Vipshop Holdings Limited

Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings, Limited's first quarter 2025 earnings conference call. At this time, I would like to turn the call to Ms. Jessie Zhang, VIP Shop's Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining VIP Shop's first quarter 2025 earnings conference call. With us today are Eric Shen, our co-founder, chairman, and CEO, and Mark Wang, our CFO. Before management begins their prepared remarks, I would like to remind you that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause extra 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-GAP operating income, non-GAP net income attributable to VIP Shop shareholders, and non-GAP net income per ADS, are not presented in accordance with the U.S. GAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAP measures to GAP 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 first quarter 2025 earnings conference call. Our first quarter results came in largely as expected. We continued to make progress on our path to return to growth. Our team stayed ahead of trends to offer more unique and quality off-price seasonal items that were more relevant to customer preference. We see a parallel category achieved positive growth in the first quarter. Super VIP membership extends its double-digit growth. In the first quarter, active SVIP customers increased by 18% from a year ago and accounted for 51% of our online spending. This hardcore cohort of customers showed clear strength in terms of sales and revenue growth. We are keeping a close eye on the broader customer trend. We still see customers show more willingness to spend on family and seasonal essentials and they are gradually catching up on spending in most discretion categories. We remain anchored to the value-follow position of discount retail for brands. Certainly upon our long-standing merchandising strategy, we are also making change throughout organizations in how we align with those priorities, operate in greater synergy, and drive a unique, compelling customer value. Our teams are restricted in a way that is more aligned and efficient so that they can act with speed to turn potential into growth. We will highlight the strategic priorities to grow the share of brand supply at exceptional value to invest in custom-engaging initiatives that drive traffic, frequency, and multi-category purchases and to speed up technology advancement that's driven value creation for business. Starting with merchandising, we are focused on the brand and the products where we have made the biggest differences for customers. It's key factors in driven traffic and customer growth. That's why we believe in the power of merchandising capabilities, which we are leveraged to quickly adapt to trends across fashion appellate, as well as family lifestyle categories, continuously giving customers more reasons to stay here. One of the best examples in our -for-VIP shop business, which continues to outperform in the first quarter, a total of more than 200 brands joined this program by the end of March. We were close to the brand partner in transforming customized offering based on customer insights and changing trends. We were moving fast to deliver a more compelling brand of quality and value. We also have the prominent channel for -for-VIP shops. We expect it to become the to-go place for customers to discover affordable on-trend products that they cannot find anywhere else. In the first quarter, we also unveiled more unexpected high-fashion selection to keep customers coming back to see what's new. Customers were overjoyed with some of the best views they got, such as the Beverly Coach and more, or through the invite-only provides sales, we are trying to gain traction with customers as a place for fresh sales and treasure hunting. Turning to customers, we aspire to bring together the best of what they want in a unique shopping experience. On top of the compelling array of products offering, customers know that we stand behind what we sell. That's why our SVIP customers are clearly growing more attracted to our platform because of the affordable and reliable nature in our business. We have planned to make the loyalty program bigger and better. We are focused on how we could further differentiate it. For example, our customers are often family shoppers who love travel. So, new as the second quarter, SVIP members receive more relevant and rewarding life privileges such as gold cards upgrades for Changlong theme park and hotel accommodations and so on. We are also increasing the power of AI throughout the customer experience in many ways. We will be improving our AI-powered algorithm to enhance the logic behind the search and the recommendations. We will leverage general AI to create high-impact content, including smart mix and match content that makes the product page more compelling and automatic customer review summary that highlights key insights to help shoppers. We will also apply AI to customer service, handling product inquiries, generating personal related recommendations, and potentially acting as a smart shopping assistant. Also, by leveraging general AI, we generally target marketing creatives for diverse platforms and audiences, helping enhance customer acquisition efficiencies. So, we will continue to invest in opportunities for long-term success. We look to set ourselves apart, provide more than what customers expect, and build the unique experience. Against a backdrop of ongoing uncertainty, I am confident in our teams. We have navigated through several years of volatility to keep pace with customer trends, double down on execution of our strategy, and regain close track. At this point, let me hand over the call to our CFO Mark Wang to go over our financial results.

