Vipshop Holdings Limited

ladies and gentlemen good day everyone and welcome to vip shop holdings limited second quarter 2025 earnings conference call at this time i would like to turn the call over to miss jessie zing vip shops head of investor relations please proceed thank you operator hello everyone and thank you for joining vip shop second 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 Mitigation 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 filing through the Securities and Exchange Commission, which also apply to this call to the extent any forward-looking statements may be made. Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income attributable to VIP shop shareholders, and non-GAAP net income per ADS, are not presented in accordance with the U.S. GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP merits to GAAP merits. With that, I would now like to turn the call over to Mr. Eric Shen.

Good morning and good evening, everyone. Welcome and thank you for joining our second quarter 2025 earnings conference call. In the second quarter, our team acted swiftly to revive customer activities and the sales momentum, driving stabilization in our business. These efforts deliver the measurable progress against our key priorities for renewed growth. Total GMV return to growth, driven by clear strengths in apparel-related category, reflecting our refined adjustment in the merchandising portfolio. Total active customers also showed clear signs of recovery. Super VIP membership sustained its double-digit growth. In the second quarter, active SVIP customers increased by 15% year-over-year, contributing 52% of our online spending. This high-value custom segment continued to outperform in terms of sales and revenue growth. With the fast-moving industry dynamic, we remain anchored to the vision of the discount retail for brands. We believe at its heart, discount retail for brands is about offering customers beloved brands and high-quality products at its exceptional value, while the execution many innovate. The fundamentals stay true, great brand, great quality, and great value. To achieve this, we are making change to sharpen our merchandising strategy, which is key to deliver unique, compelling value to brand partners and customers. We are relying our merchandising team to better capitalize on evolving customer trends and lifestyles while enhancing cross-category synergies. Additionally, we are taking a more holistic approach to plan and manage our brand and customer interactions to maximize platform-wide value creation. We will also unified marketing, customer growth, and engagement efforts to advance customer value through each lifecycle stage across customer segments. We hope these initiatives will inject great agility and efficiency into our business model, creating a self-reinforcing firewall that advances our growth priority from merchandising operations to customer engagement so start with merchandising we are pursuing a path that is unique VIP shop we focus on the three pillars of our merchandising strategy relevancy differentiation and specialization in the in a competitive environment We're standing out by consistently offering custom high-value brands that they love, exclusively made for VIP shops, customized products, and carefully curated portfolios of highly sought-after items. In the meantime, we keep up with new trends, new styles, and innovative fabrics and materials in each category. This ensures a steady and sustainable flow of inventory that aligns with shifting customer demands. In the first half, we added close to 500 brands to our platform, which are gaining traction among customers. The Made for VIP Shop line is a key part of our differentiation. It's delivering a more compelling brand of the quality and the value that results in high-value customers. Repeat purchase and the best conditions. In the second quarter, it maintains strong sales momentum, contributing a meaningful portfolio of our apparel sales. For many brands, this customized product accounted for more than 20% of their sales on our platform. In the second quarter, we added more high-session selections, achieving improved sales flow. We saw growing customer recognizations of our platform as the go-to place for fresh sales and trailer huntings. Leveraging our global sales capabilities, we will have the steadily stream of differentiated items that flows into our assortment, so that shoppers always have something to discover as they come back. For our customers, we continue to create a unique experience that not only reinforce the affordability and the reliability they love, but also inspire them to discover the value and the freshness we offer. This is coming from optimized traffic allocation, along with the customer journey enhanced through improved search and the recommendations for both existing and new offerings. A good example of our custom-centric approach is the SVIP loyalty program. In the second quarter, we upgrade our private sales for SVIP members, offering high-level blended products to create a great sense of exclusive and delight. we expect the loyalty program to deliver a more differentiated and personalized experience for our top-tier customers. Lastly, we continue to develop and leverage AI capabilities as part of our overall technology advancement to drive growth and efficiency. We are deepening collaboration with business teams to expand AI application cases and deliver measurable results. We see promising early traction across our AI initiatives. AI-generated reviews and Q&As are contributing to enhance customer journey. AI-driven per-cell support is showing initiative benefits to conventions and the issue resolution. Besides, AI-powered marketing contents demonstrate effective reach to potential customers. Despite the near team challenges, we are investing in multiple ways to grow share across our merchandising portfolio and the customer segments. Our roadmap for sustainable Portfolio of profitable growth in the long term relies on the consistent and collaborative execution every day. It stays true to who we have always been while adapting to evolving trends, enhancing our capabilities, and always thinking about our unique role in retail for today's customers. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Thanks, Eric, and hello, L1. We have delivered another quarter of healthy profitability with margins hold up well as we moved at pace to stabilize the business. This underscores our team's consistent financial discipline in a dynamic operating environment. During the quarter, we prioritized investments in growth initiatives related to customer engagement and the merchandising categories where we saw good momentum. We were more agile to dynamically reallocate resources in response to more productive activities that really helped the business grow at a profit. As Eric indicated, through a series of organizational change, we have further enhanced strategic clarity and execution speed across companies. Though we are early on our journey, these actions are building tangible traction, enabling us to position the business for return to sustainable, profitable growth in the quarter ahead. Furthermore, we are firmly on track to deliver our shareholder return commitment for 2025, which is no less than 75% of the RMB 9 billion full-year 2024 non-GAAP net income. In the first half, we distributed a total of over $640 million through a combination of dividend payments and a share buyback. reflecting both our robust cash flow generation and the conviction in the company's fundamental value as a growth prospect. 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 the mean B, and all extended teams are year-over-year teams, and lies otherwise noted. Total net revenues for the second quarter of 2025 were RMB 25.8 billion compared with RMB 26.9 billion in the prior year period. Gross profit was RMB 6.1 billion compared with RMB 6.3 billion in the prior year period. Growth margin was 23.5% compared with 23.6% in the prior year period. Total operating expenses increased by 6.3% year-over-year to RMB 4.6 billion from RMB 4.3 billion in the prior year period. As a percentage of total net revenues, total operating expenses were 17.7% compared with 16.0% in the prior year period. Fulfillment expenses decreased by 2.6% year-over-year to RMB 2.1 billion from RMB 2.2 billion in the prior year period. As a percentage of children's revenues, fulfillment expenses were 8.2% compared with 8.1% in the prior year period. Market expenses decreased by 3.3% year-over-year to RMB $715.9 million from RMB $714.7 million in the prior year period. As a percentage of total net revenues, market expenses were 2.8% which remains stable as compared with that in the prior year period. Technology and content expense decreased by 9.3% year-over-year to RMB $442.0 million from RMB $487.2 million in the prior year period. As a percentage of total net revenues, technology and content expenses were 1.7% compared with 1.8% in the prior year period. General and administrative expenses were under $1.3 billion compared with $917 million in the prior year period, primarily reflecting an increase in the share-based compensation expenses for Shan Shan Oilers. As a percentage of total net revenues, General and administrative expenses were 5.0% compared with 3.4% in the prior year period. Income from operations was RMB 1.7 billion compared with RMB 2.2 billion in the prior year period. Operating margin was 6.6% compared with 8.3% in the prior year period. Non-GAAP income from operations was RMB 2.4 billion compared with RMB 2.6 billion in the prior year period. Non-GAAP operating margin was 9.3% compared with 9.5% in the prior year period. Net income attributable to VIP shop shareholders was RMB 1.5 billion, compared with RMB 1.9 billion in the prior year period. Net margin attributable to VIP shop shareholders was 5.8%, compared with 7.2% in the prior year period. Net income attributable to VIP shop shareholders per diluted ADS was RMB 2.91 compared with RMB 3.49 in the prior year period. Non-game net income attributable to VIP shop shareholders was RMB 2.1 billion compared with RMB 2.2 billion in the prior year period. Non-government margin attributable to VIP shop shareholders was 8.0%, compared with 8.1% in the prior period. Non-government income attributable to VIP shop shareholders for diluted ADS was RMB 4.06, compared with RMB 3.91 in the prior period. As of June 30, 2025, the company had cash and cash equivalents in the restricted cash of RMB 24.7 billion, the short-term investments of RMB 3.0 billion. Looking forward to the third quarter of 2025, we expect our total net revenues to be between RMB 20.7 billion and RMB 21.7 billion, representing a year-over-year increase of approximately 0% to 5%. Please note that this forecast reflects our current and preliminary view of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A.

Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 1 1 again. We do ask you to translate your question into Chinese if you are bilingual. Please give us one moment to compile the Q&A roster. And the first question comes from Alicia Yap with Citigroup. Your line is now open.

