Earnings Call Transcript - BZUN Q4 2022

Operator, Operator

Good morning, ladies and gentlemen and thank you for standing by for Baozun's Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I'll now turn the meeting over to your host for today's call, Ms. Wendy Sun, Senior Director of Corporate Development and Investor Relations of Baozun. Please proceed, Wendy.

Wendy Sun, Senior Director of Corporate Development and Investor Relations

Thank you, operator. Hello, everyone and thank you for joining us today. Our fourth quarter and full year 2022 earnings release was distributed earlier and is available on our IR website at ir.baozun.com as well as on Globe Newswire services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website, where they are available for download. On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Arthur Yu, Chief Financial Officer; and Ms. Sandrine Zerbib, President of Baozun Brand Management. Mr. Qiu will review the business strategy and company highlights, followed by Mr. Yu, who will discuss financials and share more regarding the business development of Baozun e-commerce. We will then pass the call to Ms. Sandrine to drive about Baozun's Brand Management. 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 Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by some measures such as will, expect, anticipate, future, intent, plan, delays, estimate, confident, potential, ongoing target looking forward or other similar expressions. These forward-looking statements are based upon management's current expectations and current market and operation conditions are related to events that involve known or unknown risks, uncertainties and other factors of nature difficult to predict and many of nature beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statement. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. SEC any announcement notice or other documents published on the website of Hong Kong Stock Exchange. All information provided in this presentation is for the date and it's based on the assumptions that the company believes to be reasonable as of today. 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 conference call are in RMB with appropriate rounding. 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. The top environment persisted in the fourth quarter making the entire 2022 a challenging year. Specifically, the ending of the COVID zero policy resulted in a significant surge in COVID cases in late 2022, which led to a nationwide disruption in the supply chain and logistics, along with the worst ever consumption sentiment. We missed a general decline in sales across different categories, channels, and cities, reflecting the lower consumer spending; our revenue declined approximately 20% year-over-year in the fourth quarter. However, we're glad that despite the weaker top line, we achieved higher operating profit and recorded positive cash flow for the fourth quarter. We were able to achieve this in such a difficult and unpredictable environment by ensuring our operations were uninterrupted, relying on our battle-tested technology and regional service centers. In addition, our reform of employee compensation and the incentive programs also generated higher productivity. As a result, we were able to improve the quality of our earnings. The COVID-19 pandemic over the past three years has dramatically impacted our people's daily lives. It seems like long COVID also has a long-term effect on consumer confidence. While we observed a modest rise in China's retail industry this February, we believe a full recovery in consumer sentiment will take time. In spite of this difficult environment, it is encouraging to see that many of our brand partners have remained committed to invest in China for the long term, especially with regards to technology, digitalization, and local marketing to serve Chinese consumers in locally relevant ways. Looking forward, we see a rapid merging of online and offline e-commerce, which represents a huge opportunity. We believe our expertise in technology for the service of brand operations fundamentally defines the whole Baozun business. As shown on Slide number three, adhering to our vision of technology empowering future success, our technology and operating platform serves as a unified and solid foundation that powers our broadening scope of service and market reach. Baozun now has three major business lines: Baozun e-commerce (BEC), Baozun Brand Management (BBM), and Baozun International (BZI). Baozun e-commerce, or BEC, remains our core business. In addition to leading the way in helping brand partners accelerate their digital transformation, we continue to improve our value-added services, upgrade BEC's integrated operating platforms, and middle-office systems for better accountability, efficiency, and flexibility. We also diversified our category mix and made complementary business acquisitions while investing in our people. I would like to highlight one person in particular, Arthur Yu, who was instrumental in every aspect of these advancements to make our e-commerce business more resilient and balanced. Naturally, as we expand our scope and markets, I'm thankful to Arthur for accepting the additional role of President of BEC in addition to his role as CFO. For additional BEC highlights and objectives, I will let Arthur discuss later in the call. Baozun Brand Management or BBM is our focus for growth and profitability over the next three years and beyond. Consumers now prefer brands powered by China-for-China products and communication, offering China-tailored updates and iterations. Clearly, in addition to e-commerce and digital business solutions, brands need brand management powered by technology and digitalization. As you may recall, on February 1 of this year, we completed the acquisition of Gap Shanghai. Gap's operations in Mainland, Hong Kong, and Macau, China are now a part of Baozun Brand Management, led by Sandrine Zerbib, our President of BBM, and Wing Xiao, the newly appointed CEO of Gap Greater China. With a core team of functional experts who understand both China consumers and local market dynamics, we have confidence in our China-for-China strategy and the digitalization initiatives for Gap Greater China. For BBM highlights and objectives, I will let Sandrine discuss later in the call. Baozun International or BZI is a longer-term opportunity that we will patiently invest in and explore. We have a natural affinity to replicate our China e-commerce success. We work with brand partners to co-develop glocalization, which is a term combining global and local. This is our philosophy: while we pursue global opportunities, we rely on local expertise and resources. Where necessary, we will form local strategic alliances. We have initiated some trials in Southeast Asia and Europe. As a sneak peek in Southeast Asia, we have already established the region's headquarters in Singapore and operations in six markets in the region. With our technology, IT infrastructure, and data advantage, brands that wish to expand into Southeast Asia are excited to engage with us. This February 2023, we made an important interest investment along with proceeds in Branded Lifestyle Asia Limited, a leading premium fashion retailer with a strong brand portfolio that includes products from Roots and a proven track record in South Korea and Taiwan. The Fung Group, a global leader in the consumer goods supply chain, is a majority shareholder. We have also entered into a strategic cooperation agreement to become the preferred strategic service provider for e-commerce operations in Asia, outside of the PRC. Baozun and the Fung Group are setting up a strategic technology committee to jointly develop an enterprise-wide technology strategy covering proposals for ERP technologies, systems, and platforms suitable for digital transformation. We're excited about overseas opportunities. Although we do not aim to immediately generate meaningful revenue from Baozun International in the next three years, I'm adopting an entrepreneurial mindset for international expansion. I will personally share the development of Baozun International and our technology routine approach. As we expand our scope, we have now increased our addressable market and the revenue sources. Clearly, BEC represents our existing China e-commerce revenue stream, while BBM and the BZI are incremental opportunities providing a tangible growth path over the next five years. With greater business diversification and splendid leadership, we're confident in our roadmap. Let me now pass the call over to Arthur.