Thanks, Eric. And hello, everyone. In the first quarter, we sustained solid profitability despite sales pressure due to muted sentiment on discretionary spend. As we prudently increased investment in building customer and brand momentum to seize growth opportunities, margin softened more distantly compared with a year ago, but still helped up healthily within our expectations. This underscored our capacity to drive operational efficiency, build on years of efforts in refining internal management. As Eric mentioned, we are driving important teams within the organization for our long-term success. It will be an enhanced mindset across the business to fund growth, synergy, and efficiency opportunities we can take to the bottom line. We will remain focused on executing these strategic priorities with greater agility while maintaining discipline. Turning to our shareholder return program, our full year 2025 commitment remains unchanged. Returning no less than 75% of the 9 billion RMB full year 2024 non-gap net income to shareholders. Year to date, we have returned over $400 million to shareholders, which includes approximately $250 million in annual dividend distribution and over $1.5 billion in share repurchase. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers present below are yin and min b and all the percentage change are year over year change, a life otherwise noted. Total net revenues for the first quarter of 2025 were $26.3 billion RMB compared with $27.6 billion RMB in the prior period. Gross profit was RMB $6.1 billion compared with RMB $6.5 billion in the prior period. Gross margin was .2% compared with .7% in the prior period. Total operating expenses decreased by .6% year over year to RMB $4.0 billion from RMB $4.1 billion in the prior period. As a percentage of total net revenues, total operating expenses were .3% compared with .8% in the prior period. Fulfillment expenses decreased by .8% year over year to RMB $1.9 billion from RMB $2.0 billion in the prior period. As a percentage of total net revenues, fulfillment expenses were .2% which remained stable as compared with that in the prior period. Marketing expenses increased by .0% year over year to RMB $732.1 million from RMB $690.9 million in the prior period. As a percentage of total net revenues, marketing expenses were .8% compared with .5% in the prior period. Technology and accounting expenses decreased by .8% year over year to RMB $449.1 million from RMB $481.9 million in the prior period. As a percentage of total net revenues, technology and accounting expenses were 1.7%. Which remained stable as compared with that in the prior period. General and administrative expenses increased by .3% year over year to RMB $950.8 million from RMB $929.1 million in the prior period. As a percentage of total net revenues, general and administrative expenses were .6% compared with .4% in the prior period. Income from operations was RMB $2.3 billion compared with RMB $2.8 billion in the prior period. Operating margin was .7% compared with .0% in the prior period. Non-GAAP income from operations was RMB $2.6 billion compared with RMB $3.1 billion in the prior period. Non-GAAP operating margin was .0% compared with .1% in the prior period. Net income attributable to VIP shop shareholders was RMB $1.9 billion compared with RMB $2.3 billion in the prior period. Net income attributable to VIP shop shareholders was .4% compared with .4% in the prior period. Net income attributable to VIP shop shareholders per diluted ADS was RMB $3.72 compared with RMB $4.18 in the prior period. Net income attributable to VIP shop shareholders was RMB $2.3 billion compared with RMB $2.6 billion in the prior period. Net income attributable to VIP shop shareholders was RMB $2.3 billion compared with RMB $2.6 billion in the prior period. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS was RMB $4.43 compared with RMB $4.66 in the prior period. As of March 31, 2025, the company had cash and cash equivalents and a restricted cash of RMB $28.9 billion and short-term investments of RMB $192.3 million. Looking forward to the second quarter of 2025, we expected our total net revenues to be between RMB $25.5 billion and RMB $26.9 billion. We are presenting a -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. To ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We kindly ask analysts to translate questions into Chinese if you are bilingual. Please stand by while we compile the Q&A roster.

Thank you. We'll now take our

first question. First question is from Thomas Cheung from Jeffreys. Please go ahead.

Thanks, management, for taking my question. My question is about the recent consumer sentiment. Can management comment about the monthly GMV trend so far we are seeing in Q2, given a lot of events happening like tariffs, macro headwinds, etc., and how we should think about the revenue and the earnings outlook for the full year 2025? My second question is about the upcoming Juneteenth campaign. Can management comment about the latest sentiment and how the event is different from last year or similar to last year from an industry perspective? Thank you.

