Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited First Quarter 2024 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.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's first quarter 2024 earnings conference call. With us today are Eric Shen, Co-Founder, Chairman and CEO; and Mark Wang, our CFO. Before management begins their prepared remarks, I would like to remind you that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US 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 statement 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.

Good morning and good evening, everyone. Welcome, and thank you for joining our first quarter 2024 earnings conference call. We had a slow quarter in terms of business momentum, but the profit grew much faster than sales. In the face of the shortfall of the top line, we stayed flexible to operate most effectively while focusing on priorities to enhance long-term strength. In the first quarter, sales growth moderated as the quarter progressed after strong start seasonal demand for spring coat was softer than expected in March. But for the first quarter, the apparel category continued to stand out with double-digit GMV growth year-over-year. Customer spending proved resilient in the first quarter, with active Super VIP members increasing by 11% from a year ago and accounting for 45% of our online spending. That's a healthy indication of the trust, value, and ease of the shopping we’ve created for them. We came into the year by responding to the change in customer behaviors and continuously refining our approach to navigate a still dynamic environment. All that we do centers upon increasing our appeal to customers beyond our existing base. We expand into what customers like and what makes us different. We provide great value that customers are looking for every day. On merchandise expansion, we continue to see plentiful supply in the industry, and we are happy with our access to quality brand inventory. We are building a wide-ranged assortment based on our broad and deep brand relationships. The steady flow of select national and global brands keeps us up to date to provide more treasure hunting view for our customers. Our team's merchandising expertise really enhances our brand portfolio with a product mix across a range of discount levels. We remain dominant in our share of deep discount branded products even as consumers have to make disciplined buying choices; our customers continue to welcome affordable selections. The Made for Vipshop line further gives us the ability to meet the needs of customers who are more style and price cautious. Through 180 well-known brand partners, we managed to more than double the supply of customized products from a year ago. We are pleased to see that Made for Vipshop products are more preferred by high-quality customers who tend to place more repeat orders in the apparel category. Across geographies, as people are closely looking for value, we have a good chance to grow our share of value spending. We continue to drive value for our customers beyond the compelling price. In addition to promotion, customers buy our brand offerings because they receive the combination of price, quality, and service. They are conscious of product authenticity, so they rely on our offerings. They like simplified promotions and seamless returns and exchanges. All these things make shopping easy, which leads to great repeat purchases. That's how we are different from others. We are also taking initiatives to enhance the loyalty program in the first quarter. We launched special sales and special offerings for Super VIP members to enjoy additional privileges. It's a good start to building more online and offline connections for our low-yield customers. Initial results are encouraging. Within the company, we continue to reinforce our efforts to gain efficiencies. We are working to design better processes and deploying the latest technology in our business. For example, we are applying AI to generate model photos and product videos to optimize our marketing efforts and help brand partners engage with their customers more effectively, with the potential to improve engagement and conversion; we expect to drive further adoption of this solution over the course of the year. While we are cautious in our near-term outlook, we remain confident in our ability to generate long-term results. Our unique value proposition allows us to serve in the best interest of brand partners and grow high-quality customers across age and income cohorts. We believe we have a solid foundation to capture the opportunities we see to grow our business in the years ahead. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Okay. Thanks, Eric, and hello, everyone. We are pleased to report another quarter of strong profit growth despite top-line performance. In the first quarter, our team executed well, moving quickly in response to the dynamic operating environment to drive efficiency gains. As a result, margins remain very healthy. More specifically, consolidated gross margin increased to 23.7% from 21.4% a year ago, primarily aided by a higher-margin category mix from apparel sales. Non-GAAP net margin attributable to Vipshop's shareholders expanded to another record high of 9.3% from 7.5% a year ago, supported by our ongoing efforts to maintain operating discipline. As consumers remain value-driven, we are reinforcing our value proposition across our merchandise offerings to deliver affordability that better fits into consumer preferences, and we will focus on priorities to capture the growth opportunities we see with brand partners and customers. We believe that with solid fundamentals and a great financial position, we are able to deliver quality growth, good profitability, as well as consistent shareholder returns for the long term. Looking to 2025, for the benefit of our shareholders, we plan to commit no less than 75% of our full year 2024 non-GAAP net income attributable to Vipshop's shareholders in discretionary share repurchases and/or dividend distributions. 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 percentage terms are year-over-year terms unless otherwise noted. Total net revenues for the first quarter of 2024 increased by 0.4% year-over-year to RMB 27.6 billion from RMB 27.5 billion in the prior year period. Gross profit increased by 10.9% year-over-year to RMB 6.5 billion from RMB 5.9 billion in the prior year period. Gross margin increased to 23.7% from 21.4% in the prior year period. Total operating expenses increased by 0.6% year-over-year to RMB 4.09 billion from RMB 4.06 billion in the prior year period. As a percentage of total net revenue, total operating expenses for the first quarter of 2024 was 14.8% compared with 14.7% in the prior year period. Fulfillment expenses increased by 11.3% year-over-year to RMB 2.0 billion from RMB 1.8 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 7.2%, compared with 6.5% in the prior year period. Marketing expenses decreased by 17.4% year-over-year to RMB 690.9 million from RMB 836.9 million in the prior year period. As a percentage of total net revenues, marketing expenses decreased to 2.5% from 3.0% in the prior year period. Technology and content expenses increased by 22.7% year-over-year to RMB 481.9 million from RMB 392.8 million in the prior year period. As a percentage of total net revenues, technology and content expenses were 1.7%, compared with 1.4% in the prior year period. General and administrative expenses decreased by 11.3% year-over-year to RMB 929.1 million from RMB 1.0 billion in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 3.4% from 3.8% in the prior year period. Income from operations increased by 39.0% year-over-year to RMB 2.8 billion from RMB 2.0 billion in the prior year period. Operating margin increased to 10.0% from 7.2% in the prior year period. Non-GAAP income from operations increased by 33.4% year-over-year to RMB 3.1 billion from RMB 2.3 billion in the prior year period. Non-GAAP operating margin increased to 11.1% from 8.3% in the prior year period. Net income attributable to Vipshop's shareholders increased by 24.6% year-over-year to RMB 2.3 billion from RMB 1.9 billion in the prior year period. Net margin attributable to Vipshop's shareholders increased to 8.4% from 6.8% in the prior year period. Net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 4.18 from RMB 3.16 in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders increased by 24.8% year-over-year to RMB 2.6 billion from RMB 2.1 billion in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders increased to 9.3% from 7.5% in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 4.66 from RMB 3.52 in the prior year period. As of March 31, 2024, the company had cash and cash equivalents and restricted cash of RMB 24.6 billion and short-term investments of RMB 2.9 billion. Looking forward to the second quarter of 2024, we expect our total net revenues to be between RMB 26.5 billion and RMB 27.9 billion, representing a year-over-year decrease of approximately 5% to 10%. Please note that this forecast reflects our current and preliminary view of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A.

