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Edited Transcript of VIPS earnings conference call or presentation 13-Nov-19 12:30pm GMT

Q3 2019 Vipshop Holdings Ltd Earnings Call

Guangzhou Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Vipshop Holdings Ltd earnings conference call or presentation Wednesday, November 13, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Donghao Yang

Vipshop Holdings Limited - CFO

* Jessie Fan

Vipshop Holdings Limited - Head Of IR

* Ya Shen

Vipshop Holdings Limited - Co-Founder, Chairman & CEO

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Conference Call Participants

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* Andre Chang

JP Morgan Chase & Co, Research Division - Analyst

* Chen Shen

BOCI Research Limited - Research Analyst

* Ellie Jiang

Macquarie Research - Analyst

* Joyce Ju

BofA Merrill Lynch, Research Division - VP & Research Analyst

* Lingshan Zhou

86Research Limited - Equity Analyst

* Mon Han Chung

KeyBanc Capital Markets Inc., Research Division - Research Analyst

* Ronald Keung

Goldman Sachs Group Inc., Research Division - Executive Director

* Thomas Chong

Jefferies LLC, Research Division - Equity Analyst

* Tianxiao Hou

T.H. Capital, LLC - Founder, CEO & Senior Analyst

* Yi Jing Wei

Citigroup Inc, Research Division - Research Analyst

* Yuanyuan Long

Crédit Suisse AG, Research Division - Co-Head of China Internet

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, everyone, and welcome to the Q3 2019 Vipshop Holdings Limited Earnings Conference Call. (Operator Instructions) At this point, I would like to turn the call over to Ms. Jessie Fan, Vipshop's Director of Investor Relations. Please proceed.

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [2]

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Thank you, operator. Hello, everyone, and thank you for joining Vipshop's Third Quarter 2019 Earnings Conference Call. Before we begin, I will read the safe-harbor statement. During this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates and projections about Vipshop Holdings Limited and its industry. All statements other than statements of historical facts we may make during this call are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as anticipate, believe, continue, estimate, expect, intend, is or likely to, may, plan, should, will, aim, potential or other similar expressions.

These forward-looking statements speak only as of the date hereof and are subject to change at any time, and we have no obligation to update these forward-looking statements.

Joining us on today's call are Eric Shen, our co-Founder, Chairman and CEO; and Donghao Yang, our CFO. At this time, I would like to turn the call over to Mr. Eric Shen.

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [3]

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Good morning and good evening, everyone. Welcome and thank you for joining our third quarter 2019 earnings conference call. During the quarter, we delivered a strong operational and the financial results, which were made possible by our team's solid execution of the merchandising strategy.

Our total active customers increased by 21% year-over-year, which further improved from the 11% year-over-year growth we delivered during the second quarter of this year. The healthy growth momentum of both our repeat and new customers is driving our top line growth, represented by a 10% year-over-year increase in the third quarter of 2019, despite weekly -- despite weak seasonality.

By shifting back to the discount apparel business where our core capability lies, we are seeing better user metrics across the border, as we continue to improve our product offering to meet more customers’ needs. The positive word-of-mouth feedback we receive will enable us to penetrate into new customer segments and attract more new customers over time.

This is very important as customer growth is an engine that will drive our top line growth and the profitability improvements in the future.

Looking ahead, we will continue to focus on improving our product, procurement and driving more value to our customers as the domestic player in China discount retail segment. We are well positioned to further expand our market share and generate sustainable value for our stakeholders.

At this point, let me hand over the call to our CFO, Donghao Yang, so that he may discuss our strategy in more detail and go over our operational and the financial results.

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Donghao Yang, Vipshop Holdings Limited - CFO [4]

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Thanks, Eric and hello, everyone. We finished the third quarter of 2019 with solid top line growth and sustainable year-over-year improvement in our profitability. During the quarter, our non-GAAP net income attributable to Vipshop shareholders increased by 140% year-over-year to RMB 1.2 billion from RMB 501 million in the prior year period.

Our non-GAAP net margin attributable to Vipshop shareholders reached 6.1% which is a new historically high level. These successes was a result of our focus on highly profitable apparel related categories. GMV for apparel related categories including GMV from the newly acquired Shan Shan Outlets increased by 29% year-over-year in the third quarter of 2019.

Our 2 deep discount channels [Fung Chan] and [Kwai Chan] continued to drive our GMV growth during the quarter. Specifically, GMV contribution from these 2 channels reached 42% of our online GMV in the third quarter of 2019, which further increased from 29% in the previous quarter. These results further demonstrate that our customers are looking for value. And when we offer this desirable product at a deep discount to them, they shop with us more.