The overall consumer sentiment for 2025 is very normal in the first and second month. The spring festival is very common in the first and second month. The situation in the third month is a bit better than the fourth and fifth month. This is the overall consumer sentiment we are seeing. We are also seeing our own revenue outlook. In Q1 and Q2, we are actually in a negative growth. We hope that in the second half of the year, we will turn the tide. We hope that the GMV will turn the tide. In terms of the overall profit outlook for the whole year, we are still able to grasp some of the methods. We are also relatively stable. In theory, we believe that the revenue rate this year will not be too different from last year. The overall profit outlook this year, even if the business is not good, or in the first half of the year, we are at 0-5, in the second half, we are at 0-6. We think that the overall GMV will not fall so much, and it will not fall so much. We believe that the profit is stable. The second thing is about 618. Now, all the e-commerce companies have been doing this for a long time, and we have been doing this for a month. Many consumers are also responding that the e-commerce industry has been doing this for a long time, and they are actually a little tired. In the past, consumers liked to stock up on goods, but now, in the overall environment, we think that we can buy anything we want, and we don't have to stock up on goods. We don't have to buy something that is really good and valuable. We are talking about things that are not valuable, so we don't buy them. We see that the overall Chinese consumer trend is not like the previous year, where people buy things for the sake of the market. So this is my rough description.

We see that the sales are increasing. We see that the sales are increasing. We see that the sales are increasing. We see that the sales are increasing. We see that the sales are increasing. We see that the sales are increasing. We see that the sales are increasing. We see that the sales are increasing. We see that the sales are increasing. We see that the sales are increasing. So there was an aftermarket high frigate, net neighbourhood after unwillingness, keep So it's been an advantage for Fillmore Company. as we had achieved in 2024. And in terms of the second question on the June 18th promotion, I actually, you may have noticed that the industry promotion has been quite lengthy. It lasted for a month and the consumers are growing accustomed to these promotions and subsidies. Everything is readily available. They actually don't have to stockpile anything, but they do look for value, or they focus on our deals. So they are still responding to promotions. If these are, you know, they do have a shopping needs in terms of family and seasonal essentials, but the overall trend becomes quite normalized for everybody. So for VIP Shop, we just focus on providing unique quality and off-price, you know, value for

money deals for consumers.

Thank

you. Thank you. We'll now take our next question. This is from Alicia Yap from Citigroup. Please go ahead.

Hi, thank you. Mr. Shen, Ms. Mark, Jesse, good evening. Thank you for answering my question. I actually have two questions. One is about, although our business is not directly related to cross-border e-commerce, or customs tax, there is no direct connection, but I'm just curious to know if there are any, because in April or the past two months, that were originally exported to the market, in April or May, are there any changes in the domestic market that affect some of the user's needs and transfer to other platforms? The second question is, I don't know if we have any consideration for the second and third times in Hong Kong. I'll translate it myself. Thanks, management, for taking my questions. I have a question related to the tariffs. I understand that our business does not have direct collaboration with the cross-border sales and also the tariffs, but just wonder if some of these access supply from apparel that's supposed to aim for the export market that were temporarily diverted to the domestic market in April or the last couple of months that actually attract away some of the user demand to the competitor site. Second quick question is that just wondering if our management or company have any view about potential secondary listing in Hong Kong. Thank you.

I'll answer the first question. The second question is, because we don't have an export, we are not affected by tariffs. Maybe some health products, health products from the US, are affected by tariffs, but not much. Some products from the US, because they are not produced in the US, so tariffs are not added. We also see that the country also proposed in April that all our platforms will start to connect with foreign trade companies. But actually, foreign trade companies need some time to enter, including some, for example, they were originally doing foreign trade with full power, now they have to transform to domestic, including brand, trademark, standard, Chinese label, and verification certification. Actually, it's not that fast. So we are actually still connecting. But we also see now that tariffs are not as intense as before. But in the future, these foreign trade companies will also take a different path. So give them more time. I believe that more good supply chain foreign trade companies will also see the domestic market of China as a backup or a plan. So what we see now, the overall domestic trade is not as fast as we thought. Mark, your second question.

