Earnings Call Transcript - BZUN Q3 2025

Operator, Operator

Good morning, ladies and gentlemen, and thank you for joining Baozun's Third Quarter 2025 Earnings Conference Call. As a reminder, today's call is being recorded. I will now hand it over to your host for today's call, Ms. Wendy Sun, Senior Director of Corporate Development and Investor Relations at Baozun. Please go ahead, Wendy.

Wendy Sun, Senior Director of Corporate Development and Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us today. Our third quarter 2025 earnings release was distributed earlier before this call and is available on our IR website at ir.baozun.com as well as on PR Newswire services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website where they are available for your download. On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Ms. Catherine Zhu, our Chief Financial Officer; Mr. Junhua Wu, Director and Chief Strategy Officer of Baozun Group, and Mr. Ken Huang, Chief Financial Officer of Baozun Brand Management. Mr. Qiu will first share our business strategy and company highlights. Ms. Zhu will then discuss our financials and outlook, followed by Mr. Wu and Mr. Huang, who will share more about our e-commerce and brand management segment, respectively. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the U.S. Securities Act of 1933 as amended, the U.S. Securities Exchange Act of 1934 as amended, and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the United States Securities and Exchange Commission and its announcement notice or other documents published on the website of Stock Exchange of Hong Kong Limited. All information provided in this call is as of the date hereof and is based on assumptions that the company believes to be reasonable as of this date, and the company does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this call are in RMB. You may now turn to Slide #2 for the executive highlights for the quarter. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.

Vincent Qiu, Chairman and Chief Executive Officer

Thank you, Wendy. Hello, everyone, and thank you all for your time. I'm pleased that Baozun is advancing its strategic transformation with steady momentum, delivering a strong quarter marked by 5% total revenue growth and a significant improvement in profitability. Fueled by strong gross margin expansion, our non-GAAP operating loss narrowed to RMB 11 million from RMB 85 million a year ago. These results show that our transformation is effective and demonstrate the strength of our business model. Both of our two core engines are driving this success. BEC's solid execution and growing agility continue to deliver strong results this quarter. Building on the 56% year-over-year increase in adjusted operating profit from Q2, BEC achieved its most profitable third quarter in recent years with non-GAAP operating profit of RMB 28 million compared with an operating loss of RMB 30 million a year ago. This significant improvement in profitability, along with 6% services revenue growth and strong gains in creative content and marketplace connectivity shows that BEC is now more agile and efficient. BBM continued with strong top line growth with revenue increasing 20% year-over-year, driven by impactful merchandising and marketing initiatives. This quarter, we engaged our first Gap China brand ambassador, a top-tier actor with 30 million followers on Weibo and 8 million on Douyin. We also launched a series of marketing campaigns and themed products to deepen emotional connections with local consumers. Hunter continued its brand momentum and opened our new store in Qingdao, bringing Hunter's total offline stores to 8, including 5 in China and 3 in Southeast Asia. These efforts contribute to sales growth, stronger gross margin, and improved overall profitability for BBM. In summary, we are firmly on track with our strategic transformation. With a resilient e-commerce foundation, accelerating brand management momentum, and technology as our catalyst, we believe 2025 is a highly productive building phase. We anticipate 2026 to mark our inflection point, shifting from transformation investment to sustained profitable growth. Now I will hand the call over to our team for a deeper dive into our financials and the business performances.