Thanks, management, for taking my question. My first question is about the latest e-commerce competition. I understand that there is very limited overlap, but curious to get management's view whether the recent step-up initiatives of quick commerce by other e-commerce platforms have any impact on VIP shops Have you seen any change of purchasing frequency declining or budget spend coming down by your customers? My second question is about the weather. So given the recent uncertainty of weather condition with heavy rain and flood in many areas of China, has that affected the apparel items purchasing demand for the summer clothing? Thank you. 谢谢管理层接受我的提问。 我有两个小问题。 我们看到天气有非常不确定性。 在一些城市都有非常大的暴雨或者是洪水。 想请问管理层,您有没有观察到任何对于, 比如说衣服上的消费或者是消费者的需求, 对于夏天会不会有什么影响?谢谢。 好,我回答第一个问题就是关于即时零售, 因为我们的平台是卖服饰为主,

. . . . . that our e-commerce delivery is likely to be one and a half days, two and a half days, something like that. But in the end, it still depends on the goods. For example, whether its goods have an advantage or not. If the price has no advantage, I guess the consumer's choice may have some changes in terms of standard products. Then the second one, I will answer the question about the weather. Then there was a storm recently, but we didn't see Thank you. Alicia, thank you for your question.

On the potential impact from the instant or quick e-commerce, we don't see any material impact on our business. You know, we are very much focused on apparel sales, and just a small portion of our business is standardized items, which are more suitable for quicker delivery, especially when customers see they can get most of their daily essentials within half an hour of delivery. They may choose to shop through Quick eCommerce. But overall, we don't see any meaningful impact on our business so far. And on customer behavior, there could be some change, but at the end of the day, it depends on the quality and pricing of the offerings, especially in standardized items. On weather conditions, also we don't see a very meaningful impact despite volatile weather conditions across many regions in China. whether it's rain or flood, we don't see very much impact on people's travel plans or apparel purchases. And we look at the data across different tiers of cities and we don't see any abnormalities with regard to their travel or apparel purchases.

shopping activities.

Thank you.

And the next question comes from Andre Chang with JPMorgan. Your line is open.

Thank you for accepting my question. I have two questions to ask. The first question is about our three-week revenue guide back to a period of positive growth. I would like to confirm with Mr. Shen that this part has any special factors from last year? I don't have any impression, but I just want to confirm. Does this mean that we are back to a period of positive growth? Maybe this three-week This is the first question. The second question I would like to ask is that we have repurchased about $35 million in the second quarter. This is probably the highest amount in the past two years. I want to know if the company's repurchase in the second quarter has increased so much, is there any special consideration? Thank you management for taking my question. My first question is about the third quarter revenue guidance returning to positive year-on-year. I want to understand whether there's any comparison effect that helping the Yang Ye growth, or we are back to no growth trajectory again, suggesting that the company will maintain positive growth in the coming quarters. My second question is about the share repurchase. The company bought back nearly $350 million in the second quarter, which is the highest in two years. I wonder if there's any reason for such a strong jump of buyback. Should we expect such a momentum to continue into second half this year, given the management commitment in terms of shareholder return for 2025? Thank you.

我回答第一个问题,就是关于Q3,我们看到,包括我们对未来的预估,销售的预估,我们说看到有正向,比如说我们这次的预估是零到正午, Then we actually feel that because we have been trying to adjust it for a while, including the past few seasons, it has actually been not good. Then we include this user, the user of the negative growth, we moved it back. So now there is positive growth, including our users. Originally, the new class also fell more, so we also saw that the new class also found some ways to grow. So we think That's a twist on some of the trends, right? Because the number of customers has increased, we see that sales will also increase, including what we said. In addition, we are actually working hard to continue to work on the goods, so that there are more differentiated good products, or we should emphasize that there are price advantages because we are special sales, etc. So we actually see some changes. Then we also hope that we can continue this trend of positive growth in the future. But what we are talking about, for example, the Q4 we are talking about, is that this Q3 has nothing to do with last year's Q3. you should probably be a lot you want to come out to the make a statement that he's a lot number to see the one that woman knew me it's a huge number at all so that's something that number that's not just she needed to use the you want me to use it to the book so I can't change it I'll be number to show you a financial you'll be a lot so you don't want to find a thing woman to be a lot number don't you tell you who So, Andrew, on your first question on Q3 guidance, you know, we guide for top line growth at 0% to 5%.

