Vipshop Holdings Limited

Ladies and gentlemen, good day, everyone, and welcome to VIP Shop Holdings Limited's fourth quarter and full year 2025 earnings conference call. At this time, I would like to turn the call to Ms. Jessie Tseng, 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 the full year 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 Liquidation 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 release and public filing with the Securities and Exchange Commission, which also applies 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 this 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 2025 earnings conference call. This year has been defined by strategic alignment Operating resilience and a firm commitment to high-quality growth in a dynamic market. While we entered 2025 facing a multi-consumer environment, I'm pleased to report that the agility of our off-price retail model has allowed us to stabilize our top-line performance and continue to deliver robust profitability for the full year. Our first quarter results came in slightly below our expectations. This was primarily due to a deceleration in December sales as customer activity slowed. We attributed it to the weak winter apparel demand alongside delayed holiday shopping due to a later spring festival. While we saw short-term pressures this quarter, our long-term roadmap remains unchanged. We continue to make solid progress that reinforced our flywheels from merchandising, customer engagement to operations. In 2025, we implemented a strategic reorganization of our merchandising and customer engagement team to enhance agility, and long-term competitiveness. By enabling faster decision-makers and breaking down internal silos, we have unlocked a strong foundation for long-term growth. Throughout the year, our merchandising strategy centered on three pillars, enhancing customer relevance, building differentiations, and deepening category expertise. Advancing these capabilities has been fundamentally allowing us to consistently and effectively align high-value brand supply with involving customer demand. We are building a stronger, more connected portfolio of brands blended products. Last year, our merchandising team further deepened our supply network. This enabled us to acquire more quality, deep discount inventory, driving steadily sales growth across our most valued brands. Leveraging data-driven insights, we are proactively shaping a resilient assortment that wins in growth categories while keeping our supply chains responsive to shifts in customer needs. We are seeing encouraging early signal of cross-sell from apparel into related categories like mother and baby, childcare, and lifestyle. We will remain focused on refining these synergies to better serve our customer diverse needs. Our made-for-VIP line has become a key driver of differentiation, with sales in these exclusive categories grow by over 40% to account for 5% of online apparel sales in 2025. Having successfully built these foundations of scale, we are now in the position to evolve our approach for the next stage of growth. We are streamlining our exclusive products to build a clear identity and drive mindshare. When customers see an exclusive tag, they should instantly recognize a promise of high value and reliability. This is how we transfer the line into competitive definitions. Reliability, courage, on-trend selection, and exceptional value. Our optimistic buying pro-axis is another key differentiator allowing us to select a portfolio of high-demand items from top global and domestic partners. This delivers a compelling value proposition based in quality, price, and style. Combined with dynamic fresh sale and the trailer hunt experience, it drives wild custom apparel, food, excitement, and encourage repeat visits. We are moving faster to lock in more exclusive, low-priced inventory to attract high-value shoppers and deepen the discovery drive viable of our platform. To enhance customer experience, one team now manages the entire journey from initial brand and acquisitions to value-driven growth and lifelong engagement. We have enhanced our capabilities to target and engage user efficiency, which serves as the co-foundations of our full lifecycle customer strategy. Early progress is promising and we are focused on the sustainable runway ahead to build a more seamless, cross-category experience that maximizes lifetime value. The SuperVIP program remains the cornerstone of our growth. Active SVIP members sustained double-digit growth for the first quarter. For the full year 2025, Active SVIPs grow by 11% to $9.8 million, contributing 52% of our online spending. Through exclusive upgrades such as provide sales and family benefits, SVIPs consistently demonstrate significantly higher retention and repeat purchase than those of regular customers. Their sustained loyalty and spending power provide a reliable revenue stream and increase our apparel to brand partners, thinking high-quality customer access. Turning to the operations, we have enhanced our capabilities to better think merchandise with customer intent, delivering measurable results. We implemented multi-objective optimization in our search engine, directly improving convention rate. We also prioritized diversity and freshness in our recommendation engine, which has enriched the discovery and drive high browsing frequency and return visits. Look ahead, we are exploring generative search and recommendations to enable more dynamic, interactive, and integrate the discovery experience. Lastly, we have made great strides in deploying AI across our business to drive an tangible value with advanced AI applications in searching and recommendations customer service, and marketing. We are enhancing the customer experience and empowering our brand partners, laying strong foundations for deeper company-wide integration. Notably, our AI-powered customer service effectively automates routine interactions, improving the overall speed and the relevance of customer support. The system now manages the majority of products, inquires, and generates personalized recommendations with an automated resolution rate approaching 90%. AI-generated content is now widely used in marketing, driving efficiency and effectiveness taking our own campaign, for example, by leveraging AIGC to automate creativities and placements. We have reduced the production costs while optimizing the customer acquisition efficiency. Furthermore, we have used AIGC to generate, summarize our customer reviews and product portfolio, helping brand partners boost their sales effectiveness. With its full-scale launch, our AI virtual try-on feature has proven to be an effective driving of customer engagement. Initial dates confirm its impact on loyalty, showing that engaged customers have a high rate of repeat visits. Our next phase is fundamentally integration of AI, moving beyond stand-alone workflows to embed it within our co-operations, making it primarily drive our growth and business-wide efficiency. As we're looking back on 2025, we have become a more agile, customer-central, and technology-driven organization. We are enhancing our leadership in an off-price sector as a dispensable gateway for brands, navigations, China's shifting consumption landscape. As value shopping becomes a structural trend, we are uniquely positioned to capture high-value customers and expand our share of wallet through merchandising and the supply chain reliability. While the micro-environment remains dynamic, our focus strategy and the strength of the execution giving us great confidence in delivering sustainable profitability growth in 2026 and beyond. 