Catherine Zhu, Chief Financial Officer

Thanks, Vincent, and hello, everyone. Now let me provide a more detailed overview of financial results for the third quarter of 2025. Please turn to Slide #3. Baozun Group's total net revenues for the third quarter of 2025 increased by 5% year-over-year to RMB 2.2 billion. Of this total, E-Commerce revenue grew by 2.4% to RMB 1.8 billion, while Brand Management revenue rose by 20% to RMB 396 million. Breaking down E-Commerce revenue by business model, services revenue increased 6.3% year-over-year to RMB 1.4 billion. This increase was driven by revenue growth in online store operations and digital marketing and IT solutions. BEC product sales revenue decreased 8.9% year-over-year to RMB 413.4 million, mainly due to a decline in Appliances and Health and Nutrition categories. BBM product sales totaled RMB 395.2 million, representing 20% year-over-year growth. This growth was mainly driven by the strong performance of the Gap brand. Please turn to Slide #4. From a profitability perspective, our blended gross margin for product sales at the group level was 34.3%, an expansion of 620 basis points year-over-year. Gross profit increased by 26.1% year-over-year to RMB 277.4 million for the quarter. Breaking this down by our key business lines. Gross margin for E-Commerce product sales expanded to 13.1%, reflecting a 300 basis point improvement compared to 10.2% a year ago. This margin expansion was primarily driven by product mix diversification consistent with our progress throughout the year. Gross margin for BBM was 56.5% compared with 52.8% a year ago, reflecting the success of merchandising and marketing initiatives of BBM. Now please turn to Slide #5 for a walk-through of our OpEx. Sales and marketing expenses increased by 10.7% to RMB 886.6 million. This included an increase of RMB 67.5 million for BEC, which was mainly due to higher spending on creative content on Douyin and RedNote, and more revenue contribution from digital marketing for BEC during the quarter. BBM sales and marketing expenses increased by RMB 18.8 million due to higher front-end expenses from expanded offline network and more marketing initiatives for BBM during the quarter. Fulfillment costs for the quarter were reduced by 4.5% to RMB 495.9 million, reflecting our ongoing efforts in cost optimization. Technology and content expenses decreased by 18.2% to RMB 115.2 million as we continue to enhance tech monetization efficiency. G&A expenses decreased by 4.4% to RMB 168.9 million, primarily attributable to our ongoing efforts in efficiency enhancement and cost optimization. Turning to bottom line items, please refer to Slide #6. During the quarter, our non-GAAP loss from operations was RMB 10.8 million, a sharp improvement from RMB 85.2 million in the same period of last year. BEC's adjusted non-GAAP income from operations was RMB 28.1 million, while non-GAAP loss from operations was RMB 29.8 million a year ago. BBM reported a non-GAAP operating loss of RMB 38.7 million, an improvement of 30% compared to the same period of last year. As of September 30, 2025, our cash and cash equivalents, restricted cash and short-term investments totaled RMB 2.7 billion. Lastly, I'd like to quickly address an accounting update on the balance sheet to reflect expiration of options related to the Cainiao minority investment in Baotong, our warehouse and logistics business. According to the agreement with Cainiao, if certain triggering events occur, Cainiao had the right to exercise a put option requiring Baotong to redeem Baotong's shares within 12 months starting from August 2024. As a result, this investment was originally recorded as redeemable noncontrolling interest, which is a complex financial instrument classified between liabilities and equity. With these options expiring during the third quarter, the investment has now been reclassified as noncontrolling interest and equity item. Following this accounting adjustment, our total equity increased to RMB 5.5 billion compared with RMB 4 billion in the previous quarter. Importantly, this adjustment has no impact on our warehouse and logistics operations. Let me now pass the call over to Junhua to update you on BEC, our E-Commerce business.