We are keenly focused on the training of our merchandisers, as they continue to improve their procurement and negotiation capabilities, we believe we will see further improvement in our key operating metrics and financial results, allowing us to reinvest into unlocking the long-term potential of our company.

Furthermore, we will continue to balance our topline growth with sustainable profitability improvement, aiming to deliver intense shareholder return over time.

Now moving on to our quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented today are in renminbi amounts and all percentage changes refer to year-over-year changes, unless otherwise noted.

Total net revenue for the third quarter of 2019 increased by 10% to CNY 19.6 billion from CNY 17.8 billion in the prior year period, primarily driven by the growth in the number of total active customers.

Gross profit for the third quarter of 2019 increased by 16.6% to CNY 4.2 billion from CNY 3.6 billion in the prior year period. Gross margin increased to 21.6% from 20.4% in the prior year period.

Fulfillment expenses for the third quarter of 2019 decreased to CNY 1.6 billion from CNY 1.8 billion in the prior year period. As a percentage of total net revenue, fulfillment expenses decreased to 8.1% from 9.9% in the prior year period.

Marketing expenses for the third quarter of 2019 were CNY 721 million as compared with CNY 578 million in the prior year period. As a percentage of total net revenue, marketing expenses were 3.7% as compared with 3.2% in the prior year period.

Technology and content expenses for the third quarter of 2019 decreased to CNY 401 million from CNY 491 million in the prior year period. As a percentage of total net revenue, technology and content expenses decreased to 2% from 2.8% in the prior year period.

General and administrative expenses for the third quarter of 2019 were CNY 682 million as compared with CNY 625 million in the prior year period. As a percentage of total net revenue, general and administrative expenses remained stable at 3.5% year-over-year.

Our income from operations for the third quarter of 2019 increased by 229.7% to CNY 1.2 billion from CNY 355 million in the prior year period.

Operating margins increased to 6% from 2% in the prior year period. Non-GAAP income from operations, which excludes share-based compensation expenses and amortization of intangible assets resulting from business acquisitions, increased by 151.5% to CNY 1.4 billion from CNY 547 million in the prior year period. Non-GAAP operating income margins increased to 7% from 3.1% in the prior year period. Our net income attributable to Vipshop shareholders for the third quarter of 2019 increased by 282.7% to CNY 875 million from CNY 229 million in the prior year period.

Net margin attributable to Vipshop shareholders increased to 4.5% from 1.3% in the prior year period. Net income attributable to Vipshop shareholders per diluted ADS increased to RMB 1.3 from RMB 0.34 in the prior year period.

Non-GAAP net income attributable to Vipshop shareholders which excludes share based compensation expenses incurred loss of investments, amortization of intangible assets resulting from business acquisitions, tax effect of amortization of intangible assets, resulting from business acquisitions, investment gain and revaluation of investments, excluding dividend, tax or loss in investment -- oh, sorry tax effect of investment gain and revaluation of investment, excluding dividend and share of gain or loss in investment of limited partnership that is accounted for as an equity method investee, increased by 140.2% to CNY 1.2 billion from CNY 501 million in the prior year period.

Non-GAAP net margin attributable to Vipshop shareholders increased to 6.1% from 2.8% in the prior year period.

Non-GAAP net income attributable to Vipshop shareholders per diluted ADS increased to RMB 1.78 from RMB 0.75 in the prior year period.

As of September 30, 2019, our company had cash and cash equivalents and restricted cash of CNY 6.6 billion and short-term investments of CNY 58 million. For the third quarter of 2019, net cash from operating activities was CNY 2.1 billion.

Looking at our business outlook for the fourth quarter of 2019, we expect our total net revenues to be between RMB 26.1 billion and RMB 27.4 billion, representing a year-over-year growth rate of approximately 0% to 5%. These forecasts reflect our current and preliminary view on the market and operational conditions, which is subject to change.

With that, I would now like to open the call to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Ronald Keung from Goldman Sachs.