Arthur Yu, Chief Financial Officer and President of Baozun E-commerce

Okay, thank you, Vincent and hello, everyone. It's a great pleasure to communicate with you for the first time as the Group CFO and the President of Baozun e-commerce. I will do a quick review of the financials of the fourth quarter and full year of 2022 followed by business updates on Baozun e-commerce. Now please turn to Slide number 4. Despite the weak consumption sentiments, our total GMV showed resilience and was nearly flat on a year-over-year basis, benefiting from a diversified category mix. FMCG outperformed with high double-digit growth well applying contracts. Our net revenues declined by 20% to RMB2.6 billion, of which product sales declined by 37% and service revenue decreased by 8% compared with the same period of last year. Let's turn to Slide number 5 for a breakdown of revenue. We continue to prioritize the service model, especially focusing on value-added services in digital marketing and IT services while reducing low-quality product sales during the quarter. Our digital marketing and IT solutions decreased by 7% mainly due to brand partners reducing the marketing budget. Warehousing and fulfillment service revenue declined by 13%, of which 13% was due to the disposal of Baobida, the delivery business, representing a 3% reduction in an apple-to-apple comparison business. In addition, our service revenue from apparel and accessories despite a lower GMV in the category continued to grow during the quarter, reflecting higher take rates for deeper service penetration. In total, revenue from services declined by 8% year-over-year. Our total product sales declined by 37% during the quarter, reflecting the weak consumption sentiment towards the appliance category and our continuous efforts in optimization of better profitable product sales from electronics. Please turn to Slide number 6. In this quarter, our cost of products decreased by 38% to RMB643 million, mainly due to lower product sales. One highlight is the gross margin for product sales improved by 155 bps to 16.7%. Our overall gross margin improved by 770 bps to 74.8%, driven by a combination of higher service revenue mix and improving gross margin of product sales. Now turning to Slide number 7. Our non-GAAP income from operations was RMB183 million during the quarter, more than double than a year ago. Non-GAAP operating profit margin was 7.2%, compared with 2.2% a year ago. During the same quarter of last year, there was a one-off G&A of RMB44 million related to our move into the new headquarters and the loss of RMB30 million from Baobida. Excluding such impacts, our non-GAAP operating profit still grew 43% year-over-year. Non-GAAP net income was RMB168 million this quarter compared with RMB89 million in the same period of last year. Once again, we have prepared waterfall diagrams depicting our analysis of how our top line and bottom line evolved year-over-year. As a reminder, the latest analysis is unaudited and should solely be used as supporting numbers to aid discussion. First on Slide number 8, this waterfall diagram shows our net revenues walk from Q4 2021 to Q4 2022. In red, you can see that the biggest item impacting our revenue this quarter was product sales as we just discussed. Revenue from DM and IT services has shown resilience and the warehouse and logistics revenue, excluding the disposal of Baobida, declined by 3%. Excluding the impact of such disposal, the apple-to-apple revenue declined by 17%, of which service revenues declined by 4%. Now please turn to Slide number 9 for the indicative walk of non-GAAP operating profit. In light of the weaker consumption sentiment, we have implemented several cost optimization initiatives, including centralizing our operating capabilities, rationalizing incentives, and consolidating office footprints since the beginning of 2022. More than 1,600 of our customer service staff are now located in regional service centers. By utilizing S-ANY modules across regional service centers, we lower costs, increase service flexibility, and agility to cope with COVID-induced turbulence. For full year 2022, we generated over RMB30 million in savings from the regional service center. Our major cost-saving initiative is the introduction of the Baozun Business Ownership (BBO) compensation framework, which provides higher performance incentives linked to improvements in productivity, quality, and sustainability. We achieved another RMB50 million cost-saving from the BBO initiative in 2022. This quarter, we are seeing profitability leverage, especially