Vipshop Holdings Limited Price & Performance (VIPS)

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 twenty twenty four earnings conference call. Expectations in the fourth quarter to finish a challenging year. While consumers still spend cautiously [indiscernible] categories, our Our team has flow actively doing changes address growth priorities with a focus on retail fundamentals and strong strong execution, At the category level, we saw some strength in apparel, which turned into positive growth in the fourth quarter of a high base Our team moved swiftly to include more unique off price seasonal offering that meets customer needs. Especially in sports wear and outdoor products. For the full year, apparel categories were up 2% from the year ago. Accounting for 75% of our total GMV the highest level in our history. That helped us once again close RMB200 billion in total annual sales. Our non apparel business also clearly narrowed its loss of sales in the fourth quarter. Driven in part by the Hi, can you hear me?

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Okay. Okay. Good morning and good evening, everyone. Welcome and thank you for joining our fourth quarter and full year twenty twenty four earnings conference call. We delivered a set of results well above our to finish our challenging year. While consumers still spend cautiously in this CenturyLink categories, our team has proactively driven changes to address growth priorities with a focus on retail fundamentally and the strong exclusions At the category level, we saw some strength in apparel, which turned into positive growth in the fourth quarter of a high base. Our team moved swiftly to include more unique off price seasonal offerings that meet custom needs. Especially in sportswear and outdoor products. For the full year, apparel categories was up 2% from a year ago, accounting for 75% of our total GMV the highest level in our history. That helped us once again across RMB200 billion in total annual sales Our non apparel business also clearly narrowed its loss of sales in the fourth quarter driven in part by the outperformance home appearance and digital products as we capture growth opportunities from the government trade in program. On the customer front, Super VIP memberships extended its double digit growth, which is a strong validations of our teams commitment to delivering a differentiated experience.

The fourth quarter, active super VIP increased by 50% from a year ago and accounted for 51% of our online On an annual basis, we had a total of 8,800,000 active SVP members who contributed 49% of our online spending last year. We are encouraged by these initial improvement after we identified key near term actions in each area and moved with urgency. In merchandising, we are getting shape on brand and product portfolio to stay highly relevant to custom needs. Value is on the full display through a series of operational and adjustment and the target incentive that help our customers shop for holidays and seasonal promotions. And we are engaging more with family shoppers with a more balanced assortment of apparel and non apparel products to drive in sentimental growth in frequency and multi category purchases. With these challenges, with these changes, we are better positioned going into 2025 Importantly, we remain very committed committed to our long term strategy in this country of And we dedicate our efforts to the long standing status that has been successful in driving quality growth That includes our unique business model merchandising approach with no compromise on qualities And Authentix, A strength focused on value that include low price and the compelling deals and suits our service that highlights reliably. [indiscernible] All these are put together through a differentiated strategy.

More specifically, the business highlights we continue to invest in our merchandising capabilities to become a even more reliable destinations for our customers. Following three years Initial enhancement program our team has been reshipped developed new expertise and mastered how to work in more impactful ways. We brought in over 1,500 new brands last year. Including officially partners with many high profile global banks. We built deeper relationships with several hundred co brands [indiscernible] in demand value for money offerings throughout the year. And managed our product portfolio and owner grid great level of breadth and depth Most recently, our team has started to dive deeper categories by category to seek opportunities by further expanding in the brand supply that we expect custom to truly feel the treasure hunting excitement Another area of focus has been adding more unique supply to make our differentiated product offering even better and bigger. The Made for VIP line did become a meaningfully driver for more than 200 brands who have joined this program last year. We saw persisted strength in sales all year long benefiting from quality customer and repeat orders. As well as clearly better conversions and compared to the general merchandising within the same brand categories and price range, with some brands up to 20% of their sales on our platform came from made for VIP last year.

Turning to customers. We remain largely pressured we are willing to spend when they find the right balance of quality products and the compelling price. Our SVIP customers are clearly more resilient and have a strong response promotions and the subsidies because the real value we provide for them. In addition, they find it enticing to get Even better deals lose the provide sales and special offers. We are happy to see that SVIPs continue to spend much more and more frequency than the regular custom. And vast majority of them have renewed their memberships with us. Given how fast things are changing, it is all the more important to put technology to work to drive to drive growth and efficiency. We are made [indiscernible] efforts to optimize search recommendations which start to incrementally improve customer experience and commissions. In addition, we are using the late the last general AI model to help our team work in the more productivity way enable them to serve brand partners and customer with greater efficiency We have made initial attempts and applications case such as Shopper Guide marketing contents, customer service, and analyze tools for brand partners. Despite ongoing uncertainty, we are confident in a long term development of our business given the continually Our strategy the merchandising strength are building upon and the growth initiatives we are taking in merchandise expansion and deepened engagement with different customer cohorts.