Let me translate first. In terms of the tariffs question, we have very limited exposure to exports. And we do have a very limited amount of direct purchase from the US market, mostly healthcare products or non-US origin products. But overall, the exposure is very small. And in terms of export companies trying to divert their export goods to the domestic market, we do see that because in April, we have already started to work with these export companies trying to see the possibilities to help them gain access to our customers on VIP Shop. And it takes time because there are a lot of different standards for export and other domestically manufactured products in terms of brand, trademark, and quality certification, et cetera. We believe over time, export companies, especially those with quality supply chain capabilities will choose the market as one of the options for them to gain a wider base of consumers within China. And we are trying to grab any opportunities arising from that in terms of getting access to quality of brand supply, et cetera. But it takes time.

Okay, at least thanks for your question regarding the Hong Kong listing. And we have been closely following change in the capital market developments and evaluating the option of Hong Kong listing internally. So we'll keep the market posted if there's any progress. Thank you.

Thank you. We'll now take

our next question. This is from Wei Xiong from UBS. Please go ahead.

Okay, good evening, management. Thank you for answering my question. I have two quick questions. The first is about our SVIP. Because the increase in the number of members has been relatively steady. Can the management update us on how we can further move and change the strategy of SVIP? And what is our goal for the next half of the year and the increase in the number of members? The second is a quick question. Is there any update on the competitive pattern of the e-commerce industry that we haven't seen in the Hong Kong listing? Thank you, management, for taking my questions. I have two questions. The first one is regarding our SVIP program. We can see the SVIP member growth has been very steady over the past few quarters. Can we please update our strategy here to further drive the SVIP growth going forward? And do we have any goal for the second half and next year? And second, just a quick one. Could management update the competitive landscape change you have seen over the past few weeks, over the past few months amid the macro uncertainty for the e-commerce competition? Thank you.

I will answer the first question first. The growth of SVIP is very good. We think that the growth of the double-digit is not a problem this year. The Q1 growth is good. The Q2 growth is good. And our policy is stable. We think that the growth of SVIP is not a problem. We are also thinking about more good things. How to sell our SVIP to the individual or sell it to the SVIP first. We want to accumulate more unique values for SVIP so that it feels loyal, including the unique experience. We believe that we can do better and more SVIP members will come. The SVIP flow will be higher every year. We are also thinking about different ways to accumulate the amount of SVIP. We believe that because the sales of SVIP has already taken 51% of our total, the future will be higher. So we need to take good care of the SVIP users. The second is the industry. Now we know that the industry is very tight. The e-commerce industry is even tighter. We want to survive in the e-commerce industry. We think that we still have to stick to our special sales. Because we were born with a discount, including online shopping, we have to be more firm in making good brands, better prices, and good services. So no matter how the outside world is, the chooses in our Cheryl's mind is very influenced by the E-commerce model we have. So we believe that we are investing dearly in the recent business army, in our rims, in our products, and playing the big part invärruh. As long as we can focus on our basic services, such as the discounted goods, how to market OLE 라�d. I think that in this field, we might have some space. So, overall, this is also a general plan for our future. Maybe our own positioning.

First down, SVIP customers, we do see very solid momentum in the growth of SVIP customers. And it has extended double-digit growth for several quarters, and it continues to be so in Q1 and Q2 to date. And we think we have a very strong confidence that we can continue to achieve double-digit growth for SVIP customers for the full year of 2025. And of course, we are also working on a lot of initiatives to drive the SVIP customer growth, especially in terms of merchandising. We are trying to provide more unique, exclusive, off-price product offerings all through -on-laid private sales to attract more SVIP customers. And by doing so, we believe that we will increase the retention of SVIP customers as well. And we do believe that over time, SVIP contribution in terms of online spending will grow from the current 51% to even a higher level in the foreseeable future. And second, in terms of industry dynamics, apparently it's a very hyper-competitive environment. We believe that the only way for the IP shock to survive and to compete and to win in this economic sector is to remain anchored to the value proposition of discount retail for brands. And although there are a lot of business models in terms of how to sell the products, including live streaming platforms or share space e-commerce, but the long-term factors that drive consumers in terms of where they choose to shop have always been great merchandise, great prices, and great services. So we will continue to deepen our initiatives in terms to enhance the flywheel from merchandise to value to customer engagement. And we believe that by remaining highly focused in our discount retail for brands, we will gradually become the online outlet. And this is the gateway for consumers to access deep discount product offerings. We believe we have the capabilities and the capacity to compete and win in

this market. Thank you.

We will now take our next question. This is from Jialong Shi from Namura. Please go ahead.

