibility into our business to compete and win in an environment where customers are focused on value. We are confident in our ability to move beyond the current situations and return to sustainable and profitable growth in the long term. At this point, Let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Okay. Thanks, Eric, and hello, everyone. In the first quarter, we achieved a better balance in our business. We took swift and disciplined actions to reallocate resources that maximize growth while preserving solid profitability. Helpline came in better than our guidance. as our team has made every endeavor to seize growth opportunity in both apparel and non-apparel business. Leaning into categories where we know customers, we're trying to get ready for holidays, seasonal, or family meets. Growth margin decreased year over year, but remained at a decent level of 23%. Reflecting our steps up, investment in customer incentives to drive quality growth. On a full year basis, gross margin is an eight-year high of 23.5%, benefiting from the all-time high contribution from our apparel business. With an improved business scale and a consistent execution on operation efficiency. Our bottom line held up pretty well in both absolute profit and margin in the quarter. This helped us record over 9 billion RMB in full year non-GAAP net profit attributable to VIP shop shareholders at a solid margin of 8.3%, which was largely comparable to a year ago. as we await consumer discretionary spending to normalize over time. We believe we are on the right track to returning to healthy growth in the foreseeable future. We continue to move at pace and align our focus around merchandising, core categories, value offering, and customer impact. These growth initiatives are well supported by the spend in profit and cash generation capability. Turning to capital allocation, in 2024, we returned a total of approximately $770 million to our shareholders through annual dividend and buyback. For 2025, as we consistently communicated, we will return no less than 75% of our full year 2024 non-GAAP net income attributable to VIP shareholder in a combination of annual dividend and buyback. This reinforce our commitment to shareholder value creation in the long term. 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 German B, and all the percentage teams are year-over-year teams, unlike otherwise noted. Total net revenues for the fourth quarter of 2024 were RMB 33.2 billion compared with RMB 34.7 billion in the prior period. Gross profit was RMB 7.6 billion compared with RMB 8.2 billion in the prior period. Gross margin was 23.0% compared with 23.7%. in the prior year period. Total operating expenses was RMB 5.1 billion compared with RMB 4.9 billion in the prior year period. As a percentage of total net revenues, total operating expenses was 15.2% compared with 14.0% in the prior year period. Fulfillment expenses decreased by 2.5% year-over-year to RMB 2.46 billion from RMB 2.53 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 7.4% compared with 7.3% in the prior year period. Marketing expenses increased by 10.3% year-over-year to RMB 930.3 million from RMB 843.2 million in the prior year period. As a percentage of total net revenues, marketing expenses was 2.8%, compared with 2.4% in the prior year period. Technology and accounting expenses decreased by 5.5% year over year to RMB $469.2 million from RMB $496.4 million in the prior year period. As a percentage of children and revenues, technology in the content census was 1.4%, which states like as compared with that in the prior year period. General and administrative expenses increased by 20.0% year over year to RMB 1.2 billion from RMB 1.0 billion. in the prior year period. As a percentage of total net revenues, general and administrative expenses were 3.6%, compared with 2.9% in the prior year period. Income from operations was RMB 2.9 billion, compared with RMB 3.7 billion in the prior year period. Operating margin was 8.6%, compared with 10.6% in the prior period. Non-GAAP income from operations was RMB 3.4 billion, compared with RMB 4.0 billion in the prior period. Non-GAAP operating margins was 10.2%, compared with 11.4% in the prior year period. Net income attributable to VIP shop shareholders was RMB 2.4 billion, compared with RMB 3.0 billion in the prior year period. Net margin attributable to VIP shop shareholders was 7.4%. compared with 8.5% in the prior period. Net income attributable to VIP shop shareholders per diluted ADS was RMB 4.69 compared with RMB 5.35 in the prior period. Non-GAAP net income attributable to VIP shop shareholders was RMB 3.0 billion, compared with RMB 3.2 billion in the prior year period. Non-gap net margin attributable to VIP shop shareholders was 9.0%, compared with 9.2% in the prior year period. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS was RMB 5.70 compared with RMB 5.79 in the prior year period. As of December 31, 2024, we had cash and cash equivalents and a restricted cash of RMB $27.0 billion in short-term investments of RMB $1.9 billion. Now, I will briefly walk through the highlights of our full year results. Total net revenues were RMB $108.4 billion, compared with RMB $112.9 billion in the prior year. Gross profit was RMB 25.5 billion, compared with RMB 25.7 billion in the prior year. Gross margin increased to 23.5% from 22.8% in the prior year. Income from operations. increased by 0.8% year-over-year to RMB 9.2 billion from RMB 9.1 billion in the prior year. Operating margin increased to 8.5% from 8.1% in the prior year. Non-GAAP income from operations increased by 0.9% year-over-year to RMB 10.7 billion from RMB 10.6 billion in the prior year. Non-GAAP operating margin increased to 9.9% from 9.4% in the prior year. Net income attributable to VIP shop shareholders was RMB 7.7 billion, compared with RMB 8.1 billion in the prior year. Net margin attributable to VIP shop shareholders was 7.1%, compared with 7.2% in the prior year. Net income attributable to VIP shop shareholders per diluted ADF was RMB 14.35 compared with RMB 14.42 in the prior year. Non-GAAP net income attributable to VIP shop shareholders was RMB 9.0 billion compared with RMB 9.5 billion in the prior year. Non-GAAP net margin attributable to VIP shop shareholders was 8.3%, compared with 8.4% in the prior year. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS was RMB 16.75, compared with RMB 16.90 in the prior year. Looking forward, to the first quarter of 2025. We expect our total net revenues to be between RMB 26.3 billion and RMB 27.6 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. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please repeat your question in English right after. Please stand by while we compile the Q&A roster. We will now take our first question from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.