Most importantly, we have infused more flexibility into our business to compete and win in an environment where customers are focused on value. We are confident in our ability to move beyond the current situations and return to sustainable [indiscernible] a profitable growth in the long term. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results. Okay. Thanks, Eric. Hello, everyone. In the fourth quarter, we achieved a better balance our business. Took swift and disciplined actions to reallocate resources to maximize growth while preserving solid profitability. Top line can be embedded in our guidance. As our team has made every endeavor to seize growth opportunity, in both apparel and non apparel business. Flaming into categories, where we know customers are trying to get ready for holidays. Seasonal [indiscernible] Gross margin decreased year over year but remained at a decent level of 23%. Reflecting our stepped up [indiscernible] in customer incentives to drive quality growth On a full year basis, gross margin is an eight year high of 23.5%, benefiting from the all time high contribution from our apparel business. With an improved business scale, and a consistent execution, on operating efficiency. [indiscernible] Our bottom line held up pretty well.

In both absolute profit and the margin, in the quarter This helped us record over RMB9 billion is full year non GAAP net profit attributable to VIP Shop's shareholder at a solid margin of 8.3%. Which was largely comparable to a year ago. As we await consumer discretionary spending, to normalize over time. We believe we are on the right track to returning to healthy growth in the foreseeable future.

We continue to move at pace and align our focus around merchandising core categories value offering and customer impact. These growth initiatives are well supported [indiscernible] cash in our region capability. [indiscernible] Turning to capital allocation. 2024, we returned a total of approximately $770,000,000 to our shareholders through annual dividend and buyback. For 2025, as we consistently communicated, we will return to less than 75% of our full year 2024 non GAAP net income attributable to Viacom shareholders in a combination of annual dividend and buyback. This reinforces our commitment to shareholder value creation in the long term. [indiscernible] Moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented below are in Jeminbi. And all the opportunity teams are year over year teams. Unlike otherwise noted. Total net revenues the fourth quarter of twenty twenty four were RMB33 billion compared with RMB34.7 billion in the prior year period.

Gross profit was RMB7.6 billion, Compared with RMB, 8,200,000,000.0 in the prior year period. Gross margin was 23%, Compared with 23.7% in the prior year period. Total operating expenses was RMB5.1 billion, compared with RMB4.9 billion in the prior year period. As a percentage of total net revenues, Total operating expenses was 15.2% compared with 14% in the prior year period. [indiscernible] decreased by 2.5% year over year to RMB2.1 billion.

From RMB2.8 billion, in the prior year period. As a percentage of total net revenues, fulfillment expenses was 7.4% compared with 7.3% in the prior year period. [indiscernible] Increased by 10.3% year over year [indiscernible] RMB 843,200,000.0 in the prior year period. As a percentage of total net revenues, Marketing expenses was 2.8% compared with 2.4% in the prior year period. Technology and accounting expenses, decreased by 5.5% year over year to RMB 400 hundred and 69,200,000.0 from RMB $496,400,000.0 in the prior year period. As a percentage of total net revenues, technology and content expenses [indiscernible] as compared with that in the prior year period. General and administrative expenses increased by 20% year over year to RMB1.2 billion, from RMB1.0 billion in the prior year period.

As a percentage of total net revenues, General and administrative expenses was 3.6% compared with 2.9% in the prior year period. Income from operations was RMB2.9 billion, compared with RMB3.7 billion in the prior year period. Operating margin was 8.6% compared with 10.6% in the prior year period.

Non GAAP income from operations was RMB3.4 billion, compared with RMB4.0 billion in the prior year period.

Non GAAP operating margins was 10.2% compared with 11.4% in the prior year period. Net income attributable to Vipshop Shopster orders was RMB2.4 billion, compared with RMB3.0 billion in the prior year period. Net margin attributable to VIP Shop share was 7.4% compared with 8.5% in the prior year period.