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. We concluded 2025 with resilient performance and they're pinned by solid profitability in a dynamic market. This financial strength stems from our disciplined approach to investing, ensuring that every dollar we deploy advances our core business and builds lasting momentum. Over the past year, we focused on enabling the business with agility, ensuring our investments in merchandising, consumer engagement, and operational upgrades, as well as AI enhancements directly strengthen our business core. This discipline has translated into quality earnings and is building the foundation for durable competitive advantages. As Eric emphasized, we have untenable progress. which has repositioned us for sustained momentum. Our focus remains on stewarding our capital to support its business priorities, ensuring we have both the flexibility and the financial foundation to execute our long-term growth strategy. Turning to capital returns, I am pleased to confirm that we delivered on our 2025 commitment, returning a total of US$944 million to shareholders through dividends and share repurchase. For 2026, we are maintaining this momentum, consistent with our prior year's policy. We intend to distribute no less than 75% of our full year 2025 non-GAAP net income attributable to VIP shareholders. This will be executed through an increased annual dividend of approximately $300 million. as well as the continuation of our share repurchase program. These actions reflect our confidence in the company's cash generating capability and our steadfast commitment to shareholder value creation. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers present below in Yanminbi and all the percentage change are year-over-year change, unlike otherwise noted. Total net revenues for the fourth quarter of 2025 were RMB 32.5 billion, compared with RMB 33.2 billion. in the prior year period. Gross profit was RMB 7.4 billion compared with RMB 7.6 billion in the prior year period. Gross margin was 22.9% compared with 23.0% in the prior year period. Total operating expenses decreased by 3.7% year-over-year to RMB 4.9 billion from RMB 5.1 billion in the prior year period. As a percentage of total net revenues, total operating expenses decreased to 15.0% from 15.2% in the prior year period. Fulfillment expenses decreased by 1.0% year-over-year from RMB 2.4 billion from RMB 2.5 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 7.5% compared with 7.4% in the prior year period. Marketing expenses decreased by 6.1% year-over-year to RMB 873.7 million from RMB 930.3 million in the prior year period. As a percentage of total net revenues, marketing expenses decreased to 2.7% from 2.8% in the prior year period. Technology and accounting expenses decreased by 9.3% year-over-year to RMB 425.5 million from RMB 469.2 million in the prior year period. As a percentage of total net revenues, Technology and content expenses decreased to 1.3% from 1.4% in the prior year period. General and administrative expenses decreased by 5.2% year-over-year to RMB 1.1 billion from RMB 1.2 billion in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 3.5% from 3.6% in the prior period. Income from operations increased by 1.7% year over year to RMB 2.90 billion from RMB 2.85 billion in the prior year period. Operating margin increased to 8.9% from 8.6% in the prior year period. Non-GAAP income from operations was RMB 3.2 billion, compared with RMB 3.4 billion in the prior year period. Non-GAAP operating margin was 10.0% compared with 10.2% in the prior year period. Net income attributable to VIP shop shareholders increased by 5.8% year-over-year to RMB 2.6 billion from RMB 2.4 billion in the prior year period. Net margin attributable to VIP shop shareholders increased to 8.0% from 7.4% in the prior year period. Net income attributable to VIP shop shareholders per diluted ADS increased to RMB 5.12 from RMB 4.69 in the prior year period. Non-gap net income attributable to VIP shop share holders was RMB 2.9 billion, compared with RMB 3.0 billion in the prior year period. Non-gap net margin attributable to VIP shop share holders was 8.8%. compared with 9.0% in the prior year period. Non-gabinet income attributable to VIP shop shareholders per diluted ADS was RMB 5.66 compared with RMB 5.70 in the prior year period. As of December 31, 2025, we had cash and cash equivalents and a restricted cash of RMB 24.1 billion and short-term investments of RMB 5.8 billion. Now, I will briefly walk through the highlights of our full-year results. Total net revenues were RMB 105.9 billion, compared with RMB 108.4 billion in the prior year. Gross profit was RMB 24.5 billion, compared with RMB 25.5 billion in the prior year. Gross margin was 23.1%, compared with 23.5% in the prior year. Income from operations was RMB 8.1 billion, compared with RMB 9.2 billion in the prior year. Operating margin was 7.7%. compared with 8.5% in the prior year. Non-GAAP income from operations was RMB 9.9 billion compared with RMB 10.7 billion in the prior year. Non-GAAP operating margin was 9.3% compared with 9.9% in the prior year. Net income attributable to VIP shop shareholders was RMB 7.2 billion compared with RMB 7.7 billion in the prior year. Net margin attributable to VIP shop shareholders was 6.8% compared with 7.1% in the prior year. Net income attributable to VIP shop shareholders per diluted ADS was RMB 14.15, compared with RMB 14.35 in the prior year. Non-GAAP net income attributable to VIP shop shareholders was RMB 8.7 billion. compared with RMB 9.0 billion in the prior year. Non-gantt net margin attributable to VIP shop shareholders was 8.3%, which remains stable as compared with that in the prior year period. Non-gantt net income attributable to VIP shop shareholders per diluted ADF increased to RMB 17.08 compared with RMB 16.75 in the prior year. Looking forward to the first quarter of 2026, we expect our total net revenues to be between RMB 26.3 billion and RMB 27.6 billion, representing a year-over-year increase of approximately 0% to 5%. Please note that this forecast reflects our current and the preliminary view of the market and operational conditions, which is subject to change. I would now like to open the poll 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. To answer your question, please press star 1 1 again. We kindly ask analysts to translate the question into Chinese if they are bilingual. Once again, to ask a question, please press star one and one we will now take the first question coming from the line of ronald kung from goldman sachs please go ahead hey did you uh