Hi, Mr. Shen, Jensi, and Peter. Good evening. Thank you for answering my question. I would like to ask a few questions. First, can you share with us the latest purchase frequency of our SVIP, and what is the trend of the Apple market? And secondly, I would like to ask about the trend of our new sales rate, and compare it with the previous few seasons. And third, I would like to know about the challenges we face in the current business environment. And the management team has shared 75% of the profit they made last year with the shareholders. Is this still the same? Good evening, management. I have three questions. And the first question is, what is the latest trend? What is the latest shopping frequency, our trend for super VIP members? And the second question is, what is the latest trend for your return rate? And third and last question is, despite all these challenges for the e-commerce industry, just wonder if management still maintains the previous capital return guidance for this year? Thank you.

SVIP is relatively stable. We see that their new SVIP is increasing. So if we look at the same SVIP in the past two years, we see that their app has fallen slightly. If we look at the total SVIP, it will fall more than this. So we are thinking of taking better things to satisfy these consumers, including individualization, and to buy the products that their families need. We have many categories, but some categories are not our strengths. So we are thinking of satisfying the needs of more consumers. The second question is about the return rate. Our return rate is relatively stable. Because we do not have a policy of rising and falling. We have been doing this policy for many years. We have been lazy to return for a long time. So we see that the return rate is rising by two points every year. We see that the return rate is rising by two points every year. But I guess the entire consumer, the Chinese e-commerce consumers, have higher and higher demand for e-commerce services. So we expect that the increase in return will continue every year. The third point is about the return rate of the CFO.

As far as the SVIP operating metrics, it has been quite stable. App-wise, we do see a small decline because of the dilutive impact from new SVIP customers. We need time to run up the outstanding. If we look at the two-year cohort of SVIP customers, actually the app will decline much smaller. We are trying to leverage more unique and exclusive merchandising to increase the loyalty, frequency and across category purchase opportunities for SVIP customers. We do see a lot of potential there because many of our SVIP customers are family shoppers. We are trying to optimize our personalized recommendations and to translate this across category purchase potential into growth. In terms of return rates, overall the return rates have been stabilized. I think the past quarter it has increased by a little bit over two percentage points. We have a very stable return policy for customers. And in the past six to seven years we have been adhering to that policy. That is why our return rate has moderated over time to a low single digit increase every year rather than dramatic increases on some of the other platforms.

Regarding your third question, let me give you a full picture for this point. Although we are facing short-term pressure and the dynamic industry change, we have a solid business model with disciplined operations and solid execution. We are confident that we can achieve relatively stable and healthy profit in the cash inflow. We have returned over $3 billion to shareholders since April 2021 in the form of buyback and dividends. And year to date we have returned over $400 million to shareholders, which includes approximately $250 million in annual dividend distribution and over $150 million through our buyback program. So I would like to emphasize for 2025, as we mentioned before, we are going to return no less than 75% of our full year 2024 non-GAD net income to shareholders in discretionary share repurchase and dividend distribution.

Thank you.

Thank you. We'll now take our next question.

This is from Eddie Wang from Morgan Stanley. Please go ahead.

Hi, Ms. Shen, Mr. Mark, and Ms. Jessie. Thank you for your question. I have two questions. First, I have seen that our app has a national stock channel. I want to ask, in the first quarter, including this year, the second quarter and the second half of the year, can we do more in the editing? How much help can we get from the GME and income? This is the first question. The second question is, I have seen that Shanshan has recently issued a rate. So I want to ask, will the money that we get from the GME be invested more in the development of Shanshan? Will the pace of development be faster than the previous two or three outliers? Or will there be other plans? I'll answer these two questions myself. Thank you, management, for taking my questions. I have two questions. First is about the trading policy. I noticed that we have a channel on the app which is focused on the trading program. So I'm just wondering what kind of sales and incremental sales or GMV are actually coming from the trading program? And how should we expect this benefit in the second quarter and the second half? And the second question is, I just noticed that we have issued a rate for the Shanshan online. So is there any kind of change of the Shanshan strategy after we get the funding from the rate? Thank you.

