Vipshop Holdings Limited

Ladies and gentlemen, good day everyone and welcome to VIPShop's Holdings Limited Second Quarter 2026 Earnings Conference Call. At this time, all participants are in the listen-only mode. I would now like to turn the call over to Miss Jessie Zheng, VIPShop's Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining VIPShop's Second Quarter 2026 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 Integration 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 urgent 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 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 Chen.

Good morning and good evening everyone. Welcome and thank you for joining our second quarter 2026 earnings conference call. The second quarter presents a challenging retail environment defined by a customer who is not just value conscious but highly selective across the multi-media promotional landscape. Shoppers were intensely focused on clear Utility and Real Value, prioritize, essentially meet great cautions in discretion categories like apparel, waging on our near-term top-line performance. In this climate, rather than chasing unprofitable, rather than chasing unprofitable, Unprefutable Value Growth, we stayed true to our core value proposition, delivering a highly-created select of high-demand, deeply-discounted banned products to our loyal customer base. While overall traffic was muted, our SVIP cohort served as a resilient anchor for our business. During the quarter, Active SVIP grew by 8% year-over-year, driving 54% of our online spending, showing that as customer budget tightened, high-intent shoppers prioritized platforms offering trust value, quality, and service. At the strategic level, our 1P model gives us a distant edge. By leveraging deep category expertise, we built greater trust with brand partners to the point when they actively adjust their merchandise allocations for our platform. For instance, closer collaborations with key partners in fashion apparel has helped offered against the board market awareness. This level of brand integration strength our mode and protects our co-business. On top of this, our merchandising team has been moving quickly to align our product mix with more selective customers. We have sharpened our creation along the co-apparel and lifestyle essentials, matching our assortment to real-life occasions to capture immediate demands. This target approach ensures that we always deliver clear utility, recognize the brand, and compelling value. Our opportunities sourcing strategy adds another layer of inventory flexibility. As brand partners manage inventory in a software market, we serve as a reliable off-price partner. locking in unique high-demand inventory at deep discounts. This reinforced our differentiated merchandise pipeline and forced deep brand collaborations. At the same time, we continue to advance the repositioning of our exclusive made-for-VIP shop line to drive stronger customer mindshare and loyalty by raising product spend and Alain, the seasonal launches close with brand partners. We are seeing high-quality, high-quality products emerging, living convention rate and support overall portfolio stability. As we kick off the upcoming season, we are pleased to see that our SVIP membership has hit the 10 million milestone. To continue the momentum, We are launching an integrated campaign paired with the full collection and the major upgrade to provide sales. At the core of this push, we are refreshing our signature slogan, dress the best for 70% less, which has long risen deep with our loyal base. To ensure we keep evolving alongside the modern Chinese shopper, We are refreshing our campaign reach to both younger and mature demographic while reinforced enduring through across every market cycle. That shoppers consistently demand great high quality fashion at unbeatable price. Grounding our mindshare in smart value allow us to double down on our off-price advantage attract high value shoppers. and drive high-quality clothes. Alongside our branding refresh, our customer engagement strategy focused on retention and the lifetime value, rail 70% less, saving power our core apparel, delivering present supplies affordability that convince new shoppers, providing a tailored paired service model to our SVIP along us to capture greater wallet share over time, making SVIP loyalty as the primary engines of operational stability and the profitable growth. Turning to our technology roadmap, we are