Hi, good evening. Thanks, management, for taking my questions, and congratulations on a very solid set of results. My first question is about our Q1 revenue guidance. Can management comment about our year-to-date performance so far? Are we actually seeing we are more towards the low-end or the high-end of the guidance And can management also comment about the recent consumer sentiment? That's my first question. And my second question is about the 2025 outlook. Yes, I think it is a bit early right now, but it would be great if management can comment about how we should think about the revenue and the margin trend for the rest of the year. Thank you. Thank you for introducing my question. My first question is, I would like to ask more about our QE revenue management. Can you share with us the current situation in January and February? And when we look at our guidance, are we at the low end or the high end, that is, the status? And then I would like to ask more about the supply and demand system that we have seen recently. Have you seen any improvements? And the second question is still about the 2020-2025 year trend. Can you share with us the trend of this year from the income side and the margin side? Thank you. Okay, let me answer.

The first question is the trend of this year in January and February. This year, because the Chinese New Year time is different, so it's a little strange to look at January alone or February alone. 那个错位还比较多 所以我们如果把一二月份加总起来看 都算比较正常 那么我们其实认为 其实整体的那个就消费者的 这个购物的热情跟他的购物啊 比原先稍微好一些啊 但不是这种叫大幅增加 比原来稍微好了一些 那么另外呢就是包括 因为现在时间还没到 那么比如说我们是到三月份嘛 我们认为反正QE是零到负是没有问题。 那么第二个呢就是问全年的整体的思路啊 我们呢因为去年如果其实GMV增长的不好 去年全年啊 那么我们其实基本上是持平 那么包括因为退居率的增加 那么全年其实是负的 那么我们其实今年给自己的目标是 整体要往正向就GMV可能要正向 那么另外呢就是我们其实总体还是稳健政策啊 就包括说 The growth of the business, including what we call the guarantee of profit, then the overall is what we say on the basis of these on the basis of the guarantee of profit as much as possible. So, for example, we can spend more money on user growth, including expansion and sales. So, in general, our overall policy for 2025 is basically to stabilize as the bottom, and then to fight for greater growth.

Okay, as for Q1 revenue guidance in terms of the year-to-date trend, because of the different timing of the spring festival, it's not that ideal to look at single months in January or February. If we look at January plus February today, I think that actually our business is on track within our guidance. And when we assess consumer sentiment, we believe it's actually slightly better than expected, although still we observe still takes time to be fully back on the recovery trend. But apparently, we think it's marginally better than prior quarters. And since it's still early into the quarter, and we have upcoming promotions in March when we started to see our spring apparel, and until then, we may have a clear picture of how the quarter is going to end, whether it's lower or higher end of the guidance. But for sure, we are on track for now. As for the full year of 2025, we think everything should get back to the positive trajectory. That's what we hope, whether it's GME or revenue. Last year, we did not that so well. GME was just slightly up. And because of the return rate, there is still some gaps between GME and revenues. Revenue is slightly down, but we believe this year we will make every endeavor to bring the business back in terms of every operating metric. Of course, we're going to pursue a high-quality and growth strategy as we have done consistently and we will try to make efforts to maximize our growth opportunities in terms of customer and revenue under the condition that we will maintain a solid profitability as well. We have an opportunity to invest a portion of our profit into growth opportunities, we will do that. But overall, we will try to make sure we will maintain solid profitability and maximize our growth.