Junhua Wu, Director and Chief Strategy Officer

Thanks, Catherine, and hello, everyone. I'm pleased to share our progress and achievements for the third quarter. Building on the momentum established in the first half of the year, we continued advancing our strategic priorities with a clear focus on sustainable profitability and growth. As previously outlined, our 2025 roadmap follows a clear progression, Q1 for adjustment, Q2 for stabilization, and the second half for acceleration. I'm pleased to report that Q3 delivered meaningful progress across key business segments. BEC posted solid performance with stabilizing revenue based on a significantly improved revenue mix and quality, leading to a notable improvement in profitability. On a non-GAAP basis, operating profit reached RMB 28 million, making it the most profitable third quarter in recent years for BEC. Please turn to Slide #7. BEC product sales declined by 9% this quarter, reflecting our transition strategy towards a quality-driven portfolio, optimizing selected clients in the Health and Nutrition category and shifting certain clients in the Beauty and Cosmetics category from a DC mode to a service model. In the Appliances category, top line softness persisted as we prioritize profitability over volume. These adjustments followed a thorough review of each segment's market dynamics and have led to stronger profitability under a distribution model. As a result, BEC delivered a 300 basis point improvement in gross profit margin to 13.1% for product sales. Just as importantly, enhancements in procurement discipline and turnaround management drove nearly a 20% improvement in inventory turnover days, enabling us to maintain healthy and efficient inventory levels. In addition, we remain focused on building a more sustainable and quality-driven distribution portfolio. During the quarter, we achieved healthy growth in Beauty and Cosmetics, Alcohol, and Apparel categories. Notably, we are expanding our pipeline into nonstandard categories, including Apparel within distribution mode. By leveraging our Brand Management expertise in our core category, we are increasingly able to apply deeper expertise and a more brand owner-oriented mindset. Looking ahead, we expect BEC product sales to return to top line growth in 2026. Turning to Slide #8. Our services revenue grew by 6% in the third quarter, primarily driven by strong performance from online store operations, which saw 16% growth, and a 6% growth in DM and IT solutions. Within online store operations, the core apparel and accessory category was a key driver with all key segments generating encouraging top line growth. The strong performance of our services mode reflects how we have advanced the brand empowerment by utilizing our data-driven insights and expertise, capturing opportunities from ever-changing industry dynamics. We remain committed to leading innovation in creative content as these are critical for consumer engagement and traffic attraction. On RedNote, we plant content seeds to drive interest and brand awareness, enhancing emotional connection and refining the consumer shopping experience. Furthermore, by leveraging enhanced connectivity between marketplaces such as the Tmall Red Cat and JD R.E.D. Jean collaborations, we help brands to generate better marketing conversion and sales performance. This quarter, we were accredited as a premium service partner, further validating our leadership position on this viral live platform and building on our earlier designation as one of the first batch of Red partners in February. On Douyin, we continue to pioneer live stream content and formats, including scenario-based showcases and celebrity collaborations to drive quality business contribution for our brands. In mid-September, we successfully partnered with a leading international electronics brand to launch its flagship stores to further enhance the brand's cultural engagement and product promotion. This initiative was immediately effective. Within a month, we helped the brand gain 3 million consumer followers and achieve the #1 GMV ranking in its category. We are proud to continue setting new industry benchmarks for Douyin brand e-commerce. Overall, this quarter is another solid quarter for BEC, marked by a return to profitability in a lower seasonality quarter, which demonstrates the effectiveness of our strategic focus on sustainable and high-quality growth. We are actively driving the bottom line through efficiency-enhancing measures, including the ongoing application of artificial intelligence and automation tools as well as our lean cost control initiatives. We are confident that the foundation built throughout 2025 will continue to accelerate our momentum and deliver long-term value. Now I'll pass to Ken for an update on BBM.