deepening AI integration across our business. On the customer side, our AI product is driving tangible results. Virtual try-on thickness is steadily up. Intelligent customer service with AI voice, interactions, and predictive capabilities is lifting convention rate. and AIGC is enable faster discovery. Marketing remain our most impactful app case to date. Our upgrade AI marketing agent now enable optimized from placement planning to AIGC creative matching across the right channels. We see clear room for this integrated approach to further drive Acquisitions efficiency while improving customer quality. Operationally, we are scaling AI beyond the individual tools into a unified, secured intelligence layer across the business. We are already seeing early win in supply chains, optimizations, and the daily operational workflows. Overall, we remain focused on this print execution today while building towards our long-term vision. While we continue to navigate near team, Michael Hedwin, with caution, I have full confidence in our proven model, solid foundations and team. As we sharpened our merchandising, elevate the customer experience, and scale technology, we are firmly positioned on our best way the pace back to the sustainable growth. Finally, I would like to briefly cover Shanshan Outline, a key part of our omni-channel discount retail strategy. Since our acquisitions in 2019, we have driven disciplined expansion across emerging tier one, tier two, and key cities. Today, Shanshan has scaled from 5 to 22 operational outlets more, becoming China's largest outlet chain by store count and maintain a top-tier position by total GMV. In the first half, Shanshan Outlets continued its strong-scale momentum with over 20% year-over-year growth. capitalizing on the value-seeking trend and the unique in-person shopping experience of offline retail. Looking ahead, we expect its business contributions to the globe to increase steadily. 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 second quarter, Our top line came in at the lower end of our guided range, reflecting broad-based softening in consumer sentiment. Despite ongoing pressures, we maintained disciplined execution, which provided strong visibility into our operational trajectory, enabling us to preserve co-operating profitability and margin health. As noted in our earnings release, our non-GAAP net income was temporarily impacted by a one-time withholding tax adjustment, which I will elaborate on shortly. Adjusting for this non-recurring item, our underlying non-GAAP net profit remains solid at RMB 2.0 billion with a net margin of 7.9%. demonstrating our underlying profitability and the core cash generation remains fully intact. As Eric mentioned, quality, sustainable growth remains our core priority. While micro headwinds persist, we continue to focus on strengthening our competitive moat and strategically reinvesting to fortify our fundamentals for profitable and long-term expansion. During the first half, we distributed approximately 400 million US dollars to shareholders through a combination of cash dividends and a share repurchase. Reflecting the anticipated utilization of our existing authorization, The Board of Directors has approved a new $1 billion share repurchase program. This underscores our firm's commitment to returning no less than 75% of our full-year 2025 non-denominational income to shareholders, supported by solid business fundamentals and the resilient underlying cash generation. We remain fully confident in our capacity to achieve this capital return target. In addition, to unlock the value of our high-quality assets and optimize capital efficiency, we successfully launched two public REITs backed by three material extension outlets properties. A consumer infrastructure REIT and the commercial rates. This not only improves the quality of our outlet portfolio and their market evaluation, but also creates a capital recycling loop that allow us to reinvest the proceeds from material assets directly into DC plane expansion. We believe this model maintains our financial flexibility while supporting the sustainable growth of our outlet business, driving asset devaluation, and creating sustainable value for our shareholders. 