with the strong seasonality of China e-commerce in the fourth quarter, and the leverage applies to almost all categories and service models. I believe the chart is self-explanatory, and just want to highlight that this portal of Baobida which generated a profit saving of RMB30 million, and product sales bottom line deteriorated by RMB12 million due to weak top line as well as higher product costs related to defaults and imperfect products due to higher return rates. Now turning to Slide number 10 about our cash flow. As of December 31, 2022, our cash, cash equivalents, restricted cash, and short-term investments totaled RMB3.1 billion. In light of the macro uncertainties, we continue to improve the working capital efficiency. Our initiatives to further advance our back-end processes to improve inventory management and billing and collection activities have proven to be effective. During the quarter our total operating cash flow grew by 17% to RMB622 million. Please turn to Slide number 11 for a quick full year summary. We ended 2022 on a solid note, with total GMV of RMB84 billion, an increase of 19% year-over-year. Our non-GAAP operating profit is RMB256 million, an increase of 14% year-over-year. Annual operating cash flow reached RMB367 million, a new record since our inception, and our balance sheet also remained solid with RMB3.1 billion in total cash. In summary, this meant a challenging year; our business model delivered positive non-GAAP operating profits and cash flow. I want to quickly mention that we came in with our new group structure. We will begin reporting segment financials in quarter one 2023 to better reflect our business activities. Along this thought, we will stop reporting costly GMV metrics. This metric has become indicative of our actual group performance. I'd like to take this opportunity to share some progress we made in the Baozun e-commerce during last year. Right at the beginning of 2022, we stressed that our overall goal is high-quality sustainable business appeal. To achieve this goal, we continuously made efforts for all the services to be more customer-centric, diversify our business models through innovation, and continuously optimize our cost structure. Let me share some specific items on Slide number 12. Our omnichannel end-to-end value-added services are highly recognized by customers. By the end of the year, we have 42% of our branded partners increase the weight of an omnichannel business. We further enhanced our service penetration with value-added services accounting for half of our revenue stream. By the end of 2022, we had a total of over 400 brand partners, and some of these brands engaged with us for the first time through value-added services in technology and digital marketing. Our regional service center (RSC) continues to expand, reducing costs and increasing efficiency while improving service quality. We launched BOCDOP to deepen the commercialization of technology and explore new market opportunities. Our logistics and warehouse division further enhanced strategic cooperation with Cainiao. We established a Baozun carbon neutrality whitepaper, clarifying the dual carbon goal and releasing sustainable development responsibilities in multiple dimensions. On November 1, 2022, we officially became a primary listed company on the main board of the Hong Kong Stock Exchange and the NASDAQ Global Select Market. Lastly, in 2022, we again won the best employer brands award for the seventh consecutive year. It exemplifies how our business development has always been in harmony with social responsibility. Our business philosophy is to put the customer first and create value for them. Throughout the year, we continue to help our brand partner with initiatives for innovative user engagement and to find customer journeys. This innovation includes fund generation campaigns, AI-based short video creation tools, game-based interactive social marketing, and business intelligence dashboards to improve decision-making effectiveness. For instance, in last year's Double 11, our efforts enabled one of our brand partners, a leading international sportswear brand, not only to rank as the number one brand in GMV generation but also as the number one in traffic, number one in live streaming, and number one in membership acquisition. This is a demonstration of how we empower our brand partners and also our commitment to facilitate our brand partners’ success. This commitment also applies to our new journeys in Baozun Brand Management. So let me now turn the call over to Sandrine to elaborate more on BBM.