Ken Huang, Chief Financial Officer of Baozun Brand Management

Thank you, team, and hello, everyone. Please turn to Slide #9 for BBM's performance in the third quarter of 2025. I'm pleased to share that BBM maintained its strong growth momentum this quarter with total revenue growing 20% year-over-year to RMB 396 million. The strong growth was driven by improvements across key operating metrics, including same-store sales, traffic, average transaction value, and network expansion. Overall, Gap's same-store sales growth was 7% for the quarter. Gross profit for BBM totaled RMB 223 million, an increase of 28% year-over-year, with gross profit margin expanding to 56.5%, up 370 basis points from 52.8% a year ago. This margin expansion, along with strong top line growth, highlights the effectiveness of our merchandising and marketing initiatives. The higher gross profits, combined with improved operating efficiency, further enhanced our overall profitability. As a result, BBM's non-GAAP operating loss for the quarter improved by 30% to RMB 39 million from RMB 55 million in the same period of last year. Now let me expand on our key initiatives for Gap China in the third quarter. First, marketing, as we made a major leap forward in brand storytelling and culture engagement this quarter. On September 15, we announced the appointment of Cheng Yi, one of China's most acclaimed actors, as the inaugural brand ambassador for Gap China. In accordance, we launched the Mind the Gap, Bridge the Gap campaign using music as a bridge to engage younger audiences and reintroduce Gap as a comfort, confident, modern lifestyle brand. We also introduced the Gap Club Capsule collection and upgraded the brand image in our offline stores to reflect stronger creative energy and local relevance. To provide immersive experiences, we hosted two pop-up experience stores, one on Shanghai's Anfu Road and one on Shenzhen COCO Park, both featuring live performance, vinyl shops, and art collaborations, successfully merging lifestyle and fashion. In this campaign, we also introduced innovative interactions with social PGC and UGC content. These efforts helped us attract more customers, strengthen brand awareness, and deliver meaningful business results. In total, the campaign generated more than 1.2 billion impressions, 9 million interactions, and 176,000 new followers. These efforts also drove a 25% increase in young customers and strengthened Gap's position as an authentic and aspirational brand for China's younger generation. Meanwhile, we continue to work closely with Gap Inc. to capitalize on its global marketing assets and upward momentum. This August, Gap Inc. partnered with KATSEYE on the Better in Denim campaign, blending Gap's iconic timeless denim with KATSEYE's contemporary and educational sensibilities. China is one of the few countries that offer KATSEYE's exclusive products to the market, also achieving very satisfying results. Second, merchandising, which remains the core engine of our growth. We continuously sharpened the product offerings and introduced a higher mix of online exclusive and segmented products across different marketplaces over the summer and fall. We also deepened the collaboration with major platforms through exclusive assortments and joint marketing programs such as Tmall Fashion Show and Douyin Super Brand Day. This tailored e-commerce strategy, coupled with our participation in platform promotional events, accelerated traffic and conversion growth. At the same time, our improved supply chain ensured fast and localized fulfillment. We believe that our agility and flexibility in shifting between online and offline channels has become an important competitive advantage. From a channel perspective, we continue to expand our physical presence. For Gap, we opened 11 new stores in Tier 1 and Tier 2 cities, including Guangzhou and Yichang, while closing 4 low productivity stores. We also started to remodel existing stores in Wuhan and Wuxi this quarter to upgrade our store image, visual merchandising, and the customer experience. This brought the total number of Gap stores to 163 by the end of this third quarter. Together with Hunter's network expansion, our Baozun brand management offline portfolio now stands at 171 stores. In addition, we hosted a National Partner Conference in September, convening a dozen top-tier business partners from all important provinces. Notably, half of these partners were new with strong brand portfolio and operating expertise in their regions. Cooperations with these new partners also aligned with our expansion plan by enhancing our business in the key cities in North, Southwest, and South China. This event allowed our partners to directly experience our ascending brand influence and our marketing product and channel strategy in the coming year. Their positive feedback reaffirmed the strong partners' confidence in our brand direction. In summary, BBM delivered another quarter of healthy growth and brand revitalization. Furthermore, our integrated marketing campaigns have laid a solid foundation for the Gap brand to further unlock market potential. This was evident in the significant improvements in brand rankings across all key divisions, men's, women's, and kids during the most recent Double 11 campaign. This success places us on track to achieve Gap's first breakeven quarter in the upcoming fourth quarter. With both Gap and Hunter building stronger emotional relevance and culture momentum, we are confident in sustaining our growth through the year-end and beyond. That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

Operator, Operator

Our first question comes from Alicia Yap with Citigroup.

Alicia Yap, Analyst

Congrats on the solid results. Two questions. First, can you provide some observations on the latest consumer sentiment? So have you seen any shift in the consumer spending behavior recently, especially with the recent Singles' Day promotions? Any change in consumer preference in terms of purchase willingness? And then categories that you have seen doing better than you previously expected, and also categories that are performing worse than you anticipated? And then also, what are the brands' willingness to spend on the marketing budget during this year's Singles' Day? How should we be thinking about the impact from Singles' Day on the fourth-quarter outlook? And then second question is, I know it's a little bit early, but do you have any comments on the 2026 outlook in terms of your different business segments? Also, what are your top strategic priorities? For example, is there any target for margin expansions or any brand expansions? And also, how will AI play a role in helping you to achieve some of your 2026 priorities?

Junhua Wu, Director and Chief Strategy Officer

Okay. This is Junhua. Let me address your first question, and maybe Vincent can address the second one. So in terms of the latest consumer sentiment, from our perspective, according to the just-finished Double 11, we realize that the consumer sentiment is getting better. You can see a lot of consumers are paying for value. They are being very targeted. They know what they want and they wait until all those kinds of values and profitabilities from the brand and all those coupons are addressed. So especially with the recent promotion, we can definitely expect a very strong finish for Double 11 this year. From the preference, as far as our observation, it still trends towards the sports, apparel, and FMCG categories. If we're talking about some categories performing worse than we anticipated, I would say that after the pullback of the subsidiaries in the home appliance category, consumers would prefer to wait for another kind of benefit from the platform and from another support when their subsidiaries are supported. But the willingness of the consuming power is still getting stronger and the willingness of the brands to spend marketing budgets is getting stronger. After 6/18 this year and after Double 11, we can expect stronger support in terms of the marketing fee and inventory allocation for the new year. Many brands during this past Double 11 focused on their P&L rather than GMV growth. A lot of our brand partners increased their P&L to several percentage points, which may lead to better results from their global strategy. That's my answer to the first question.