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 renminbi. and all the percentage change a year-over-year change and like otherwise noted. Total net revenues for the second quarter of 2026 were RMB 24.7 billion compared with RMB 25.8 billion in the prior year period. Gross profit was RMB 5.8 billion compared with RMB 6.1 billion in the prior year period. Gross margin was 23.3% compared with 23.5% in the prior year period. Total operating expenses decreased by 2.4% year over year. to RMB 4.5 billion from RMB 4.6 billion in the prior year period. As a percentage of total net revenues, total operating expenses were 18.0% compared with 17.7% in the prior year period. Fulfillment expenses were RMB 2.14 billion, compared with RMB 2.11 billion in the prior period. As a percentage of total net revenues, fulfillment expenses were 8.7%, compared with 8.2% in the prior period. Marketing expenses were RMB 760.3 million compared with RMB 716.9 million in the prior year period. As a percentage of total net revenues, marketing expenses were 3.1% compared with 2.8% in the prior year period. Technology and content expenses were RMB 486.2 million compared with RMB 442.0 million in the prior year period. As a percentage of total net revenues, technology and content expenses were 2.0% compared with 1.7% in the prior year period. General administrative expenses decreased by 17.5% year-over-year to RMB 1.1 billion, compared with RMB 1.3 billion in the prior year period, primarily due to higher share-based compensation expenses for Shanshan Outlets reported in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 4.3% from 5.0% in the prior year period. Income from operations was RMB 1.5 billion, compared with RMB 1.7 billion in the prior year period. Operating margin was 6.2% compared with 6.6% in the prior period. Non-GAAP income from operations was RMB 2.0 billion compared with RMB 2.4 billion in the prior period. Non-GAAP operating margin was 8.1%, compared with 9.3% in the prior year period. Income tax expenses were RMB 3.3 billion, compared with RMB 407.2 million in the prior year period. The increase was primarily given by two items. The first one is an income tax extension of RMB 1.63 billion relating to the one-off investment gains recognized by Shenzhen Commercial Group, the original holder of the underlying assets, on the issuance of commercial rates. And the second one is an accrued withholding tax extension of RMB 1.63 5, 6 billion, reflecting the withholding tax treatments of historical dividend distributions from mainland China to Hong Kong regarding ethical policies on tax treaty balances. Excluding the tax impact of these discrets and non-operating items, the companies normalized the effective tax rate for the second quarter of 2026 remain stable year over year. Here, I would like to emphasize that our company has always operated and continues to operate in full compliance with applicable tax laws and regulatory guidelines. The withholding tax adjustments reflect adjustment of historical dividend distributions and expect it to be titled in third quarter. Going forward, the company will continue to accrue dividend withholding tax as a statutory rate for any onshore earnings allocated for offshore repatriation. While this will increase for the cost of direct unshowered to offshore equity remittance. With this cash repatriation, a 1-2 in our broader capital structure took place. Net income attributable to VIP shop shareholders increased by 189.1% year-over-year. to RMB 4.3 billion from RMB 1.5 billion in the prior year period, primarily due to a one-off investment gain of RMB 5.79 billion from the listing of a commercial rate. Net margin attributable to VIP shops shareholders increased to 17.4% from 5.8% in the prior period. Net income attributable to VIP shop shareholders per diluted ABS increased to RMB 8.82 from RMB 2.91 in the prior period. Non-GAAP net income attributable to VIP shop shareholders was RMB 392.2 million compared with RMB 2.1 billion in the prior year period. Non-Gabnet margin attributable to VIP shop shareholders was 1.6% compared with 8.0% in the prior year period. Non-Gabnet income attributable to VIP Shop shareholders per diluted ADS was RMB 0.80 compared with RMB 4.06 in the prior year period. As of June 30, 2026, the company had cash and cash equivalents and restricted cash of RMB 29.9 billion, and short-term investments of RMB 3.6 billion. Looking forward to the third quarter of 2026, we expect our total net revenues to be between RMB 20.3 billion and RMB 21.4 billion, representing a year-over-year decrease. of approximately 5% to 0%. Please note that this forecast reflects our current and preliminary view of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A.