Sandrine Zerbib, President of Baozun Brand Management

Thank you, Vincent and Arthur and thank you all for joining us today. It is my great pleasure to speak with you. As we have previously stated, Baozun Brand Management is a strategic addition that naturally flows from our existing core e-commerce service business. BBM, Baozun Brand Management, is a holistic, well-rounded partner for global brands to further unlock their business potential in China. Our technologies and insights enable us to forge a sustainable, symbiotic relationship between physical retail and online commerce. We aim to deliver the best-in-class seamless omnichannel experience by integrating the digital and the physical at scale and succeed where few have done so in retail. Please turn to Slide number 13, Baozun Brand Management. Today's digital transformation, in fact every aspect of business in general and of brand business in particular, is driven by the integration of online and offline stores, increasing share of marketing budgets to digital marketing, and the accelerating use of big data and AI in brands' product creation cycles and customer relationships. Baozun is exceptionally positioned to leverage its leading technology portfolio and insight accumulated over the past 15 years, serving top global brands. BBM approaches brand management holistically from online to offline, from supply chain to marketing, go-to-market, and distribution. We aim to grow our portfolio of brands under BBM. We are positioning ourselves in the mid-end and premium consumer lifestyle brand segments, targeting brands with strong potential in China and Asia and strong digital presence. Now, let me provide you with a high-level summary of our first 50 days post-acquisition of Gap, the first brand that has entered the BBM portfolio. Gap is an advantageous starting point for us in this line of business. In our business arrangements with Gap, we secured complete control of the supply chain, which and Gap’s scale will enable us to accelerate the establishment of a modern, technology-driven, flexible, and responsive supply chain that will be leveraged for the entire brand management portfolio. Likewise, we have started already to work on our technologies to turn them into state-of-the-art systems to manage retail across all channels. Last but not least, Gap is a formidable chance for us to rapidly strengthen the talent pool for brand management, a new line of business. Our first 50 days have confirmed the diagnosis we had made before the acquisition, and the focus on product and gross margin we were planning for is fully confirmed by our first observations. Eventually, execution is everything. In addition to mobilizing the best experts at Baozun to fully leverage Baozun's resources, we have partnered to identify key resources to contribute to the execution of our plans and we are building the necessary ecosystem to rapidly increase our consistencies in the management of Gap Greater China. As you know, apparel retailing is a seasonal and cyclical business. Therefore, the changes we're making will take at least several quarters to bring measurable results. Product commitments and purchases for the first half of 2023 were made before our acquisition of Gap Greater China, and we're only able to meaningfully impact products from winter '23. Having said that, we've been very active. With Wing at the helm, we've been able to quickly identify and hire excellent top-level experts, including local designers, supply chain specialists, and a proven financial officer for Gap. These are the experts, along with HR and production specialists, that will propel forward our focus on China-for-China products and communication and optimize Gap Greater China's supply chain to be closer to market needs, improving costs, expanding gross profit, and ultimately achieving net profit. We also quickly limited our higher-priced product capital in collaboration with one of China's rising stars in peak fashion. In this release, we started at a significantly higher price point, which is four times Gap's typical price point. Yet, we were able to sell half of the inventory in a couple of weeks at zero discount. On the first day of release, the highest-priced item had sold out within one hour. Our team’s movement ranking climbed from lower than 30 to number 8. This test offered an excellent opportunity to practice our integrated marketing, and we're glad to have won the attention of a younger audience. This is something that we were able to ideate and execute at blazing speeds, and that proves the validity of our strategy and plans. We have also been able to fully leverage China’s post-zero COVID recovery and enjoy a 22% growth in retail traffic and over 500 basis points improvement in retail gross margin in the last 10 weeks. While we're still very early in the Gap transformation, we believe our ability to quickly establish a strong local team and successfully test new launches validate that our analysis for the Gap acquisition was right. We are confident that Gap is now on the right track. Closing the Gap Shanghai acquisition has led many other brands to come to us to discuss the China-for-China strategy and our technology-driven approach. These brands genuinely wish to explore possible cooperation with BBM, which further strengthens our confidence that BBM will meaningfully expand our total addressable market. It has become obvious that our brand management offering can add more to our value proposition and differentiate us from traditional service providers. With all these things said, I shall now hand over the call back to Arthur. Thank you.