Thank you.

Thank you. We will now take our next question from the line of Alicia Yap from Citigroup. Please ask your question, Alicia.

Okay, thank you. One is about 4Q, our super-expected performance. I would like to know more about the key driving factor. Is it because our marketing and promotion are more efficient? Or does it reflect some of the improvement of Hongguan? So two quick questions. First is that regarding your 4Q outperformance, just wanted to know a little bit more the drivers. So is that mainly because of your effective marketing promotion? Or is that also benefiting from some improvement of the macro environment? And then second question is, in your 4Q GMV, how much of that is actually benefiting or related to the trade-in benefits? Thank you.

Let me answer that. That Q4 piece, we see that on the one hand, the overall weather is still good. That is to say, we do not have this kind of too hot, nor do we say that it is very cold, but it remains the normal trend overall. So it is actually helpful for us to sell clothes. On the other hand, we also see that consumers, that is to say, the overall consumption is not as pessimistic as Q3, so it is also a bit helpful. In addition, we have also made some actions for ourselves. For example, we have also invested in strengthening the low turnover of good brands. In addition, we have also made a little bit of subsidies for ourselves. For example, if you see that our profit margin has dropped a little bit today, we will also make some subsidies on some good ones to attract more consumers. So in general, we think it is also a multiple factor, causing us to say that the overall expectation of Q4 is better than our original prediction. The actual Q4 is better than the prediction. In addition, in fact, the whole add-on subsidy has not helped our overall growth, because we are not selling add-on-based enterprises. We estimate that in about 24 years, Well, to your first question on Q4, it turned out to be well ahead of expectations due to a few factors.

First, I think it helped a little bit because we started to see consumers became a bit more active from the end of November into December when we see normalized weather conditions that helped our winter closing sales. And also, consumer sentiment, it was known as bad as we had thought it turned slightly better than prior quarters and of course we did a lot of proactive actions in terms of the merchandising portfolio and more in demand value for money product offerings and also we did some decent promotions in the subsidies targeting our high-value customers, which brought in additional growth opportunities. And to your second question on the related category benefiting from the trading program, it did help a little bit because we managed to narrow the loss of sales in our non-apparel business. But in terms of the absolute GMV is still not that meaningful. It's around 300 to 400 million in terms of incremental GMV from home appliances and the digital products in Q4.

Okay, thank you. Thank you. Next, we'll take questions from the line of Wei Xiong from UBS. Please ask your question, Wei.

Okay. Thank you, management, for accepting my question. Congratulations on the very strong performance this quarter. My question is about our profit. As mentioned earlier, the overall profit trend this year is very good. If we look at 2025, do we think there is room for further improvement? If there is, is the drive behind it from, for example, a higher service ratio or optimized user support? Thank you, management, for taking my question. First, I want to ask about the gross margin trend in 2025. Are we seeing further room to improve EON year on the basis of very good results for year 24? If there is, what are the drivers behind? And also, just to follow up on the net profit margin for 2025, given that we are trying to pursue the goal of GMV and revenue turning positive as soon as possible, are we expecting a stable net margin EON year? Or are we seeing further room to improve? And also, what's our latest judgment on the long-term sustainable net margin level for the company? Thank you.

We are preparing the overall net margin for 2025. In theory, we are not improving it. Because we are thinking about releasing it to better partners give them better conditions, or some, for example, we will appropriately give points and deduct points, or make some sales bets, then if we do it, we will release some red interest to them, so we actually feel that in terms of profit, we will no longer increase, then we will try to do some Let's change some of the growth of the performance, but what we think about the overall performance on the top We think that the performance ratio should be equal to last year, so we think we can do it Then include that is the whole year 25 years of performance is not to be able to increase more actually depends on my performance growth so if performance growth of China China China

In terms of the margin trend, GP margin, remember, we hit an eight-year high GP margin of 23.5% in 2004. So we actually think that's a very good level, and we can afford to invest a portion of the gross profit. For example, to our brand partners to incentivize them to bring in more merchandising and more deep discount inventory so that we can grow together. So we are thinking about prudently reviewing the tech rate levels with brand partners and allow them to have more opportunities for growing the business on our platform. instead of just maintaining a fixed GP margin for the platform. And turning to NP margin, we have a pretty good command of managing the cost and expense items. So we think, in terms of the NP margin, we are pretty confident that we can achieve a slattish level as compared to the past two years. And in terms of the profit dollars, we try to grow our profit dollars as much as we can. If we can, you know, grow into a better scale, and apparently that will take a lot of pressure on operating due leverage. And then we can achieve a greater NP margin, as well as a much better profit dollar level. So in terms of the margin profile, we have no concern on that, actually. We have pretty good command of both GP margin and NP margin.