Thank you. We will now begin the question and answer session. To ask a question, please press star, one, one, and wait for a name to be announced. If you wish to ask the management your questions in English, kindly translate them in Chinese. One moment for our first question. The first questions will come from the line of Thomas Cho of Jefferies. Please go ahead.

Hi, good evening. Thanks, management, for taking my question. My question is about the consumer sentiment. Can management comment about how we are seeing the sentiment so far? And on that front, can we comment about the monthly revenue trend that we are seeing since April till now? Given that we are already like two months into quarter, Are we actually seeing our revenue hitting the low end or the high end of the guidance? And finally, can management comment about the second half outlook? Thank you. 晚上好,謝謝管理層介紹我的提問。 我的問題是關於最近一段的時間, 我們看到整體的消費情勢有沒有發生一個什麼大的一個改變呢? In addition, from July to now, it has been almost two months. I would like to ask you about our revenue guidance. It will probably be placed at the low end or high end. And then finally, I would like to ask you about how we view the entire next half year. Thank you.

The overall mood of consumers is not that high. We now also feel that consumers in China are not buying everything at the same time. If there is value, they buy. If there is no value, they don't buy. They can spend less money. So this is the current situation of consumer consumption. In addition, if we look at Q3, In July and August, we saw that the situation in July and August was a little better than in June. But it didn't get any better. So we actually look at that. We expect that in July and August, including the second half of the year, we think that the overall consumption will be much different from the past. So we ourselves, for our whole year, including the second half of the year,

In terms of the general consumer sentiment, we find consumers are not particularly into the assets. They are actually not buying into everything. They are very value-seeking. and they're very budget conscious and they're very selective. So as we enter into Q3, across our sector, we continue to observe pressure quarter to date from July to August. We do see some recovery in terms of sales momentum, but it's only slightly better It's far from being good. So that's why we think that for the second half and for the full year, we may see a similar consumer sentiment as we have seen in the first half. That will bring our total revenue for the full year to be slightly negative from last year.

Thank you. Questions, please hold for our next question.

Our next questions will come from the line of Alicia Yap of Citigroup. Please go ahead.

Hello, thank you. 管理層晚上好,謝謝接受我的提問。 我先用中文問一下。 我想請教一下,因為我看到我們二季度 Thanks management for taking my questions. I have a question on the operating income. We noticed that it seems that the operating margin seems to be declining on the year-over-year trend. How should we be thinking about the growth margins, operating expenses, and also operating margin trend for the third quarter and the fourth quarter? Thank you.

Let me answer that. I saw that the Q2 operating profit rate In fact, it is a little less than last year. So we are actually mainly because of the return rate. I said that it will continue to rise every year. So it leads to our storage costs will increase a little more than in the past. So overall, we are at the front end. There is no too much change. For example, our profit margin should actually be even slightly higher than the past. So the other thing is that it is possible to include our business if it is negative. All of our personnel costs, total, will actually be consumed more. So in general, we believe that the operating profit rate is not an accident. It is just the impact of these two aspects. In addition, in the future Q3 and Q4 profits, We are still confident. We have done a lot of subsidies outside. We never do subsidies. We think that we should still make good health profits, including the health development of enterprises. So we think that in Q3 and Q4, we can keep up with the net profit rate of each quarter. that we think will do the same. There won't be too much of a change.

On margins, in terms of operating margin, we do see a slight decline year over year for Q2. That's primarily because we see a certain level of deleverage from fulfillment expenses, which is increasing. proportionally as return rates are still going up. Actually, when we look at our GDP margin, it's flattish and it's even growing, which implies that we have a strong management on managing the growth margin and the growth profit. In addition, we do see certain operating leverage from fixed costs and expenses as the revenue scale becomes smaller due to macro pressure. But overall, we expect operating margin will continue to be quite resilient given our structural cost and expense discipline. The second half for Q3 and Q4, we are pretty confident in managing the structural health of our business. And as you look externally, you see a lot of industry players actually investing in unprofitable subsidies. That's not what we are going to do. Our focus remains steadfastly on maintaining a healthy level of profitability and margins. So we do expect our margins, especially the NP margins, will remain relatively stable for the second half. Thank you.

Questions, please hold for our next question. The next questions will come from the line of Vicky Wu of CICC. Your line is open.

Thank you for accepting my question. I see that this time with holding tax, there is a relatively large adjustment. Just now, Mark explained a little bit. I would like to ask some more specific reasons here. I'll translate it myself. We've noticed an adjustment regarding the withholding tax this quarter. Could management elaborate more on the reasons for this? And is this a result of a penalty imposed by the tax authority? Looking ahead, will this affect your plans for share buybacks and dividend payouts? Thank you.

Okay, thanks for your question. And then, Mark, first of all, this is absolutely not a penalty. and the company is and has always been in full compliance with applicable tax laws and regulatory guidelines. And these adjustments represent a prudent step in the company's continuous enhancement of its compliance framework. Through a proactive reassessment aligned with prevailing best practice, we are mitigating compliance risk and providing greater tax certainty. This is not a compliance funding or Penalty. And withholding tax on dividend is a transaction cost associated with capital mobility, not an operational expense. Our cooperating margin in the pre-tax cash flows remains fully intact. The company maintains multiple avenues to optimize offshore liquidity and the cash repatriation is just one of them. Accordingly, we anticipate an impact on our future net margin to be minimal. The company remains fully committed to our long-term shareholder return promise. Thank you.

