Vipshop Holdings Limited

Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings Third Quarter 2025 Earnings Conference Call. At this time, I would like to turn the call over to Ms. Jessie Zing, VIP Shop Holdings Head of Investor Relations. Please proceed.

Thank you, Operator. Hello, everyone, and thank you for joining VIP Shop Third Quarter 2025 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 Security Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our safe harbor statement in our earnings reviews and public filing 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 matters 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 reconciliations of our non-GAAP mayors to GAAP mayors. 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 third quarter 2025 earnings conference call. Our third quarter results demonstrated tangible progress on our path back to growth. We are pleased with the clear top-line expansion, lead primarily by notable improvement in custom trend and across our core categories. Total active custom regained year-over-year growth. Super VIP membership continued to deliver double-digit growth. In the third quarter, active Super VIP customers grew by 11% year-over-year, contributing 51% of our online spending. This sustained growth was primarily driven by continuous upgrades to SVIP's exclusive product and service benefits, coupled with more target engagement initiatives. which effectively convert regular custom. In terms of category performance, we saw accelerated momentum in apparel-related categories through the quarter. Our team successfully delivered a powerful blend of quality, value, and style. This was achieved through the merchandising strategy that highlight high-value brands, trending categories, and popular selling points, all of which are deeply aligned with customer priorities. Against the dynamic industry backdrop, we were navigating this operational environment with agility and efficiency. We are strategically realigned the organization for long-term success, implementing changes to strengthen our unique position as an off-price retailer for brands. We focus on reinforcing the flywheel from merchandising custom engagement to operation. At our core, we are a merchandising lead company. We compete through offering affordable and differentiate assortment. We continue to enhance our leadership in a deep discount product offering. And we are deepening our category specialization to curate product offering that deliver great relevance and distinct value. We start to see new momentum in customer and sales. by acting upon engaging bright spots and customer performance. As an example, we are rebuilding our maternal and child care division to better integrate relevant apparel and non-apparel categories. This reshaped assortment in design to foster cross-category growth and create lasting value for customers as they journey through different life stages. We are bringing this level of specialization across each category in our business. In addition, we have an opportunity to scale through our differentiated product portfolio. One is made for VIP shops, which again delivered strong sales growth in the quarter. We are deepening Our collaboration with more high-value brand partners, the team is capitalizations on our category insights to motivate brands to allocate and create more in-season and on-trend supplier and at competitive price. A compelling case in Pond is a leading running shoe brand which draw 50% of its September sales on our platform from Made for VIP after making select popular items exclusive to us. Another case is a leading woman apparel brand, which builds sales momentum by customized more deep discount, high demand offering from its inventory fabrics. The other line of differentiate is a carefully curated portfolio of popular items which we proactively source from both domestic and global brand partners. We've seen strong momentum when we offer the right brand of the quality, value, and style. And given the fashion relevance, it generates wide apparel to young and middle-class customers. who increasingly come back to enjoy the fun of fresh sale and the trailer hunts. Beyond the merchandising is how we do better to apparel to customers. In addition to sustaining strong mind share with our customer cohorts, we are actively experimenting with new marketing formats such as in-flux contents and short-form dramas By adopting an integrated strategy across marketing, growth, and engagement, we are seeing early wins. This approach enables a disciplined balance of cost efficiency and strategic reinvestment, improving our performance in acquiring, actively, and retaining customers. To further engage our customers along their journey, we focus on facilitating the broadening and the discovering of the broad range of new and existing offerings. Our notable area of improvement is searching and recommendations, our systemic upgrade of relevant models. Our green and the product operations have translate into the measurable gains. In the third quarter, enhancement in our search and the recommendations systems lead to a tangible increase in commissions, directly contribution to sales growth. We also continue to elevate the experience for our SVIP customers. We want them to feel special, valued, and delighted with every visit, and we are delivering on this promise more consistently. In the third quarter, we launched a series of buy invitation private sales. SVIP customers were granted exclusive access to the current selection of major brands at a deep discount, which delivered a powerful sense of value and successful, boasted membership loyalty. Lastly, we expect technology to play a strong role to type into the potential of growth and efficiency. We are clear on the path to accelerate the AI application across our business. Our immediate focus is on deploying AI agents to enhance key areas, including search and recommendations, customer service, external marketing and business analytics. We expect these innovations to create more engaging customer experience, empower brands with advanced tools, improve marketing efficiency, and generate actionable business insights. As an example, we are seeing good adaption of our try-it-all AI feature. Customers really enjoy using it to virtually try to close, save looks, and share with friends before buying. We are also gaining traction with AI ads, as a glowing share of campaign new leverage AI to upgrade marketing creatives and media placements, boosting customers acquisition efficiency. We are encouraged by the momentum in our business. Our operations are better aligned and our teams are collaboration at new level to unlock synergies. and we continue to adapt to stay ahead of market trends and the customer experience expansions. The entire organization is leaning into the opportunities ahead of us. We have great confidence in our long-term roadmap for sustainable, profitable growth. 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. I'm pleased to report a set of healthy financial results for third quarter. Total net revenues turned to growth and exceeded expectations, along with solid earnings expansion. This performance validates our disciplined model that balance growth investment with value creation. upholding our long-stated goal of achieving high-quality growth. Our strategic yet prudent growth investment focuses on value-driven opportunities in merchandising extension, especially into the differentiated portfolio, consumer-facing marketing, better engagement with customers, as well as AI-centered technology advancement. throughout our operations, all aligned with our long-term roadmap for success. We make sure everything we do should be powering our virtual flywheel within a business that translates into sustainable and profitable growth. As Eric stated, we are seeing the benefits of recent strategic change. We are engaged by the progress made so far and expect to see the impact of our initiatives built into the rest of the year and beyond. We have great confidence in our long-term outlook and our capabilities to delivering value for all stakeholders. Again, I would like to reaffirm our commitment to shareholder returns in 2025, which is no less than 75% of the 9 billion RMB full-year 2024 non-GAAP net income. So far this year, we are formally on track with the path. I've returned a total of over $730 million to shareholders through a combination of dividend payments and share buybacks. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers present below are in GMB. And all the percentage change are year-over-year change, unless otherwise noted. Total net revenues for third quarter of 2025 increased by 3.4% year-over-year to RMB 21.4 billion from RMB 20.7 billion in the prior year period. Gross profit was RMB 4.9 billion compared with RMB 5.0 billion in the prior year period. Gross margin was 23.0% compared with 24.0% in the prior year period. Total operating expenses were RMB 3.9 billion compared with RMB 3.8 billion. in the prior year period. As a percentage of total net revenues, total operating expenses were 18.5%, compared with 18.2% in the prior year period. Fulfillment expenses were RMB 1.9 billion, compared with RMB 1.7 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 8.7%, compared with 8.4% in the prior year period. Marketing expenses were RMB 667.2 million, compared with RMB 617.8 million in the prior year period. As a percentage of total net revenues, marketing expenses were 3.1%, compared with 3.0% in the prior year period. Technology and accounting expenses were RMB 438.6 million, compared with RMB 454.2 million in the prior year period. As a percentage of total net revenues, technology and accounting expenses were 2.1%, compared with 2.2% in the prior period. General and administrative expenses were RMB 984.6 million, compared with RMB 957.8 million. in the prior year period. As a percentage of total net revenues, general and administrative expenses were 4.6%, which remained stable as compared with that in the prior year period.