Vincent Qiu, Chairman and Chief Executive Officer

Okay. Thank you for the question. This is Vincent. I think your second question about our strategies is very important. Essentially, we have two business divisions or units, BEC and BBM. One by one, for BEC, next year, the most important task is to expand the margin while optimizing cost efficiency. These two are very important. For margin expansion, we are moving towards a distribution model, taking more ownership in the sales process to achieve better margins. On the other hand, we are initiating many lean operation initiatives to help us achieve better costs. For BEC, our strategy is to do more with fewer resources. The BBM business has different priorities. Firstly, for existing brands like Gap and Hunter, we are focusing on ensuring each brand achieves its operational goals, which is essential for both quarterly business performance and future success. Additionally, we are developing synergies between BBM and BEC to transfer knowledge, experience, and mechanisms to BEC for better distribution business performance. More ownership always leads to increased margins and profitability potential. In the past three years, we invested significant time and effort in BBM, gaining valuable experience in higher ownership business. We aim to expand this model into more brands next year, anticipating substantial growth potential, particularly for our soft goods distribution model. This offers significant growth space for us, not only in terms of top line growth but also importantly for margin expansion. That is our plan for 2026 and beyond. We are also actively looking for new brands for the BBM portfolio but will be cautious in our selections to ensure successful brand integration. Additionally, we are investing in data warehousing, AI, and other technologies, and we are observing benefits from these efforts. We will continue to prioritize these investments moving forward as they enhance our capabilities. The synergy between BBM and BEC is increasingly vital.

Jiawei Yin, Analyst

Congratulations on this quarter's strong performance. I have two questions regarding BEC. The first question is that, as we have seen recently, premium consumption has shown signs of stabilizing and recovering. Has the company’s relevant categories benefited from this trend? And my second question is, in recent years, the growth gap between content e-commerce and traditional e-commerce has narrowed. Meanwhile, China's online traffic and sales channels have become more diversified. With emerging platforms like RedNote and Bilibili, how does the company view the strategic shift brands should make? And how is Baozun adapting to this change?

Junhua Wu, Director and Chief Strategy Officer

Okay. Let me address your two questions. The first one elicits a very positive response. Yes, the premium luxury category continues to lead performance, especially after Double 11. For example, a leading American premium brand maintained a 60% year-over-year growth, a pattern that has held for the past three years. For this category, driving higher margins and GMV isn't merely about adding more products online but about leveraging content-driven strategies and establishing emotional connections before transactions. I cannot provide too many specific details, but if you have the opportunity to visit our live stream studio for that brand, you would see various scenario-based selling tactics offered as total looks rather than individual pieces. The luxury and premium categories have high value propositions for consumers. They encourage more buying during favorable promotional windows. Regarding your second question about content e-commerce and traditional e-commerce, it's tough to distinguish them as they increasingly merge. It’s all about creating content that leads to transactions rather than just driving traffic to a store for conversion. For instance, RedNote, previously a UGC platform, has now merged content with transaction ability, prompting brands to shift their strategies toward ROI-driven initiatives. More brands are recognizing that investing in content creation and nurturing emotional connections is key. We're also helping provide platforms with tools to validate marketing investments to drive positive outcomes.

Joanna Ma, Analyst

Congratulations on a strong quarter. I have two questions. The first is regarding what management can share with us about your revenue and profitability outlook in the last quarter and also for the full year '26. My second question is, can management share your development plan for the BBM business in the full year '26, specifically regarding Gap, Hunter, and other new initiatives?