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Ronald Keung, Goldman Sachs Group Inc., Research Division - Executive Director [2]

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Congratulations on the very strong third quarter result. My question would be on your fourth quarter revenue guidance. Just want to hear how you're seeing the Singles' Day and how the first month and half of the fourth quarter has -- had tracked? And partly because last year fourth quarter revenue kind of slowed, so it's a pretty low base quarter last year as you shifted the nonapparel 1P business to 3P. So with this relatively low base -- and based on how you've done in single stages, I just want to hear how are we looking into the growth in the fourth quarter? And should we expect a similar growth pattern of the second and third quarter that you constantly have done even ahead of what you were targeting as you guided? But just want to hear how you were wrapped into the 0% to 5% of -- for your revenue guidance for the fourth quarter?

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [3]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [4]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [5]

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[Interpreted] So Ronald, fourth quarter is a big quarter for us, so the GMV and the revenue contribution for the full year in 4Q is quite big from our perspective. We just finished our Singles' Day promotional event. However, the December 8 anniversary sale is quite big for us, and it's actually the biggest promotional event for us in the fourth quarter. We are preparing for that right now. And therefore, we're being modest with the guidance.

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Operator [6]

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Your next question comes from the line of Joyce Ju from Bank of America.

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Joyce Ju, BofA Merrill Lynch, Research Division - VP & Research Analyst [7]

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Congrats on the solid quarter. I actually have a question regarding the consolidation of the off-line outlet business. We have seen Yang-zong mention we have seen a very strong growth in terms of GMV, the apparel growth is 29% year-over-year. Wonder like, how much of those like growth actually contributed by the offline outlets? And also, how this -- how do we actually improve the revenue for this business? Is it all like calculated in the -- as the rest. And also want to ask for our active customer growth and also the order growth, are these off-line orders being also counted in, yes?

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Donghao Yang, Vipshop Holdings Limited - CFO [8]

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Okay. Let me take the first half of your question about how we consolidate the numbers from Shan Shan Outlets malls. We book Shan Shan revenue on net basis, meaning we only book the commission at Shan Shan Outlets, the outlets make on the sales. So this from net basis and in Q3, the net revenue contribution from Shan Shan Outlets was around RMB 70 million. It's not big number. And on the top line, the profit -- net profit that we booked consolidated from Shan Shan Outlets was around RMB 8 million. So the total contribution from Shan Shan in terms of net revenue and bottom line are not very significant.

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [9]

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And the second question from Joyce (foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [10]

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Okay. (foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [11]

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[Interpreted] So Joyce, excluding Shan Shan Outlets, apparel growth in the third quarter of 2019 was around 20% year-over-year. And from our disclosed numbers in terms of active customers and total orders, we don't include any off-line business from that.

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Operator [12]

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Your next question comes from the line of Thomas Chong from Jefferies.

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Thomas Chong, Jefferies LLC, Research Division - Equity Analyst [13]

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Management, I would like to ask more about the margin. This quarter, the margin has been better than expected. I would ask, how should we -- the next quarter's margin and also on the lower cost 2020 how will the margin be? And then also on the consumer expense as a percentage of revenue, how should we see that trend?

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Donghao Yang, Vipshop Holdings Limited - CFO [14]

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Thank you very much for your question. So in terms of margin, we're confident that the current margin level will be sustainable in the foreseeable future. If you look at the reasons behind the margin improvement, we've refocused our effort on high gross margin apparel-related categories, and then we have taken great efforts to cut down costs in our operations. So if you look at those things that drive the improvement in our margin, you can see the words of confidence has come from, why we believe that the margin -- current margins to be sustainable in the foreseeable future.

And in terms of the fulfillment costs, we're still trying to further drive down the fulfillment costs. And so far, we've outsourced about 30% to 40% of our delivery operations to third-party couriers. And going forward, we will continue to take -- make efforts to further cut down costs.

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Operator [15]

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Your next question comes from the line of Tian Hou from T.H. Capital.

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Tianxiao Hou, T.H. Capital, LLC - Founder, CEO & Senior Analyst [16]

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Congratulations on a good 3Q results. The question is related to the active users. Active user grow almost 21% that actually is pretty significant. So I wonder, how many of them are Vipshops organically? How many of them come from WeChat or JD? And going forward, how does management relation to user growth will be? That is the first question.

The second question really for Shen-zong (foreign language) so the question is, this year, we have already renewed our focus on our core business, and it's very effective. So going forward, what's the new strategy, what's the new growth driver? That's the 2 questions.

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [17]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [18]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [19]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [20]

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[Interpreted] So around 24% of our quarterly new customers come from Tencent and JD. However, we do want to note that new customers and total active customers are different metrics.