Arthur Yu, Chief Financial Officer and President of Baozun E-commerce

Thank you, Sandrine. Overall, our effectiveness in maintaining operations and supporting our partners' success during that period of micro uncertainty once again proved the durability and the strength of Baozun's business model. Throughout 2022, we prioritized high-quality business development and anticipated value-added services while continuing to improve cost optimization and working capital efficiency. All these efforts started to bear fruit in terms of higher gross margins, lower operating expenses, and better cash flow. We are confident that our technology-driven capabilities position us to pursue incremental growth opportunities in BBM and both domestically and internationally. Meanwhile, for BEC, we will put customers first and increase value-added service penetration to drive quality revenue and earnings growth. In light of our consumption recovery in China, we are confident that our top line in 2023 will return to growth. Our non-GAAP operating profits will expand by double-digits year-over-year. For BBM, our top priority is to stabilize the China top line while narrowing losses in 2023. For Baozun International, we do not expect significant contribution to revenue and operating profits in 2023, but it is a strategic initiative for longer-term growth. In 2023, we project Baozun Inc.'s total revenue will grow about 25% year-over-year, and as BEC's operating profits and cash flow should be able to cover investments required in BBM and Baozun International. We focus on Baozun Group achieving positive operating profits and cash flow in 2023. 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 from Citi. Please go ahead, Alicia.

Alicia Yap, Analyst

Hi, thank you. Good evening management. Thanks for taking my questions. I have two questions. First, can management elaborate a little bit on the latest consumption sentiment over the past few months, especially on the discretionary category? I'm also more interested in regard to the domestic brands versus the international brands, specifically on the international sports brand? Have you seen a decent rebound from the international brands? And then second question is related to the overall e-commerce space. Given that a number of e-commerce platforms continue to diversify their sales promotion to smaller or more frequent kinds of billion-dollar type of subsidy rather than concentrating the sales effort into two promotional periods like June 18th and Singles Day. So, how will that affect Baozun's sales seasonality for your domestic business this year? Do you think the brand partners are ready for some of these shifts? Thank you.