I'll answer the first question. Mark, answer the second question. The first question is about the national stock. The main thing is the stock is on the home appliances. The whole business of home appliances is not strong. Especially the feeling of customers who sell home appliances to Weping is very common. So we see that the national stock is not very helpful to our GMV. We just calculated that it accounts for about one point of our GMV. It's the business of the national stock. So in theory, short-term growth of our entire business is not helpful. The second question is...

So first on the trading program. The trading program mostly covers home appliances which is not a strong feature for the IP shop. And also, consumers don't feel a lot buying home appliances on the IP shop. They don't have that kind of mindshare. So in total, we expect any contribution from the trading program will be around one percent of our total GMV. So it's not going to have a meaningful impact on our financial performance.

Okay. Abby, thanks for your second question regarding the Shenzhen Outlet's Greece program. The outlet's business in China is huge and fast-growing. The outlet's business is a long proven and profitable offline business. Which positioning is also a discount retail for brands? Well, Weipi Shop is also a leading online discount retailer for brands. So definitely we have huge synergies with outlet's business. Not only from the partner side but also from the user side. At the end of last quarter, we have 20 Shenzhen Outlets. We are one of the largest outlet's group in China. And the underlining asset is Ningbo Shenzhen Outlets has been in operation for 14 years. And is one of our best and popular outlets in Shenzhen Group. So we have submitted the RACE application documents to the China Securities Regulatory Committee and the Shanghai Stock Exchange for their review and approval. And the RACE could be regarded as a financing platform. We can raise funds by enrolling more outlet's projects into RACE. And the funds can be used to reinvest into new outlet's projects and merge and acquisition existing projects. So which will help us to expand our outlet's business more efficiently? Thank you.

Thank you.

Thank

you. We'll now take our next question. This is from Roger Duan from Barclays. Please go ahead.

Thank you, Roger. I have a question about the pace of our sales and profit rate. Roger mentioned that we may want to increase our revenue by the second half of this year and turn the GME into a positive. But he also mentioned that we hope to see the profit rate at a similar level as last year. I would like to ask you about the pace of our sales and profit rate. How should we look at this and the balance of the profit rate? How should we think about this? I'll translate it for myself. Thank you, management, for taking my question. My question is on sales, marketing, and margins for this year. Management previously mentioned that we want to have GME return to positive growth in the second half of the year, while also maintaining a quite stable margin profile for the remainder of the year. So my question is on how should we think about your marketing campaign cadence and the balance between spending on marketing and maintaining margin profile for the year? Thank you.

We will still control the market costs. For example, last year's market cost was 2.7, and Q1 was 2.8. If we want to control the whole year, we will not exceed 3. So overall, we have control over the market costs, especially when we want to test LTV. Q1 and Q2 growth is not bad, but we didn't see that we spent a lot of money. We adjusted a lot of space, including how users can see our brand and our sales. Instead of going to the store and buying a new one. The future of LTV is also a principle. So in theory, we are still maintaining our own pace and not doing anything wrong in controlling the market costs. In addition, we are also doing a lot of research on the market voiceover, including the introduction of TV series, and the accurate investment, and the cooperation with a lot of current and more practical media. We are also constantly thinking about different ways to find the most valuable or cost-effective investment. And in the future, customers will be more healthy to look for this kind of investment. So overall, we are still confident

in the cost of the market. In terms of market spend, actually market spend has been very measured, and we are going to be that for the rest of the year. If you look at our numbers in 2004, market spend is a percentage of our total revenue was 2.7 percent, and in Q1 it was 2.8 percent. So for the full year, we believe it's going to be within 3 percent. And we continue to evaluate the effectiveness of our marketing initiatives from a lot of perspectives, especially the LTV side. So we don't believe that marketing spend is the only way to drive customer growth. We believe a combination of merchandise, value, and services do help drive customer growth. If you look at our Q1 and Q2 growth in new customers, actually they're growing nicely, but we actually don't spend so much on marketing. And of course, we are trying to diversify our marketing channels, including branding through TV sponsorships and target marketing on a lot of external channels. And we are also expanding our partnerships with major media outlets. And we are trying to look for the most valuable channels for us to invest so that we can have the best ROI and also have a sustainable growth in high-quality customers. So basically, we have a very good command of our marketing spend. And we don't think it's going to be a drag

for our margins. Thank you.

Due to time constraints, that concludes today's Q&A session. At this time, I will turn the conference back to Jessie for any closing remarks.

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

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