Income from operations was RMB 1.26 billion, compared with

RMB 1.33 billion in the prior year period. Operating margin was 5.9%, compared with 6.4% in the prior year period. Non-GAAP income from operations was RMB 1.6 billion, compared with RMB 1.7 billion. in the prior year period. Non-GAAP operating margin were 7.5% compared with 8.2% in the prior year period. Net income attributable to VIP shop shareholders increased by 16.8% year over year to RMB 1.2 billion from RMB 1.0 billion in the prior year period. Net margin attributable to VIP shop shareholders increased to 5.7% from 5.1% in the prior year period. Net income attributable to VIP shop shareholders for diluted ADS increased to RMB 2.42 from RMB 1.97 in the prior year period. Non-government income attributable to VIP shops shareholders increased by 14.6% year over year to RMB 1.5 billion from RMB 1.3 billion in the prior year period. Non-gap net margin attributable to VIP shop shareholders increased to 7.0% from 6.3% in the prior period. Non-gap net income attributable to VIP shop shareholders per diluted ADS increased to RMB 2.98 from RMB 2.47 in the prior period. As of September 13, 2025, the company had a cash and cash equivalents and a restricted cash of RMB 25.1 billion and a short-term investment of RMB 5.9 billion. Looking forward, to the fourth quarter of 2025. We expect our total net revenues to be between RMB 33.2 billion and RMB 34.9 billion, representing a year-over-year increase of approximately 0% to 5%. Please note that this forecast reflect 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 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. We do ask you to translate your question into Chinese if you are bilingual. And our first question will come from Thomas Chong with Jeffries. Your line is open.