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [21]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [22]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [23]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [24]

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[Interpreted] So Tian, on your second question on the growth driver going forward, since we have shifted back to the core business and focus on apparel, we've seen quite positive results. So we do believe that as long as we continue to deepen our expertise in this field and continuing to execute on the merchandising strategy, there is still a lot of potential. So our core business and our merchandising capability will continue to drive our long-term growth.

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [25]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [26]

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[Interpreted] And more specifically, we're focused on good products. So we're focused on good merchandising and good product offerings and having good products will continue to drive new customers to come to our platform and also, at the same time, our existing customers will be buying more. Once new customers come to our platform as we continue to offer good merchandising and good products, a deep discount, they will become high-quality existing customers over time. So we do believe that everything is in the core merchandise.

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Operator [27]

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The next question comes from the line of Andre Chang from JPMorgan.

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Andre Chang, JP Morgan Chase & Co, Research Division - Analyst [28]

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(foreign language)

[Interpreted] Let me translate my question. I noticed that in the fulfillment expense, the shipping and handling expenses improvement has been pretty consistent, but other parts has been very -- pretty volatile, in third quarter, the other part of their fulfillment expenses has improved quite meaningfully. I want to understand the underlying reason behind it?

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Donghao Yang, Vipshop Holdings Limited - CFO [29]

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Well, thank you very much for your question. I think the biggest contributor to the savings in our fulfillment cost is the [JITX] model. We're now shipping the product under the JITX model directly from our supplier's warehouse to our customers addresses. So but in the past, everything has -- had to go through our own warehouses. So by shipping directly from the suppliers to the customers, we could save warehousing costs and also shipping costs. And also, in this past quarter, we cut also on our headcount in our fulfillment operations, which is another contributor to our cost savings.

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Operator [30]

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Your next question comes from the line of Tina Long from Crédit Suisse.

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Yuanyuan Long, Crédit Suisse AG, Research Division - Co-Head of China Internet [31]

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Congratulations on the very strong results. I have -- my question actually arise on -- because I -- we actually noticed since fourth quarter last year, most of our revenue growth actually has been driven by the number of active customers instead of the revenue per customer. In fact, the revenue per customer actually has been entering to negative territory since fourth quarter last year. So we want to know, going forward, should we expect the ARPU to be stabilized or continue to enter -- I mean, continue to stay in the negative year-on-year territory and the growth were mainly driven by the customer number growth? Or we should see a stabilization in ARPU, and in the meantime, we will have a more solid or healthy customer number growth?

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [32]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [33]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [34]

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[Interpreted] So Tina, our ARPU this quarter was down year-over-year due to a few factors. The first is new customer contribution went up and new customers always buy less than our existing customers, and therefore, there was a ARPU dilution as a result of that. And the second factor is the contribution from our marketplace went up and our ticket size on marketplace much lower, also dragging down and impacting ARPU a little bit.

And lastly, since we've refocused onto the core deep discount products, the ticket sizes are naturally lower, also contributing to part of the ARPU decline. However, we do think that these issues should have stabilized going forward. And we will -- as new customers shop with us more and more, we're confident that we can turn them into high-quality existing customers, who will be spending more with us and the ARPU trend should be more healthy going forward.

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Operator [35]

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Next question comes from the line of Hans Chung from KeyBanc Capital Mark (sic) [Markets].

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Mon Han Chung, KeyBanc Capital Markets Inc., Research Division - Research Analyst [36]

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(foreign language) So I have a couple of quick questions. So first, if we look at the gross margins third quarter is -- seems like -- is actually consequentially and then -- but historically, we have seen the sequential growth for third quarter in terms of gross margin. And then -- so maybe just any color regarding the trend? And then, how should we think about the fourth quarter and beyond?

And then second one is, I noticed that our inventory, the dollar and also, the days of inventory, both spiked a little bit in third quarter and then -- so wonder what's the dynamic here? And is that because we started to increase more and more the cumulative purchase from here? So any color will be helpful.

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Donghao Yang, Vipshop Holdings Limited - CFO [37]

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Okay. Well, thank you very much for the question. Let me take your questions. Now first, gross margin in Q3, it's -- Q3 is usually our soft season in a year because it's hot summertime and we sell less apparel in Q3 than other quarters, for example, Q4, Q1. So gross margin sequentially is usually lower because of the product mix. But year-over-year, gross margin improvement in Q3 -- this past Q3 it was quite strong.