Very clear. Thank you, management.

Thank you. Next question comes from the line of Jialong Shi from Nomura. Please go ahead, Jialong.

好的,谢谢沈亚总,Mark和Jesse, 晚上好,非常感谢接受我的这个提问。 我这里就是想问两个问题。 第一个问题就是最近这段时间的话, 就是这种AI技术, It is also a trend that many companies, including investors, are very concerned about in the industry. So I would like to take this opportunity to ask you, Mr. Shen, in our microfinance business or in the entire business chain, do you think there is a chance that in the future we can use AI to give our business can bring some breakthroughs. These breakthroughs may be an increase in efficiency or a decrease in cost. I don't know if you can share your observation with us. The second question is, I would like to ask the super VIP member, what is the trend of ARP and the frequency of consumption in the fourth quarter? I will translate it myself. So I have two questions. First question is about generated AI. So the AI has become a popular trend these days. So just wondering if there are any, excuse me, if there are any areas in this business where AI may help either improve profitability or reduce the cost. Just wondering if management can provide some colors. And the second question is wondering what is the trend for Apple and the shopping frequency of Super VIP members. Thank you.

We are actively investing in the AI application. But we don't do this kind of public use for C-end users. But in our own e-commerce shopping, for example, we are using Thank you. So much of this kind of customer customer conversation so we hope that this kind of words will have some progress with the original models and so on including we are also recently studying the analysis tools of this merchant so including How to get better goods on the VIP meeting so how to get better sales including what actions he has to do for example More discount more sku and so on so we actually think This AI will be used in our own internal e-commerce applications. We believe that the application is very wide-ranging and can greatly improve efficiency. But in terms of real user use, for example, we have also tried So this kind of user's question and answer, but at present, it is possible that this effect is still general. So we are actually still overlapping, including what the user asks today. What do we recommend to him? It's better not to spend a lot of time in it. So these are what we think will be some changes in the future. That is to say, including the overall shopping of the user, the overall decision-making in all aspects. In fact, we think it is a will have a big change. We think that although we are not an application company that does 2C in the front end, we should do well in the shopping industry and not fall behind. The second question is about SVIP. SVIP, if we look at the whole year, our overall up has fallen. Why is it that our new SVIP has grown a lot this year? Then we also look at, for example, in the past two years, it has always been an SVIP user. We see that the overall ARP has fallen slightly. So in theory, we are not worried about the quality of the entire SVIP client. Because our requirement is that the quantity and quality must improve at the same time. So we just asked about SVIP, right? This is the answer to this.

In terms of the AI application, actually, internally, we are moving very fast to investing to AI applications, including personalization, Q&A generation, and product recommendation, et cetera, on a number of application cases. Specifically, actually, we are deploying a deep seek internally as well. The immediate focus is, of course, to try to find opportunities to improve productivity as well as efficiency. For example, customer service, we're trying to see whether DeepSeq can be integrated in a self-developed model to improve the analysis and the reasoning of the many dialogues that are taking place on customer service every day. We're trying to find if there is an area of improvement And to brand partners, we are also launching new analytical tools to try to help them optimize their merchandising portfolio to promote their sales campaigns to see what kind of actions they should take to maximize business opportunities on our platform. So although we are not rolling out any 2C application publicly, but we are deploying AI and the latest AI models into our internal business cases on a broad basis and on the customer front so we are also trying to see whether we can leverage the latest AI model to improve the generation of Q&A and we are constantly upgrading the model and try to make our recommendation to customers even better and more precisely and more to their needs. So we are using AI applications in our internal business cases and we are tracking the developments and we look to leverage AI on a constant basis to find opportunities to drive both growth and efficiency. Second question on SVIP customer. Last year, in terms of annual ARPU, we did see a slight decline, but that's more of a dilutive impact from 16% increase in the annual active Super VIP customers. And it normally takes some time for a new SBIP member to run that spending. And if we look at the hardcore two-year customer cohort of our SBIP customer base, actually the ARP remains very resilient. only see a slight drop in terms of annual offers. So we think that the overall SBIP customer base is still very healthy and we look to expand the SBIP membership continuously and protect the overall health of the consumer group.

All right, thank you.

Due to time constraints, that concludes today's question and answer session. At this time, I'll turn the conference back to Jessie for any closing remarks.

Thank you for taking the time to join us today. If you have any questions, please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.