Vipshop Holdings Limited (NYSE:VIPS) Q3 2022 Earnings Call Transcript

Vipshop Holdings Limited (NYSE:VIPS) Q3 2022 Earnings Call Transcript November 22, 2022

Vipshop Holdings Limited beats earnings expectations. Reported EPS is $2.56, expectations were $1.69.

Operator: Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited Third Quarter 2022 Earnings Conference Call. At this time, I would like to turn the call to Ms. Jessie Zheng, Vipshop's Head of Investor Relations. Please proceed.

Jessie Zheng: Thank you, operator. Hello, everyone, and thank you for joining Vipshop's third quarter 2022 earnings conference call. With us today are Eric Shen, our Co-Founder, Chairman and CEO; and David Cui, our CFO. Before management begins the prepared remarks, I would like to remind you that the discussion today will contain forward-looking statements made under safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our safe harbor statements, in our earnings release and public filings 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 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 measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen.

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Eric Shen: Good morning, and good evening, everyone. Welcome and thank you for joining our third quarter 2022 earnings conference call. We delivered strong earnings growth on net of revenue decline in the third quarter, as we carefully executed on our proven business model. During the quarter, macro and pandemic uncertainties weighed on the top line recovery, but customer trends improved month by month, and overall repeat orders and purchase frequencies hold up well. Through further optimization of operations, we achieved 50% profit growth and meaningful margin expansion year-over-year. As we moved quickly to adapt to external changes, we also pushed ahead with initiatives to reinforce the strength of our platform for the long run.

Let me share some of our business progress in the third quarter. First, we continued to enhance our merchandising capabilities. We attracted more diverse and high-quality partners to our platform and expanded our product offering, especially in the trendy and high-end segments. We deep dived into different categories to capture the emerging customer trend as people ramped up spending on or Chinese fashion sites, outdoor and athleisure outfit, et cetera. Apparel related GMV booked positive growth year-over-year during the quarter. We also worked more closely with key partners on the Made-for-Vipshop customized offerings, which become an important line for many brands to achieve greater sales efficiency. And most of the products had better conventions than the average level of certain brands or categories.

Second, we gained better customer traction. In addition, prudently investing in external channels, we increasingly leveraged our upgraded product selection to acquire and retain customers. Increasing proportions of customers are Gen Z and male customers who are appealed to more brands that reflect their values. And paid members continue to grow nicely as more high value customers enjoy the sensible membership's privileges. Active Super VIP customers grew by 21% year-over-year and contributed 40% of online net GMV. Third, we worked hard to unlock technological capabilities throughout our business processes. We made great efforts to further digitalize our merchant platform, adding tools like membership system and customer review for brand partners to better identify opportunities for growth.

We also made continuously improvements in personalization, refining search, speed, and seeing basic recommendations for customers to discovering their desired selections while typing into their underlying needs. Looking ahead, our business has been consistently based on the premise that customers love value for money, which holds even more-true today. We are committed to offering exceptional values on the wide area of branded quality products. And we will continue to win new customer and elevate the trust and the loyalty of existing ones. We are confident in our prospection for quality and sustainable growths in the long-term. At this point, let me hand over the call to our CFO, David Cui, who will go over our financial results.

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David Cui: Thanks, Eric, and hello, everyone. During the third quarter, our revenues came in line with our prior guidance. While the overall consumption was still under pressure, we did see a gradual recovery in spending on apparel-related categories with strong execution across our business operations, which included preemptively securing supplies or seasonal trends, and proactively launching promotional channels. We managed to minimize the negative impact from the pandemic resurgence on the top line recovery. And once again, we demonstrated a strong profitability with margins hitting their best levels since the beginning of 2021. Gross margin trended upward to 21.7%. Thanks to our continued effort in optimizing cost structure across different categories.

Non-GAAP net income increased by 55% to RMB 1.6 billion, and non-GAAP net margins stood above 7% as we remain disciplined in operations. In addition, we continued to preserve shareholder value by steadily executing our share buyback program. During the third quarter, we repurchased approximately $257.6 million of our ADS. Near term, we remain focused on profitability and we'll work from every aspect to drive operational efficiency. We believe we are financially strong enough to navigate the ongoing uncertainties as well as to reinforce our business fundamentals, which will help us eventually return to growth track. 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 changes are year-over-year changes unless otherwise noted.

Total net revenues for the third quarter of 2022 were RMB 21.6 billion as compared with RMB 24.9 billion in the prior year period, primarily attributable to soft consumer needs for discretionary categories amid a challenging macro environment with the COVID-19 resurgence in China. Gross profit was RMB 4.7 billion as compared with RMB 4.8 billion in the prior year period. Gross margin increased to 21.7% from 19.4% in the prior year period. Total operating expenses decreased by 13.9% year-over-year to RMB 3.7 billion from RMB 4.2 billion in the prior year period. As a percentage of total net revenues, total operating expenses decreased to 16.9% from 17.0% in the prior year period. Fulfillment expenses were RMB 1.6 billion, which largely stayed flat as compared with the prior year period.

As a percentage of a total net revenues fulfillment expenses was 7.5% as compared with 6.5% in the prior year period. Marketing expenses decreased by 53.9% year-over-year to RMB 572.4 million from RMB 1.2 billion in the prior year period, primarily attributable to more prudent marketing strategy. As a percentage of total net revenues, marketing expenses decreased to 2.6% from 5.0% in the prior year period. Technology and content expenses increased by 7.6% year-over-year to RMB 394.8 million from RMB 366.8 million in the prior year period. As a percentage of total net revenues, technology and content expenses increased to 1.8% from 1.5% in the prior year period. General and administrative expenses increased by 5.0% year-over-year to RMB 1.1 billion from RMB 1.0 billion in the prior year period.

As a percentage of total net revenues, general and administrative expenses were 5.0%, as compared with 4.1% in the prior year period. Income from operations increased by 47.6% year-over-year to RMB 1.1 billion from RMB 770.8 million in the prior year period. Operating margin increased to 5.3% from 3.1% in the prior year period. Non-GAAP income from operations increased by 47.6% year-over-year to RMB 1.6 billion from RMB 1.1 billion in the prior year period. Non-GAAP operating margin increased to 7.2% from 4.2% in the prior year period. Net income attributable to Vipshop's shareholders increased by 168.4% year-over-year to RMB 1.7 billion from RMB 628.4 million in the prior year period. Net margin attributable to Vipshop's shareholders increased to 7.8% from 2.5% in the prior year period.

Net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 2.70 from RMB 0.92 in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders increased by 55.0% year-over-year to RMB 1.6 billion from RMB 1.0 billion in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders increased to 7.4% from 4.1% in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 2.56 from RMB 1.50 in the prior year period. Looking forward to the fourth quarter of 2022, we expect our total net revenues to be between RMB 30.7 billion and RMB 32.4 billion, representing a year-over-year decrease rate of approximately 10% to 5%. Please note that this forecast reflects our current 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.

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