And inventory, the increase in our inventory and the inventory turnover days is mainly because we've purchased some products for our off-line stores. So far, we've got about 300 off-line stores, but those off-line stores are still in its experimental stage. But we bought some inventory to support the growth of those -- and operations of those off-line stores.

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Operator [38]

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Your next question comes from the line of Alicia Yap from Citi.

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Yi Jing Wei, Citigroup Inc, Research Division - Research Analyst [39]

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This is Vicky Wei on behalf of Alicia Yap. I have a follow-up questions on Shan Shan Outlets. Would management please share the synergy you see with Shan Shan? And what shall -- and also, in terms of apparel, what should we expect the apparel GMV growth into next year? And any color on metrics you could share with us on the Singles' Day promotion, especially on the apparel sales growth rate during Singles' Day?

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [40]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [41]

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Okay.

(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [42]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [43]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [44]

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[Interpreted] So for Shan Shan because we are an online discount retailer, essentially an online outlet and Shan Shan is an off-line outlet chain, we do see a lot of opportunities to leverage our mutual expertise and integrate our resources online and off-line. As for apparel growth next year, we are keenly focused on the growth in the apparel category, and we believe the consumption needs for such a core category would continue next year. So we're quite confident with apparel growth looking into 2020.

And lastly, regarding Singles' Day apparel sales, we saw a quite solid growth apparel category at around 20% year-over-year for our Singles' Day promotional event.

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Operator [45]

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Your next question comes from the line of Natalie Wu from CICC.

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Unidentified Analyst, [46]

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It's (inaudible) on behalf of Natalie. Would you please share the breakdown -- breakdown the elements in other revenues? What is the percentage of commission? And how should we expect the growth in other revenues and as a percentage of total revenue, especially after the consolidation of Shan Shan?

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [47]

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So -- okay. I'll just read and cover of the other revenue breakdown. In the third quarter of 2019 in other revenues, contribution from third-party marketplace commission is around 23%, from advertising around 22%, from third-party logistics and co-location around 5%, Internet finance interest around 7%, third-party delivery income around 35%, Super VIP Membership fee at around 5%, and Shan Shan Outlets at around 1% and the rest is what we call others.

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Operator [48]

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Your next question comes from the line of the Lisa Zhou from 86Research.

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Lingshan Zhou, 86Research Limited - Equity Analyst [49]

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Congratulations on strong results. So my question is on fulfillment, especially on the [JITX]model. Could management share how much of your orders is currently using the JITX model now? And what's your future target?

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [50]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [51]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [52]

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[Interpreted] So Lisa, currently, around 30% of our orders are shipped through the JITX model. However, we do for a lot of orders that need to be combined in warehouses and therefore, of course, we will continue to expand the coverage of JITX and the contribution should continue to increase slightly, but it wouldn't be much more significant increase from where we stand right now.

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Operator [53]

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Your next question comes from the line of Jamie Shen from Bank of China.

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Chen Shen, BOCI Research Limited - Research Analyst [54]

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I have a very quick follow-up on the customer growth. I think you named better merchandising strategy as the key driver behind the customer growth in your prepared remarks. Just wondering if you could elaborate more on how you manage to improve targeting efficiency for new customers, effectively, during the past quarter? In addition, as we're halfway through the fourth quarter, do you expect the robust customer growth trend to continue?

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [55]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [56]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [57]

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[Interpreted] We drive -- we drove our new customer and existing customer growth through our merchandising strategy. So as we bring better and better product offerings to our platform, both new customers and existing customers will want to visit us and shop from us more. So we do believe that our products are bringing these customers to us. So we are deepening our expertise and continuing to find better and more valuable products for our customers.

In the fourth quarter, it's the same strategy for customer acquisition. We continue to focus on merchandising, and we're seeing pretty good trends currently.

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Operator [58]

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Your next question comes from the line of Sally Chan from Alpha.

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Unidentified Analyst, [59]

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I shall have a follow-up question on the off-line strategy. Understood that we opened around 300 VIP off-line stores in the past 1-year, actually, a lot of these stores are just pretty new. So just wondering if, say, for older stores, are there any metrics that we can share in terms of the sales or the margin side? And for example, for these older stores, how long do we think it could take for them to breakeven? I noticed, even next year, what's our expansion plan like for our off-line stores? How much upfront investment do we need for each store? And should we expect any drag to margins for next year or even this year?