Arthur Yu, Chief Financial Officer and President of Baozun E-commerce

Thank you, Alicia. This is Arthur. Let me address your question in turn. The first one: we have seen a recovery of the consumer confidence level, but this is slower than our expectations. Particularly, we have seen some categories related to travel, such as outdoor and apparel, which have started to recover. We also see consumers becoming more conservative and sensitive to price. For example, the affordable luxury and mass market pricing has grown pretty well. We also see that the execution of the brands themselves is becoming really important, so it's critical for a brand to know its own strategy on products, channel strategy, and how to implement it. As for the second question, regarding international and local brands, it’s a mixed picture. We have seen some international brands doing very well, while we're also seeing some domestic brands performing well. The key is not whether they are international or domestic; it’s about how brands can adapt to a suitable strategy, such as the China-for-China strategy, which includes product selection, how they utilize omnichannel, and how they utilize the IT and data they accumulate to drive top-line sales. This represents an opportunity for Baozun, where our value-added service now accounts for more than 50% of total revenue. Overall, I think the current situation represents a good opportunity for Baozun to grow our service, especially the value-added services.

Operator, Operator

Thank you for your question. We’ll take the next question from Violet Yi from China Renaissance. Please ask your question, Violet.

Violet Yi, Analyst

Good evening. And thanks management for taking my question. So I have a question on the development of the non-Tmall channel. Do you see any changes in the competitive landscape in the non-Tmall channel and any breakthroughs or strategies that you could share? And maybe a quick update on the take rate trends? Thanks.

Arthur Yu, Chief Financial Officer and President of Baozun E-commerce

Yes, this is Arthur again. Thank you for the question. I think the non-Tmall channel has become more competitive, given the different platforms have started to fight for traffic. What we have seen is many new brand partners have chosen an omnichannel strategy, meaning that how they choose the channel becomes highly important. From Baozun's perspective, we think each channel has its own character. The most important thing is to deploy the right product to the channel by understanding the customer base of each channel. So that's how we currently help a lot of the brands we partner with to design and to implement a suitable strategy for this omnichannel approach in e-commerce. In terms of the take rate, it will depend on the different category, but the take rate trends have become competitive. However, we can optimize the end result by focusing on the right results in the correct channel.

Operator, Operator

Next question comes from Andre Chang from J.P. Morgan. Please ask your question, Andre.

Andre Chang, Analyst

Thank you for taking my question. I have two questions actually related to the BBM business. Firstly, as Andre mentioned, we will do a lot of consolidation consultation and introduce the best talent and resources from Baozun. Can you elaborate more on what areas we think the most improvement can be made and also to understand the pace of changes? Will the changes be front-loaded in the first half of this year, leading to more financial pressure for the group in the first half, or will it take time to show this kind of consolidation and financial impact throughout this year into the later part? And secondly, I believe beyond Gap, we are going to introduce more brands, right? Can we talk more about this approach? What are the potential synergies, and how are we going to manage the portfolio? What scale do we expect this to grow in the longer term? Thank you.

Sandrine Zerbib, President of Baozun Brand Management

Okay. So let me go one by one. I start with your first question, which is about how we plan to leverage the resources at Baozun. We see primarily technology, logistics, and e-commerce operations as areas where Baozun is an expert and can speed up and accelerate the recovery of Gap in Greater China. To take a very concrete example, I think I mentioned earlier that we are working at full speed to bring the portfolio of technologies at Baozun and develop them to be usable for retail operations and certain aspects of the supply chain. So this is where we focus on integration; it’s not integration, it’s the wrong word. Sorry. The leveraging of Baozun resources. Obviously, when it comes to back-office resources, Gap has its own back office, but it also has the advantage of having a big company backing its operations in areas like legal and finance. Regarding your second question on the time frame, from the very beginning, we stated that purchases are made well in advance, particularly before we took over, so most of 2023 is already based on prior purchases and, thus, the impact we can have on products is fairly limited for 2023. We plan to put in place a better supply chain, but that was not the case before. We will also be working on low-hanging fruit that we can apply immediately. Our plan is to reduce the losses significantly this year and to continue to further reduce those losses next year, ultimately reaching a breakeven point in '25. This is the sample we have planned for, and that is confirmed today. Now regarding other brands, we are currently in discussions with a number of other brands that may be positioned a bit differently than Gap. Many of these brands are more premium without being luxury and are positioned a bit higher than Gap. These are brands where we see a lot of synergies. That's also why for the time being, we focus more on apparel, footwear, and accessory brands. Everything we’re doing in terms of logistics, e-commerce operations, technology regarding supply chain, is going to be usable for other brands when we remain in this area of business. Thank you.