Net income attributable to WeChat's shareholders per diluted ADS was RMB4.69, compared with RMB5.9 5 in the prior year period, Non GAAP net income attributable to Vipshop was RMB3.9 0 bill. Dollars compared with RMB 3,200,000,000.0 in the prior year period. Non GAAP net margin attributable to Vipshop shareholders was 9% compared with 9.2% in the prior year period. Non GAAP net income, a attributable to VIP Shop's shareholders Her diluted ADS was RMB5.70, compared with RMB 5.79 in the prior year period. As of December 31, '24, we had cash and cash equivalents and restricted cash of RMB 27.0 billion dollars in short term investments of RMB1.9 billion No. I will briefly walk through the highlights of our full year results. Total net revenues were RMB 100 RMB108 400,000,000.0 Compared with RMB $112,900,000,000 in the prior year.

Gross profit was RMB25 billion, Compared with RMB25.7 billion, in the prior year. Gross margin increased to 23.5% from 22.8% in the prior year. Income from operations increased by 0.8% Year over year, to RMB9.9 billion, from 9.18.5%. From 8.1% in the prior year. Non GAAP income from operations increased by 0.9% year over year to RMB RMB10.7 billion, from RMB10.6 billion. In the prior year Non GAAP operating margin increased to 9.9% nine point four percent, in the prior year. Net income attributable to VIP Shop shareholders was RMB7.7 billion, compared with RMB8.1 billion in the prior year. Net margin attributable to various subsidiaries was 7.1%, compared with 7.2% in the prior year. Net income attributable to Viadixiao shareholders per diluted ADS was RMB14 million compared with RMB14 in the prior year. Non GAAP net income attributable to Vybeyshop shareholders [indiscernible] Compared with RMB, 9,500,000,000.0 in the prior year. Non GAAP net margin attributable to VIP Shop's shareholders was 8.3% compared with 8.4% in the prior year.

Non GAAP net income [indiscernible] Her diluted ADS 16.75 compared with RMB 16.9 in the prior year. Looking forward to the first quarter of twenty twenty five, we expect our total net revenues to be between RMB 26,300,000,000.0.

And RMB27.6 billion, representing a year over year decrease 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 and A. Thank you. We will now begin the question and answer session. Right after. We will now take our first question from the line of Thomas Chong from Jefferies.

Hi, good evening. Thanks management taking my questions and congratulations on a very solid start of results. My first question is about our Q1 revenue guidance. Can management comments about our year to date performance so far? Are we actually seeing we are more towards the low end or the high end of the guidance And the CEM management also comments about recent consumer sentiment That's my first question. And my second question is about the 2025 outlook. Yes, I think it is a bit early right now, but it would be great if management can comment about how we should think about the revenue and the margin trend throughout the rest of the year. Thank you.

Okay. As for Q1 revenue guidance in terms of the year to date trend, because of the different timing of this vessel, it's not that ideal to look at single month in January or February If we look at January plus February to date, I think that actually our business is on track. Within our guidance, And when we assess consumer sentiment, we believe it's actually slightly better than expected although still we observe, it still takes time to to be fully back on the recovery trend.

But apparently, we think it's marginally better than prior quarters. And since it's still early into the And we have upcoming promotions in March. When we started to sell spring apparel. And until then, we may have a clear of how the quarter is going to end, whether it's lower or higher end of of the guidance. But for sure, we are on track For now, As for the full year, 2025, we think everything should get back to the positive Trajectory. That's what we hope. Whether it's GMV or revenue, Last year, we did not that the way our GMV is just was just a slight And because of the return rate, there is still some gap between GMV and the revenues. So revenue is slightly down, but we believe this year we will make every endeavor to bring the business back. From every in terms of every operating metrics Of course, we're going to high quality growth strategy as we have done consistently and we will MEGSIP tried to make efforts to MEGSIP our growth opportunities in terms of customer and revenue. Under the condition that we will maintain a solid profitability as well. We have an opportunity to invest a portion of our profit into growth opportunities, we will do that.

But overall, we will try to make sure we will maintain solid profitability and maximize our growth. Thank you. We will now take our next question from the line of Alicia Yap from Citigroup. Please ask your question, Alicia. Okay. Thank you. So two quick questions. First is that regarding your 4Q outperformance, just wanted to know a little bit more the the drivers. So is that mainly because of your effective marketing promotion? Or is that also benefiting from some improvement of the macro environment? And then second question is in your 4Q GMV, how much of that is actually benefiting or related to the trade in benefits? Thank you. [indiscernible] on Q4 turned out to be well ahead of expectations due to a couple of few factors. First, I think it helps a little bit because we start to see consumers became a bit more active from the November into December. When we see normalized weather conditions that helped our winter closing sales. And also consumer sentiment, it was not as bad as we had thought it's turned slightly better than prior quarters. And of course, we are did a lot of proactive actions in terms of the merchandising portfolio and more in demand value for money product offerings.