and we attribute this positive momentum to the efforts we have made in the last few quarters. We've made a lot of organization changes and adjustments in terms of merchandising and operations so that we actually have started to see there are clear recovery in terms of customer growth. Total active customers actually have returned to growth so far year over year, especially we have seen new customers which have struggled for a few quarters have returned to growth as well. if customers start to regrow and naturally we are more confident about sales and revenue growth. So we actually, and also on the merchandising side, we've been talking a lot about providing more consumer relevant and differentiated offerings especially to provide them with more items at a competitive pricing. So we've done a lot of, you know, optimization on the merchandise in front as well. So that's why we guide a positive top line growth for Q3. And we don't think there is any, you know, material base effect for Q3. And for Q4, we also want to see a positive growth in terms of top line. But Q3, admittedly, we actually had a high rate in 2024. We actually benefited to some extent from the long streak of cold weather conditions. But overall, we are confident that we can maintain growth for the quarters ahead and we are looking to accelerate the growth in the foreseeable future after we see our recent changes and adjustments materialize into real growth engines.

OK, regarding your second question, thanks for your question regarding the share buyback program. And actually, there is no special reason for increasing the amount of the share buyback in the second quarter. We just committed to return that to our shareholders continuously. As you may aware that we have mentioned before, we are going to return no less than 75% of our full year 2024 non-GAAP net income to shareholders in discretionary share repurchase or dividend distributions. Actually, that's the money, almost around $900 million. So we just committed to return value to our shareholders, and we will continue to invest in our business growth and improving profit and generating cash to support our dividend payouts and buyback. Thank you.

As a reminder, to ask a question, please press star 11 on your telephone. The next question comes from Weisheng with UBS. Your line is open.

Okay. Thank you, Director, for accepting my question. I also have two questions I would like to ask. First, regarding the gap between GMV and income, I observed that the relative ratio of this quarter is relatively stable. I would like to ask, Thank you, management, for taking my question. We noticed the relatively stable gap between GMV and the revenue this quarter. Just wondering, could management share any latest trend regarding the return rate on our platform? Do we see any further room to improvement to narrow this gap going forward? Or that gap might widen a little bit considering the very healthy growth of SVIP users in the second half of the year? And secondly, on the other revenue side, could management share the latest progress and revenue and profit trends for Shenzhen outlet business, as well as some strategic planning and outlook for next year.

Thank you. Then we ourselves estimate that because of us, for example, our FVIP is actually continuing to increase. Then we ourselves estimate that the return rate may increase by two to three points every year in the future. But in each quarter, it is basically flat, that is, the return rate of each quarter is basically like this. So we don't have to worry too much about this. Then the second point is about Shanshan Aolai. Shanshan Aolai, we now operate 20 Aolai. So in general, I think their business is actually developing well. So including we see the copper shop, so for example, there is a double-digit growth. So we ourselves think that in fact, the business of Outer Lies is still very good in China. So we will actually see if there is a suitable 那个城市或者地方我们其实可以继续在拓展那么总体我们认为在中国可以做澳来的城市其实还有不少啊那么我们也会持续把这个三三澳来作为一个很长远很稳健的一个我们说的一个商业模式那么继续把它做大做强

Thank you, Xuanwei. On your first question, in terms of return rate, we actually see no surprise as regards to return rate. You know, for years we have seen some relatively stable return from customer behavior. It's just that our SVIP customers are growing very nicely at double digits. So we potentially will look at two to three percentage points increase every year in terms of return rate due to this structural factor. But it will be smoothed out on a quarterly basis, which we do believe that at some point we will see a flattish return rate. The second question on Shanshan outlets, we have seen very good momentum in terms of Shanshan outlets. We have a total of 20 stores for now and the comparable same store growth maintained at double digits for several quarters. we continue to look for the right cities or locations to expand our outlet business given the fact that the outlet industry is actually prospering in China and are actually riding on the tailwind of value for money consumption and we do believe that there are still a decent amount of cities or locations that are suitable for outlet expansion. And we intend to build the outlet business as part of our strategic and long-term assets.

I show no further questions 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 and you may now disconnect.