First of all, I would like to ask about the seasonality of the Spring Festival. Because of the guidance of 1Q, there is still a certain increase. So I would like to hear what we think about the demand from the beginning of the year to now. And the factors of the time of the Spring Festival, have they affected the ratio of the business we saw last week? Second, I would like to ask about How do you think about the 26-year margin? I think that the 25-year margin is basically an increase in profit. In terms of the 26-year margin and cost, do you think that the profit rate can be stabilized or there are new investment points? How do you think about the 26-year profit?

Thank you.

Hi, Ronald, would you please translate your question into English, please?

So maybe I'll just translate the question first, and then let Eric respond to the question. So the first question is about the quarter to date. business performance, whether the seasonality, especially a late spring festival, has impacted the business performance and have we seen any recovery in the business based on the guidance? It seems like we are accelerating revenue growth a little bit. The second question is about the margin outlook for 2026. Because we have seen that margins for 2005 seem to be under a little bit of pressure in terms of GP margin and NP margin, whether we have new investments for 2026 and how do we think about gross margin cost and expenses and NP margin, whether we can stabilize our margin profile.

Let me answer the first question, which is about the expectations for Q1. Last year's Q4, we actually encountered a problem with the warm winter. In the industry, last year's winter, due to the weather, clothes were not sold well. People have a weak desire to buy clothes. In this year's Q1, we saw The overall situation has improved. Although there are some problems with the timing during the Spring Festival, if we look at January to February, the overall growth is good. So we still have confidence in Q1 this year. We also gave a growth expectation of 0 to 5. So we think the overall situation is good. The second question is about the profit margin. We know that in the current situation, we need to do a stable management. Therefore, the management has estimated that we still need to maintain our profit margin for the next 26 years. At least, we need to maintain the same level as last year and even do better.

Okay, so on the first question regarding the Q1 guidance, let's take a look at Q4 first. I think our online sales actually took a hit in Q4, especially in December. It was way too warm in China, in most regions, for people to buy winter clothes. And since Chinese New Year is late this year, nobody was actually in a rush to shop for the holiday. Because of that, apparel didn't sell nearly as well as our other categories. But as we're heading to the first quarter, Q1, actually we have seen consumer activity has clearly picked up, largely driven by new year shopping. And if we look at January and February combined, actually, a nice recovery in our core business. So this has kept us firm on track with our guidance of 0% to 5% top line growth. We are confident that we can deliver that growth for Q1 and for the rest of the year. Second on margins, I think our business philosophy has been very consistent. We remain focused on high-quality growth, sustainable, profitable growth for the business. especially in a dynamic macro environment today. So we expect margins will be stable, and we will make every effort to outperform in terms of margins for 2026 and beyond.

Thank you.

Thank you. Once again, to ask a question, please press star 1 and 1. And we'll remind analysts to ask their question in Chinese and English if possible. Our next question comes from the line of Alicia Chubb from Citigroup. Please go ahead.