晚上好,謝謝管理長接受我的提問。 我的問題是關於整個板塊的一個發展的, 因為我們最近看到了電商行業的話, We are all doing technical sales. And we also see that the DAOs in the oil companies are all in a very high-speed growth trend. So I would like to ask, how do we look at technical sales for the development of the political structure of our segment? This is the first question. The second question I would like to ask is, we are now in Q4, Thanks management for taking my question. My first question is about the online shopping competitive landscape. Can management comment about the latest trend as well as the potential impact coming from a quick commerce? And my second question is about the monthly GMV momentum quarter to date. How's the performance we are seeing in October and November and how we should think about the 2026 outlook? Thank you.

好,我来回答两个问题。 第一个就关于即时零售。 其实我们公司因为主力的品类是服装嘛,所以说我们 It's not like this kind of standard food, this kind of food that we say needs to be delivered quickly. So we actually don't plan to enter the timely sales. But now it's true that the timely sales, that is to say, a lot of people, a lot of families are doing this timely sales. So for us, in fact, we still continue to do our own thing. In addition, in some areas where we can promote, we did some, for example, We have made some standard products, such as Tzidzida, including some products that are included in the warehouse, in order to be faster with customers, including optimization of logistics track record, and so on. In other words, we have not added the whole time sale army. We think that if we make our own clothing, we don't have to say whether it will arrive in 15 minutes or in 45 minutes. Then we say that we still continue to put our brand special sale advantages and values to play well. Then the second answer is to ask about Q4's forecast or 26's forecast. It's November. Because it's November now, it's almost the summer of November. So we see that the overall trend of October and November is still okay. In fact, when our entire company was doing double 11 sales, it was not bad overall. So we are actually optimistic about Q4 overall. We are still on the positive side, including our growth from 0 to 5 for Q4. So it's probably in this area. Did you ask about 2016? In 2016, we actually think that the overall market space is still there, including consumption. 我认为也不会太好也不会太差 那么基本持续持于稳定吧 所以说我们认为我们还是继续坚持我们的高质量发展 那么在业绩增长方面我们要继续增 另外呢就是在利润方面我们还是继续要稳 所以说总体我们认为26年我们还是做一个稳健的一个增长策略吧

Okay, so first, in response to your question on quick e-commerce, I think we are definitely not going into quick e-commerce, but we are looking at what appeals to customers that are attracted to quick e-commerce, and convenience is something that matters. But that matters more in grocery shopping, food delivery, and some household essentials that are not in advance, et cetera, are not in apparel-related categories, which consumers typically do not care so much about fast delivery. But anyway, we've made progress with that convenience as part of our worry-free value proposition to customers. I think, for example, there are a few notable things. One is the delivery metrics. Next, delivery has been rolled out for certain standardized products in some cities. Second is accelerating the delivery of apparel products in some key cities. And lastly, the logistic trajectories are actually optimized for customer returns to our warehousing, et cetera. So these efforts are still focused on driving refined supply chain management to support business growth as well as operating efficiency. Secondly, in terms of the recent GNV sales trend, if we look at October and November to date, actually we are seeing a decent growth momentum. The entire W11 promotional period, we actually recorded a decent year-over-year growth. So we are reasonably positive on the business performance of the fourth quarter which we guided 0 to 5% revenue growth. And for 2026, we do see there are opportunities in off-price retail for brands. And we are, on the other hand, we do expect consumer sentiment tend to normalize a bit more, so we will still have reasonable expectations for growth, but we are pursuing a roadmap for a balanced growth and profitability. So that's the roadmap for long-term success.

That's distinctly high-quality development. Thank you.

Thank you. And our next question is going to come from Alicia Yap with Citigroup. Your line is open.

Hi. Good evening, management. Can you hear me okay?

Yes.