Thank you for the questions. Please hold for our next question. The next questions will come from the line of Sardona Fung from UBS. Your line is open. Please go ahead.

Thank you, management, for taking my question. Thank you, management, for taking my question. I would like to ask about Shasha Outline. 2Q has a very strong growth performance. How do you expect the growth to be in the second half of the year? After two REITs were completed, how will the rest of the Outline projects So congrats on the strong Shanshan 2Q GMV growth performance of over 20%. What's management outlook for the second half? And now that the two REITs have already completed their listing, what would be the pace of progress on the securitization of the remaining outlet projects that management can share? And lastly, on shareholder return, noted that the company resumed buybacks in second quarter, and management also announced a new buyback program in August of $1 billion. How should we think about the level and pace of shareholder returns for the second half? Thank you.

Yes, I will answer the first question first, and then Mark will answer the second question. The first question is, we can see that Shanshan's growth trend is good. Overall, Q1 is actually better, because in China's entire large consumer environment, Q1 is actually quite good. Q2 growth is also good, so Q1 and Q2 added together is 20%. Our expectation is that Q3 and Q4 can also achieve and many more. But according to our judgment, it should be able to do it. In addition to that, because they have a new store, if it is the same store, the same store, the past store, we hope that there will be double-digit growth. So in general, we think that the development of Shanshan is relatively reliable. In addition, he just asked if the next Ritz project, right?

We are quite optimistic about Shanshan outlets growth momentum in the first half. Shanshan outlets grew by over 20% in terms of G&E. Actually, the first quarter turned out to be much better and followed by a very decent second quarter given the general soft consumer sentiment today. We continue to expect a similar growth momentum for the second half, and we do believe that over 20% JME Growth is completely achievable and actually we have higher standards for comparable same store sales for the existing Shenzhen outlets, which we believe will grow at least double digits.

Okay, Mark, and let me answer your second and third questions. Your second question is regarding the risk figures in the planning. Well, on June 18, 2026, we successfully leased our commercial REIT on the Shanghai Stock Exchange. And the listing makes a significant strategic milestone for VIP Shop, expanding our presence from consumer infrastructure REITs into the broader commercial REIT arena. And the REIT reached a total of RMB $7.7 billion. making it the largest commercial REIT in terms of the fund greasing scale among the first batch of commercial REITs listed on China's capital markets. There are two underlining assets, Shanshan Outlets in Zhengzhou and Harbin in the commercial REIT. Both are material outlets operating for around 10 years. Both outlets hold leading position in their regional markets. The Zhengdu Outlet is the highest grossing outlet in Henan Province, while the Harbin Outlet ranks first in Heilongjiang Province. In addition to the three outlets already used as underlying assets for the REIT issuance, we also hold another 18 outlets projects, demonstrating strong potential for future expansion. We will conduct future evaluation based on our strategy and the market conditions. And your third question is regarding the buyback. Well, during the 2021 to 2025, we have already returned US$3.7 billion to shareholders. Our long-term returns to shareholders is built on our strong business model and health cash flow. External factors may cause short-term volatility in our business. Our corporation manages to deliver stable and robust profitability across economic cycles. This chance let us keep providing sustainable returns to our shareholders over time. For 2026, we remain fully committed to our full-year shareholder return policy. which targets total payout ratio of no less than 75% of our 2025 non-GAAP debt income. And in first half, we have distributed approximately 400 million US dollars through dividend and buyback. Reflecting the anticipated utilization of our existing authorization, the board of directors have approved a new one billion US dollar share repurchase program. We will continue the back-to-back opportunistically in the quarters ahead. Thanks.

Thank you. Thank you for the questions. Due to time constraint, 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.

That concludes today's conference call. Thank you for your participation. You may now disconnect your line.