Thank you. Now we're going to take our first question from Alicia Yap from Citigroup.

I have a question about the guidance. I'm curious about the factors that you considered in your latest revenue forecast for the second quarter. Is it related to sluggish demand, or are you also accounting for a higher return rate? Any insights you can share about your expectations for second quarter trends and demand would be appreciated.

For the Q2 guidance, we have considered several factors. First, the extended winter and early summer have shortened the period for spring apparel sales, which rely on timely seasonal shifts. Second, we are dealing with a challenging comparison to the same quarter last year when our performance was strong, which impacts us negatively. Third, our industry remains very dynamic, and we are concentrating on stabilizing our core business to maintain solid profitability. We have not made significant investments in subsidies and marketing to aggressively attract customers, which has led to some sales losses for spring across various platforms. Lastly, the increase in return rates is largely due to our growing SVIP members and relates to customers seeking exchanges when shopping on different e-commerce platforms.

Now we're going to take our next question from Ronald Keung at Goldman Sachs.

My first question is whether the decline in the first quarter was primarily driven by March. Additionally, when we guide for a decrease of 0% to minus 5%, are we basing this on April trends, or do we expect it to be more of an issue for May and June, especially in light of the shopping festival on June 16 compared to last year? Second, regarding shareholder returns, we've repurchased approximately RMB 11.9 million worth of shares in the first quarter, and we have announced our commitment to up to RMB 500 million by the end of this year. Does this indicate a substantial increase in share buybacks in the remaining three quarters?

Regarding your first question, sales momentum has been softer than expected this quarter, and we are doing our best to adjust the business and execute effectively. Given the extended promotional season that started on May 20 and will last for one month, the situation is quite different from what we faced last year. Therefore, we will remain cautious about sales momentum moving forward. Additionally, we will continue to be disciplined in our operations.

Okay, thanks for your question regarding the second topic of shareholder returns. We are committed to a long-term shareholder return policy, and we'll continue to use a combination of buybacks and dividends to provide shareholders with relatively stable and consistent annual returns. We have returned over USD 2.2 billion to shareholders since April 2021 in the form of buyback and dividends. For 2024, we have adopted an annual dividend policy and announced a USD 250 million dividend. In addition, we are steadily buying back shares and are committed to repurchasing approximately USD 500 million by December 31, 2024. This implies we will almost utilize the remaining amount of the existing USD 1 billion 2-year buyback program by year-end. Furthermore, looking to 2025, we plan to commit no less than 75% of our full year 2024 non-GAAP net income attributable to Vipshop shareholders in discretionary share repurchases and dividend distributions. All I mentioned regarding the records and future planning indicates our determination and commitment to return value to our shareholders in a long-term, stable, and consistent manner. I hope this answers your question.

Now we're going to take our next question. And the next question comes from the line of Eddy Wang from Morgan Stanley.

My first question is about competition. As Eric mentioned, we have seen more intense competition from peers, especially concerning subsidies. While I understand that in the short term we may stick to our current strategy, if you take a longer-term view, will we also feel the need to be more aggressive with our subsidy strategy, or will we continue to deter from our current strategy? Secondly, regarding user growth, we recorded a year-over decline in active users in the first quarter of this year. So I just want to hear your view on user growth strategy this year and in the long term. Lastly, about AOV, we observed that the AOV in this quarter actually increased year-over-year. Is this due to the increasing proportion of SVIP users, or are there other reasons for a higher AOV this quarter?

On your first question about competition, our strategy has been focused on branded discount retail and will remain so. Although there are many e-commerce platforms today, each offers something unique, and our strength lies in our ability to benefit brand partners while providing better value to our customers. This is why we have a loyal customer base that rarely leaves us. We plan to expand our relationships with additional brand partners to ensure a consistent supply of high-quality merchandise for customers who value brand integrity and authenticity. We do not intend to emulate our industry peers by blindly investing in large subsidies. While we will be strategically aggressive in acquiring customers, our focus will remain on attracting high-quality customers. Regarding your second question on marketing spend, we saw a slight decline in active customers in Q1 due to our stringent lifetime value (LTV) requirements. We will halt marketing investments as long as LTV stays above a certain threshold. We understand that in a competitive environment, particularly with price focus, some customers might be attracted by subsidies and are more price-sensitive, leading them to other platforms. However, our core customer base, the SVIP members, has remained resilient, continuing to grow at double-digit rates, with their average revenue per user (ARPU) rising faster than that of other customers. Moving into the second quarter, we plan to take a somewhat more aggressive approach with our existing customers because we aim to attract new high-quality users to our platform. To facilitate this, we will carefully ease our LTV restrictions to enhance our customer acquisition efforts. Lastly, the increase in GMV per customer reflects the positive momentum among our clientele. SVIP members are gaining traction, and as noted earlier, their ARPU is increasing more rapidly than that of the average customer. This indicates that when we prioritize the needs of our SVIP members by offering relevant merchandise and excellent services, they will continue to shop with us. We will keep working on expanding our SVIP customer base, as we believe that these core customer groups are vital for sustaining quality growth and profitability.

Excuse me, do we have any further questions?

No. Thank you.

Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Jessie Zheng, for any closing remarks.

Thank you for taking the time to join us today. If you have any questions, please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.