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [60]

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Thank you, Sally. (foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [61]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [62]

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[Interpreted] Sally, we're actively exploring the off-line opportunity in 2 different models, Vipshop and Vipmaxx with different positioning. Currently, we've seen very good customer feedback. The business is slightly loss-making [on account of] fixed basis. Currently, we're still in a quite early stage, exploring how to optimize the per store efficiency and also to improve the customer experience. So we will continue to look into the off-line opportunities. It's very likely that we will continue to invest into this segment, but we will also look for the efficiency so that it can be breakeven to make profit as quickly as we can.

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Donghao Yang, Vipshop Holdings Limited - CFO [63]

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And on top of that, the GMV growth -- GMV contribution from the off-line stores is not very significant as of now.

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Operator [64]

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Your next question comes from the line of Ellie Jiang from Macquarie.

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Ellie Jiang, Macquarie Research - Analyst [65]

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Congratulations on the strong quarter. I just have a quick question on the average order ticket size. So what I did was, I divided GMV by the total orders and I realized from the past 2 quarters, it seems that our average order ticket size has fallen a bit below to our RMB 288 free shipping threshold. I just want to see if management can give us any color on the reason of the lower order ticket size?

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [66]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [67]

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Okay. (foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [68]

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[Interpreted] So Ellie, the ticket size decline is due to a few factors. The first one is marketplace contribution increased from 5% in third quarter of 2018 to 9% this quarter. And because third-party marketplace orders are shipped from different suppliers and the ticket size is lower, it did drag down the calculated ticket size.

The second factor is our no-bundling policy that we rolled out in the fourth quarter of last year. Customers that have to buy more than 1 item to get the highest level of discount. So after we wrote out the no-bundling policy, we are seeing it having some customers buying less items, which affects ticket size, but it's much better for the customer experience.

And lastly, our Super VIPs get free shipping and free returns, which also impacts the ticket size as they don't have to buy over (inaudible) to get free shipping. Overall, we are not too concerned about the decline in ticket size. We are more focused on driving the ARPU for different cohorts. So as long as they're buying from us -- more from us on an annualized basis, that's a very positive sign. We want them to visit more frequently and as frequently as they can, as we can balance the fulfillment costs associated with the shipping of these orders, we still think it's very good for the customer experience, and it's a very positive trend.

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Operator [69]

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Your next question comes from the line of (inaudible) from UBS.

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Unidentified Analyst, [70]

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My question is that other than fulfillment expenses, where else can we see leverage in operating expenses? And how do we see our marketing expenses trend for the next quarter and next year, given our revenue guidance for the next quarter is only 0% to 5%? Third question, could we have somewhat of an update on the Super VIP users?

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [71]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [72]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [73]

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[Interpreted](inaudible), our (inaudible) technology trend should continue to go down with more and more leverage as we expand our scale. In fact, our customer acquisition costs on the marketing side has declined year-over-year in the third quarter of 2019, and we will continue to execute similarly into the fourth quarter. (foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [74]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [75]

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[Interpreted] Regarding the Super VIP program, in the third quarter of 2019, we have around 2.5 million paid members. They are very loyal customers to Vipshops. In the future, we plan to increase our investment into the Super VIP program by further increasing our customers' stickiness to the platform.

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Operator [76]

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Your next question comes from the line of Joyce Ju from Bank of America.

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Joyce Ju, BofA Merrill Lynch, Research Division - VP & Research Analyst [77]

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(foreign language) I have a follow-up -- actually required in the -- as overall trend what you've seen in the general e-commerce site because we have seen the latest (inaudible) data showing a slowing downtime in the third quarter, while all the company, it's showing a relatively resilient demand over the Singles' Day -- have you ever seen a -- actually, a recovering plan for the e-commerce momentum, like in the fourth quarter versus third quarter or like you actually seeing this a more stabilized (inaudible) growth.

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [78]

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(foreign language)

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [79]

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(foreign language)

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Jessie Fan, Vipshop Holdings Limited - Head Of IR [80]

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[Interpreted] We are seeing quite strong growth momentum and growth potential in the e-commerce industry. So in the fourth quarter, we also saw quite good growth in Singles' Day in the industry. So we have a lot of confidence in the continued growth of this industry going forward.

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Operator [81]

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There are no further questions at this time. I would now like to hand the conference over back to you management team.

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Donghao Yang, Vipshop Holdings Limited - CFO [82]

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Thank you for taking the time to join us, and we look forward to speaking with you next quarter. Thank you.

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Ya Shen, Vipshop Holdings Limited - Co-Founder, Chairman & CEO [83]

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Thank you.

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Operator [84]

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Thank you so much, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.