Hello. Can you hear me? Okay, yeah, thanks for taking my questions. 两个问题,谢谢管理层接受我的提问。 第一个问题是,想管理层说一下, 就是仔细说一下我们最近这个团队, 就是商品这个merchandise团队变动的一个重组的情况, 然后这个变动是怎么帮助到, 比如说最新这个季度的这个业绩, And then this change is mainly to improve some of the customers' preferences, to make better predictions, or to improve our relationship with the public sector, and then ensure that the company can get more of this, for example, products that SVIP members like. 然後我們怎麼預期這些變動 將來更進一步的幫助到 公司後續的一些業績的發展 然後第二個問題是 能否請管理層說一下 我們最近VIP Shop 就我挺會這邊人工智能 怎麼引用人工智能幫助到 比如說我們就是SVIP會員的一些增長 So thanks for taking my questions. The first question is, can management elaborate the details, changes, and the restructuring of your merchandising team, and do these changes help the latest quarter performance? And are these mainly on improving your predictions of the customer preference? Or is it for improving your relationship on securing better merchandise that fits to your super VIP members? And how do you anticipate the changes could sort of help the financial performance? And second question is, can you also elaborate how AI has been helping VIP in terms of your financial growth? Can AI help to target the churn user and also attract them back to VIP platform?

Thank you. About organization structure adjustment, Then we actually make the organization more flat. Then our founders continue to go down and manage more. Then the most important thing is to promote close cooperation between departments. Then we actually find more professional people. Then include, for example, those who did not do well. For example, some departments, then we also change. Then we ourselves feel that in fact, through organizational adjustment and everyone's cooperation, Every department has played an important role. Not just one department, but businesses as well. We have adjusted our organization. We are more professional. We have more related products. We can work together. We are working hard to deliver good products. Our operations and traffic distribution are more efficient. We are more cooperative. Then it includes our customer acquisition and storage, including SVIP. Then they also play their role. So in general, in fact, the overall team is called Renew. Then we say that it is not based on a single department, but we hope that after the overall organization is adjusted, including continuous relay, then everyone will cooperate more closely. And everyone works together for a goal. I believe that in the future, it should be So we say we also want to see changes like this. So what we're talking about is continuing to bring us some vitality. So the second one is just asking the AI side. On the AI side, we actually see that there are actually a lot of changes that have been made to e-commerce in terms of AI. There are many, many, including what we said, which is a simple model or background. In fact, what we are talking about has promoted the recognition and transformation of consumers to bring us efficiency, including in terms of advertising, because we are accurate customers outside. So how to be more accurate or more effective in advertising materials actually brings a lot of changes. So we are also studying how to lose and store members, including the loss and storage of SVIP. In fact, AI intelligence should also be able to do a lot of things. So, including some normal AI in our company, the effect of reducing cost and increasing efficiency. So, we actually see that AI really brings us the effect. It has just started. So, in the future, we will continue to dig and strive to let our company, through AI's help, can further improve our performance. So, find some problems that we can't solve. Okay, so first, the recent organizational changes, I think that we

We've realigned the entire organization for long-term development. Actually, it's not one department change. It's across the entire organization among different teams, including merchandising, operations and technology, et cetera. I think that the major purpose of this organization changes to infuse more agility and efficiency into our business model, especially our founders, two founders actually are much more hands-on on daily operations. So the teams can make quick decisions and turn these decisions into actions. And also we've replaced some of the senior leaders of the major merchandising teams with a new talent. And so basically we've refreshed the entire and we make a consistent upgrade so that teams can collaborate at new levels to unlock synergies. For example, on the merchandising side, as we mentioned on the call, for some of the divisions, we are trying to build a reshaped assortment including apparel and non-apparel categories to foster cross-category purchases. And customer engagement, we've actually adopted an integrated approach from a marketing engagement so that we can become more efficient to attract and activate and retain customers through a series of adjustments. And also, on the technology side, we focus on building the teams into the next phase of technology advancement, et cetera. So we're implementing all these changes so that we can always stay ahead of market trends and customer expectations. On a second question about AI, Definitely, we are trying to accelerate AI application across our business. Just a simple AI application can be very vital to driving business growth and efficiency. For example, we've added a lot of visualized model background to facilitate customer experience in virtually try on clothes and making better choices, etc. So actually, AI has brought benefits to conversions directly contributing to sales growth. Also, we've made a lot of efforts on AI advertising. A growing share of our marketing campaigns actually leverage AI-generated content to upgrade marketing creatives and media placement. This has actually boosted customer acquisition efficiency. Of course, we are also experimenting with AI agents to be used in solving problems like customer churn out or how to keep customers longer on our platform to improve their customer experience with our platform, we do believe AI has a lot of potential in driving efficiency as well as supporting our long-term growth.

Thank you. And our next question will come from Andre Chang with JP Morgan. Your line is open.