Vincent Qiu, Chairman and Chief Executive Officer

Okay. This is Vincent. Let me address these questions. Right now, we are already in late November. From our day-to-day business management updates, we are quite confident in both BEC and BBM results in the coming quarter. We are aiming to deliver another solid quarter soon, and everything looks on track. For the coming year, 2026, we anticipate considerable profitability improvements from both business units, supported by collaboration synergies. Specifically for BEC, we expect significant enhancements, and similarly for BBM as we continue to exploit synergies. In general, we are hopeful for major improvements in profitability overall. With respect to the BBM business, as I just mentioned, our priority is ensuring each brand meets the expectations and plans set for this year and beyond. We will continue to develop synergies between BEC and BBM, and while we will actively pursue new opportunities, we will be cautious about bringing new brands onboard.

Unknown Analyst, Analyst

I have two questions. The first question is about quick commerce. Driven by the traffic from Taobao's quick commerce on the main app, Taobao's DAU recorded a noticeable year-on-year increase in the third quarter, with further momentum continuing into Q4. Have we observed any positive impact from the increase in Taobao main site traffic on our third quarter performance, and in which aspect is this mainly reflected? Looking ahead to the fourth quarter, should we expect sustained positive influence or any potential actions on quick commerce? The second question is about the recent new regulation on advertising spend and tax. Some of our brands in the beauty category have seen the new tax policy introduce updated requirements on advertising spending. Have we felt any impact on our advertising operations so far? How should we assess the potential magnitude and extent of this policy's impact on revenue and profitability moving forward?

Junhua Wu, Director and Chief Strategy Officer

Okay. Thank you for the question. This is Junhua. Let me address your two questions. The first question relates to instant shopping or quick commerce. When discussing instant shopping, we must consider the category involved because categories like FMCG, food, and wine are inherently more suited for this business model. This is not where we primarily focus in the Baozun BEC growth narrative. We are more involved in the fashion, luxury, and electronic devices sectors. Some of our FMCG and wine brands may pilot quick commerce, but it's challenging to envision a premium luxury brand placed alongside everyday household items. Regarding the traffic pool from instant shopping to Tmall and Taobao, they vary significantly and are often personalized to target different brands. Our focus isn't on succumbing to all instant shopping traffic but rather targeting more strategically the AIPL. We're conscious of budgeting our spend wisely in this broader pool, focusing on the top tier among the considerable audience. That answers your first question. The second concern revolves around cosmetics brands, where marketing spending typically dwarfs other categories. Post-pandemic, brands are being more judicious in their spending, so while marketing spending in cosmetics remains substantial, we've not noted any recent direct effects from regulatory changes on our operations. The investment strategies across all brands, including cosmetics, still maintain a reasonable relationship with their respective GMVs.

Jiawei Yin, Analyst

I have one question regarding BBM. In September, Gap signed a top-tier brand ambassador, and the Brand Management business also delivered strong growth this quarter. What impact has this collaboration had on Gap's brand awareness and user profile? Has there been any synergy in sales growth across other business lines like children's wear? What is the company's long-term view on Gap's profit potential and development vision?

Ken Huang, Chief Financial Officer of Baozun Brand Management

Thank you for the question. This is Ken. I will answer your question. Firstly, as I mentioned before, this campaign attracted more customers from the younger generations, with a 25% increase. It's not only an increase in that demographic but also across our entire customer base, showing significant growth in our AIPL customer base overall. More importantly, we see an increase in UGC content on social media discussing our brand and products among younger consumers. The campaign also helped to promote our key category products, especially denim and sweatshirts. Our ambassador showcased various fits and styles during the campaign, helping to enhance brand awareness and key product visibility. Second, regarding the kids and baby business, we do see synergy because the kids and baby segment is a strong division of the Gap brand. Our store locations typically sell both adult and kids products, which is beneficial. This is evidenced by our increase in units per transaction, showing more family customers shopping both adult and children's items simultaneously. For your final question about Gap's future profit potential, by leveraging this comprehensive marketing campaign, we aim to continue expanding our customer base and increasing brand sales in the forthcoming quarters and throughout the upcoming year. We expect to maintain our double-digit growth for Q4, around a 20% increase. Next year, we also anticipate continuous double-digit increases in our sales. In Q4, we'll introduce a new store image, which we believe will improve store sales productivity under the new format next year. We plan to accelerate our store expansion to support sustained sales growth in both scale and unit stores, ultimately improving profits.

Wendy Sun, Senior Director of Corporate Development and Investor Relations

Thank you, operator. On behalf of the Baozun management team, we'd like to thank you again for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us today. This concludes the call.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.