Sophia Tan, Analyst

Hi, management. Thanks for taking my question. I have one question on behalf of Ashley, in terms of the Gap business outlook for 2023. Can management please share some color on the financial and operational metrics that are better to look at if we would like to track the performance of Gap? And how do we think about the financial impact on both the top line and bottom line for this year? Thank you.

Sandrine Zerbib, President of Baozun Brand Management

Okay, go ahead, Arthur, that’s perfect. Okay, go ahead.

Arthur Yu, Chief Financial Officer and President of Baozun E-commerce

For the financial aspect, I will make some comments, and then maybe Sandrine can add color from the operational perspective. As we mentioned earlier, turning around Gap Greater China is a medium to long-term effort. We are looking at a five-year journey to turn this around, expecting our top-line CAGR to grow by more than double-digits. We want to breakeven from both profits and cash flow perspectives by 2025. For 2023, as we just mentioned, many decisions concerning products and channel strategies were made prior to the acquisition. Therefore, our aim for 2023 is to stabilize the financial aspects and narrow down the losses of Gap Greater China. The good news is that the profits and cash flow from all the e-commerce business are sufficient to cover the investments we need for Gap Greater China. Overall, our profits for this year will be positive, and our cash flow at the group level will also be positive.

Sandrine Zerbib, President of Baozun Brand Management

Well, I think you said pretty much everything, but indeed, stabilizing is the goal; however, we still aim to grow the top line to a certain extent this year. We also observe positive signs on the gross margin, as gross margin is a key aspect of recovery. Overall, the metrics we should look at are the top line growth, gross margin, profit, positive cash flow, and the efficiency of our operation. These are the metrics we will use to assess our progress on this business, and we are currently on track. As previously stated, it’s a mid- to long-term journey.

Operator, Operator

Next is a follow-up question from the line of Violet Yi from China Renaissance. Please ask your question, Violet.

Violet Yi, Analyst

Yes, thanks management for taking my question again. So my question is, since you're upgrading your business line, BD. Now also BBM and BDI, how should we view your business profile both in the short term and also in larger view, say three to five years?

Arthur Yu, Chief Financial Officer and President of Baozun E-commerce

Thanks for the question. From a business perspective, we have positioned the overall group into three business lines. For BEC, our goal is to always put the customer first and provide value-added services, which is the whole reason we remain focused on this area. Given the expertise and experience we have in this area, along with the dynamics of overall e-commerce in China, we still have huge potential to keep growing in both top line and bottom line for this business unit. For BBM, our goal is to utilize the experience and technology we have accumulated over the last 15 years in China to transform our factory model into a growing business unit overall for the group. The turnaround of Gap Greater China will provide us with a foundation to build a successful brand management business unit with the capabilities in IT systems, structure, processes, and talent. Lastly, for Baozun International, which is a long-term investment, our view is that we will use the capability and experience we have accumulated in China, but adapt that locally for international markets we have selected, namely Southeast Asia and Europe. However, as a long-term investment, we do not expect it will contribute significantly to either top line or bottom line in 2023. This is the overall profile for the three units.

Operator, Operator

Thank you very much. I'm showing no further questions. I'll turn the conference back to the management team for closing remarks.

Wendy Sun, Senior Director of Corporate Development and Investor Relations

Thank you, operator. In closing on behalf of the Baozun management team, we would like to thank you for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you all for joining today. That concludes the call.

Operator, Operator

Thank you. That concludes today’s conference call. Thank you for participating; you may now disconnect.