Hello. Good evening. Thank you. Good evening. Thank you for accepting my question. I have two questions. I'll ask them in Chinese first. The first question is about the growth of the users. I remember that the previous management team actually said that we hope to see the growth of the users continue. But I don't know if our management team has any expectations for the growth of users in 2026. And then for the entire user demand, we are looking at the entire demand for clothing and non-standard products. And then the second question, I want to ask about AI. I don't know if my idea is right. That is to say, whether it is complete or not. For example, the clothing that Weipin will buy is actually... more able to deal with the impact of AI, because it feels like there are a lot of models, and it feels like AI is not easy to replace from an agenda, commerce, and booking situation. And I don't know if we will invest more resources to limit, for example, like this one, I will translate it myself here. So thanks for taking my questions. I have two questions. First is that related to the user growth. I think management previously commented that, you know, we are hopeful to see the user growth momentum to sustain. So just wondering if management could share with us what is your expectation for the user growth for 2026? And then regarding the demand, How are you seeing the demand for the apparel versus the non-apparel growth? And second question is related to AI. Just wondering, does management believe the overstocked business model that we have for VIP shops, would that be actually more resilient against these agendic commerce And with that, will VIP actually invest more resources into growing the offline business such as the Sunshine Outlook? Thank you.

我来先回答第一个问题,就是我们自己对用户增长是非常关注的,因为是有用户增长才会有业绩增长。 Then we originally expected, for example, that the user of Q4 is a positive growth, but it is also because of Q4. This shopping demand is rapidly declining, so it is not as expected to lead to user growth, but we want to hope that by 2026 Then we will walk to a normal track, then we believe that in 2026 We also want to make users grow and grow and grow more and more, so that we can guarantee our sales performance, so because For example, the return rate will increase every year, so the growth of users will be higher than the growth of our performance. In order to ensure that we have a positive growth in our financial performance every year. In addition, the purchase trend of the overall user, including the overall current consumption situation, users are indeed I think it's a very valuable purchase, so it also motivates us to create value for users. If it is to make clothes, to make discounted clothes, then let users feel that it is really worth it. In addition, we also need to make some improvements in terms of standard products, because we have also adjusted some standard products policies this year. We also hope that the user can buy some better standard products when they come to us. So our overall product policy adjustment is to encourage users to buy more, to have a stronger face, and to have a long-term healthy user growth. The second point is to answer the question of AI. We ourselves believe that AI is indeed rising. In the future, we ourselves believe that The entry, including the recommendation of AI, will actually have some impact on e-commerce, but it will take some time. But we also think that no matter how AI works, if we can hold on to this kind of inventory in terms of goods, this kind of diversified, low discount, valuable goods, then we will not fall too hard. In addition, online is still continuing to roll. Then we ourselves think, for example, like 332, then this kind of physical store, then including user experience, the time of shopping of the user, like this is really able to resist the entry of AI, then including us, in fact, in the future, 332 may have to be done bigger, then including the growth of the store's health, then the sales have to be stronger, then what we said,

So on the first question about customer growth, customer growth is definitely our top priority. That's actually the foundation for sales growth and ultimately profitability. In Q4, we have thought we should have maintained the customer growth momentum, but due to an expected slowdown in consumer activity, actually, customer growth is a little bit under pressure. We expect customers to regrow for 2026. And ideally, we should see customer growth is actually faster than sales growth to offset the impact of a slightly rising return rate. So we are definitely going to make every effort to bring customer back to growth track in 2026. On the second question regarding category preferences, consumers are still, generally speaking, still cautious and selective and value conscious, but they continue to shop across different categories, including discretionary categories. They just need strong reasons to do so. So that's why we focus so much on providing the best value across the shopping carts, including apparel and non-apparel categories. And we are making changes in both categories, especially in standard categories, to drive repeat business for our most valuable customers, including SVIP and high-value customers. to increase their cross-category purchases for family shopping. Lastly, AI. Definitely, AI is fundamentally transforming many industries, including the e-commerce industry. And for an off-price retailer like VIP Shop, we are definitely adapting to this trend. to remain competitive. We believe fundamentally our business model relies on merchandising on how well we can secure quality deep discount inventory, how well we can provide a better value for customers. We think as long as we make a difference in merchandising and supply chain reliability, we will not be left behind. Of course, the online business is a hyper-competitive business. That's why we look for, we're constantly looking for opportunities offline, especially with the outlet business, which proves to be a very good business model in terms of stable revenue streams and So we are actually expanding our presence for Shenzhen Outlets, which are doing great in terms of sales and profit contribution. And we expect a major pace of expansion into more cities and regions and the geographies. We expect to see continued strong growth in terms of sales. revenue and profit from Shenzhen business. And we expect with a strong offline presence, we will be able to offset any potential challenge from AI.

Thank you. There are no further questions at this time. At this time, I would like to 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.