Good evening, Manager Chen. I have two questions here. The first question is about operating. We noticed that the company's net profit has improved this quarter, but the profit of the business, including the profit rate of the business, has still dropped. As Manager Chen mentioned before, it is expected that if the revenue of GMT returns to growth, there should be some scale economic effects. The second question is about the recent news that the company is considering listing in Hong Kong. I don't know if Guan Licheng can share his thoughts on this or anything else he can share. I'll translate it here. Thank you, management, for taking my question. I have two questions. The first question is about the operation. We noticed the company delivered decent net profit growth in the third quarter. However, the operating profit and the operating margin still delivered some decline year on year. Management mentioned before that the... increasing GMV and the revenue should help economy scale and the margin recovery. So we want to know when and through what effort the management expects that the operating margin and the operating profit can return to positive year-on-year growth. The second question is about the recent news talking about the management, the company is thinking about Hong Kong listing.

We wonder anything the management can share on this front. Thank you very much.

Hello, I'm Mark. Thanks for your question. Your first question is regarding our gross margin, and actually our gross profit margin declined in the third quarter, and it reflects our efforts to provide more customer incentive, and especially for SVIP and other high-value customers and standardized products to maximize sales and revenue growth. And for the longer term, we expect the gross profit margin to be comparable to the level in 2024, and largely stable around 23%, depending on the change our product makes from quarter to quarter. So except that, regarding the marketing expenses, we also increased a little bit the marketing expenses to attract more customers. And we think that in the future, those merchandising capabilities and also the AI Technology application and also the marketing senses. Well also the main trigger for our GM is growth and For your second question Actually, we have been closely followed the change for the market for the capital market and If there is any progress, we will update market.

Thank you

Thank you. And our next question will come from Wei Sheng with UBS. Your line is open.

Okay. Then, what are our investment plans for the users and the focus of this operation? How should we think about the increase in the number of users and revenue next year? The second question is that we just mentioned that this year's share return will still be completed according to the previous promise. I would like to ask if we have any initial thoughts on the share return plan for next year? I will translate it myself. Thank you, management, for taking my question. Firstly, we've seen the active customer number and revenue growth have turned positive this quarter. Should we expect continued sequential improvement in the fourth quarter? What are our investment plan and operational focus for users and for customers at the moment, and how should we think about the user growth and the revenue growth for next year? And secondly, just wondering, what are our latest thoughts on the shareholder return program for next year? Thank you.

Okay, let me answer the first question. Regarding the growth of users, for example, in this year's Q4, we hope that the performance will continue to be 0 to 5. Then we hope that the growth of users will be higher than Q3. And in the future, including in the future of Q, in the future of 2026, we hope that the growth of users will be stable. Because the growth of users' documents China. China. China the market.

So let me first translate our response to your question on customer and revenue growth for 2026 and beyond. I think for the longer term, we always stay focused on achieving steady growth in customer revenue and earnings. We believe the sustainable and profitable growth model revenue growth model should be driven by high quality growth in customers as well as pool. So for the near term, we do expect customer growth will accelerate, for example, in Q4 as compared to Q3 in terms of year-over-year growth. And for 2026, we continue to believe that revenue growth should be driven by growth in customer member and in addition to Apu. We've made a lot of efforts in driving customer growth and we're experimenting with a lot of new ways, whether it's marketing formats or channel investment, etc. All these efforts are oriented to acquire new customers, high-quality new customers, activate dormant or inactive customers, as well as continue to expand our SBIP high-value customer base. So we do have confidence that for the long term, we can drive the top-line growth on the basis of both customer growth and app expansion.

Okay, for the second question regarding the total return to the shareholder, our return to growth demonstrates our disciplined capabilities to manage the business to achieve balanced goals. And we are more confident that we can achieve relatively stable and healthy profit and cash flow levels. And for the past, we have returned over 3.4 billion US dollars to shareholders since April 2021 in the form of buyback and dividend. And for 2025, we are on track with our commitment to returning no less than 75% of the full year 2024 non-government income to shareholders. And as of the date we published the third quarter results, we have returned a total of over $730 million through dividends and buyback. For the next year, actually, we will continue to invest in our business to grow and improving profit and generate cash to support our dividend payment and buyback. We will evaluate appropriate level next year.

Thank you. Thank you, management.

Thank you. And I show no further questions in the queue at this time. I would now like to turn the call back to Jessie for 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.