And also we did some decent promotions in the subseats, tag team, our high value customers, which brought in additional growth opportunities. And to your second question on the the related category benefit [indiscernible] it did help a little bit because we managed to narrow the loss of sales in our non apparel business But in terms of the absolute [indiscernible] not that meaningful. It's around $300,000,000 to 400,000,000 in terms of incremental GMV from home appliances and the digital products. In Q4. Okay. Thank you. Thank you. Next, we'll take question from the line of Wei Shung from UBS. Please ask your question, Wei. Thank you management for taking my question. First, I want to ask about the gross margin trend in 2025. Are we seeing further room to improve year on year on the basis of a very good result of full year 'twenty four. If there is, what are the drivers behind And also just to follow-up on the net profit margin for 2025 Given that we are trying to pursue the goal of GMV and revenue turning positive as soon as possible, Are we expecting stable net margin year on year? Or are we seeing further room to improve?

And also was our latest judgment on the long term sustainable net margin level for the company? Thank you. In terms of the margin trend, GP margin at [indiscernible] eight year high GP margin of 23.5% in 2024. [indiscernible] we actually think that's a very good level and we can afford to invest a portion of the gross profit for example, to our brand partners to to incentivize them bringing more merchandise and more deep discount inventory so that we can grow together. So we are thinking about prudently reviewing the take rate level with ramparts partners and allow them to have more opportunities for growing the business on our platform instead of just maintaining a fixed GP margin. Above the platform. And turning to NPE margin, we have pretty good command of managing the cost in the items. So we think in terms of the NPE margin, we are pretty confident we can achieve a flattish level as compared to the past two years, And in terms of the profit dollars, we try to grow our profit dollars as much as we can if we can grow into a better scale [indiscernible] apparently, we will and that will take a lot of pressure on operating deleverage.

And then we can achieve a greater NP margin as well as a much better profit dollar level. So in terms of the margin profile, we had We have no concern on that actually. We have pretty good command of the GP margin and NP margin.

Very clear. Thank you, management. Thank you. Next question comes from the line of Jialung Xu from Nomura. Please go ahead, Jialung.

So I have two questions.

So the AI has become a popular trend these days. So just wondering if there are any areas in this business where AI may help either improve profitability or reduce the costs. Just wonder if management can provide some colors. And the second question is wondering what is the trend for ARPU and the shopping frequency of Super VIP members? Thank you.

In terms of the AI application, I actually internally, we are moving very fast to invest into AI applications, including personalization, Q and A generation and product recommendation, etcetera, on a number of application cases Specifically, actually, we are [indiscernible] internally as well The immediate focus is, of course, to try to find opportunities to improve productivity. As well as efficiency. For example, customer service, we're trying to see whether DeepSeq can be integrated in our self developed model to improve the At analysis and reasoning of the many dialogues that are taking place customer service every day, we're trying to find if there is is any area of improvement And to brand partners, we're also launching new analytical tools to try to help them optimize their merchandising portfolio to promote their [indiscernible] [indiscernible] to see whether what kind of actions they should take to maximize business opportunities on our platform. So although we are not rolling out any two C application, publicly, but we are deploying AI and the latest gen AI models into our internal business cases on a broad basis And on the customer front, we are also trying to see whether we can leverage the latest DeJuan AI model to improve the generation of Q and A And we are constantly upgrading the model and try to make our recommendation to customers even better and and more precisely and more to their to their needs So we are using AI applications in our internal business and we are tracking the developments and we look to leverage AI on a constant basis to find opportunities for to drive both growth and efficiency.

To your second question on SVIP customer, last year in terms of annual ARPU, we did see a slight decline in In a slight decline, but that's more of a diluted impact from 16% increase in the annual active Super VIP customers. And it takes it normally takes some time for new SBIP member to run up his spending And if we look at hardcore two year customer cohort of our S VIP customer base actually the ARPU remains very resilient only see a slight uptick in terms of annual ARPU. So we think that the overall SBIP customers base is still very healthy And we look to expand the SVIP membership continuously and protect the overall health of the consumer group.

All right. Thank you. Due to time constraints, that concludes today's question and answer session.

At this time, I'll turn the conference back to Jesse for any closing remarks. Thank you for taking the time to join us today. You have any questions, please don't hesitate to contact our IR team. We look forward to speaking with you next quarter. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.