Ladies and gentlemen, good day everyone and welcome to Vipshop Holdings Limited Third Quarter 2025 Earnings Conference Call. At this time, I would like to turn the call over to Ms. Jessie Zheng, Vipshop Holdings Limited's head of investor relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop Holdings Limited Third Quarter 2025 Earnings Conference call. With us today are Eric Shen, our cofounder, 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 U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause 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 attributable to Vipshop Holdings Limited shareholders, and non-GAAP net income per ADS, are not presented in accordance with US GAAP. Please refer to our earnings release for details relating to the reconciliations 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 third quarter 2025 earnings conference call. Our third quarter results demonstrate tangible progress on our path back to growth. We are pleased with the clear top-line expansion, led primarily by notable improvement in customer trends across our core categories. Total active customers regained year-over-year growth. Super VIP membership continued to deliver double-digit growth. In the third quarter, active super VIP customers grew by 11% year-over-year, contributing 51% of our online spending. This sustained growth was primarily driven by continuous upgrades to SVIP exclusive product and service benefits, coupled with more targeted engagement initiatives, which effectively convert regular customers. In terms of category performance, we saw accelerated momentum in apparel-related categories throughout the quarter. Our team successfully delivered a powerful blend of quality, value, and style. This was achieved through a merchandising strategy that highlights high-value brands, trending categories, and popular selling points, all of which are deeply aligned with customer priorities. Against the dynamic industry backdrop, we are navigating this operational environment with agility and efficiency. We are strategically realigning the organization for long-term success, implementing changes to strengthen our unique position as an off-price retailer for brands. We focus on reinforcing the flywheel from merchandising, customer engagement, to operation. At our core, we are a merchandising-led company. We compete through offering affordable and differentiated assortments, continuing to enhance our leadership in deep discount product offerings. We are deepening our category specialization to curate product offerings that deliver great relevance and distinct value. We start to see new momentum in customer and sales by acting upon engaging bright spots and customer performance. As an example, we are rebuilding our maternal and child care division to better integrate relevant apparel and non-apparel categories. This reshaped assortment is designed to foster cross-category growth and create lasting value for customers as they journey through different life stages. We are bringing this level of specialization across each category in our business. Additionally, we have an opportunity to scale through our differentiated product portfolio. One is Made for Vipshop Holdings Limited, which again delivered strong sales growth in the quarter. We are deepening our collaboration with more high-value brand partners. The team is capitalizing on our category insights to motivate brands to allocate and create more in-season and on-trend supply at competitive prices. A compelling case in point is a leading running shoe brand, which drove 50% of its September sales on our platform from Made for Vipshop Holdings Limited after making select popular items exclusive to us. Another case is a leading women's apparel brand, which built sales momentum by customizing more deep discount, high-demand offerings from its inventory fabrics. The other line I would differentiate is a carefully curated portfolio of popular items, which we proactively source from both domestic and global brand partners. We see strong momentum when we offer the right brand of quality, value, and style, giving fashion relevance to young and middle-class customers who increasingly come back to enjoy the fun of flash sales and treasure hunts. Beyond merchandising is how we do better to appeal to customers. In addition to sustaining strong mindshare with our core customer cohorts, we are actively experimenting with new marketing formats such as in-app content and short-form dramas. By adopting an integrated strategy across marketing, growth, and engagement, we are seeing early wins. This approach enables a differentiated balance of cost efficiency and strategic reinvestment, improving our performance in acquiring, activating, and retaining customers. To further engage our customers along their journey, we focus on facilitating the broadening and discovery of a broader range of new and existing offerings. A notable area of improvement is search and recommendations. Our systemic upgrade of relevant models, algorithms, and product operations have translated into measurable gains. In the third quarter, enhancements in our search and recommendation systems led to a tangible increase in conversions, directly contributing to sales growth. We also continue to elevate the experience for our SVIP customers. We want them to feel special, valued, and delighted with every visit, and we are delivering on this promise more consistently. In the third quarter, we launched a series of by-invitation private sales. SVIP customers were granted exclusive access to a curated selection of major brands at deep discounts, which delivered a powerful sense of value and successfully boosted membership loyalty. Lastly, we expect technology to play a strong role in tapping into the potential of growth and efficiency. We are clear on the path to accelerate AI application across our business. Our immediate focus is on deploying AI agents to enhance key areas including search, recommendations, customer service, external marketing, and business analytics. We expect these innovations to create more engaging customer experiences, empower brands with advanced tools, improve marketing efficiency, and generate actionable business insights. As an example, we are seeing good adoption of our try-on AI feature. Customers really enjoy using it to virtually try on clothes, save looks, and share with friends before buying. We are also gaining traction with AI ads, as a growing share of campaigns now leverage AI to upgrade marketing creatives and media placements, boosting customer acquisition efficiency. We are encouraged by the momentum in our business. Our operations are better aligned, and our teams are collaborating at new levels to unlock synergies. We continue to adapt to stay ahead of market trends and customer expectations. The entire organization is leaning into the opportunities ahead of us. We have great confidence in our long-term roadmap for sustainable profitable growth. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Thanks, Eric, and hello, everyone. I am pleased to report a set of healthy financial results for the third quarter. Total net revenues turned to growth and exceeded expectations, along with solid earnings expansion. This performance validates our disciplined model to balance growth investment with value creation, upholding our long-stated goal of achieving high-quality growth. Our strategic yet prudent growth investment focuses on value-driven opportunities in merchandising expansion, especially into the differentiated portfolio, consumer-facing marketing, better engagement with customers, as well as AI-centered technology advancements throughout our operations, all aligned with our long-term roadmap for success. We make sure everything we do should be powering our virtual flywheel within a business that translates into sustainable and profitable growth. As Eric stated, we are seeing the benefits of recent strategic changes. We are encouraged by the progress made so far and expect to see the impact of our initiatives build into the rest of the year and beyond. We have great confidence in our long-term outlook and our capabilities to deliver value for all stakeholders. Again, I would like to reaffirm our commitments to shareholder returns in 2025, which is no less than 75% of the RMB9 billion full-year 2024 non-GAAP net income. So far this year, we are firmly on track with that. We have returned a total of over $730 million to shareholders through a combination of dividend payments and share buybacks. 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 changes are year-over-year changes unless otherwise noted. Total net revenues for 2025 increased by 3.4% year-over-year to RMB21.4 billion from RMB20.7 billion in the prior year period. Gross profit was RMB4.9 billion compared with RMB5 billion in the prior year period. Gross margin was 23% compared with 24% in the prior year period. Total operating expenses were RMB3.9 billion compared with RMB3.8 billion in the prior year period. As a percentage of total net revenues, total operating expenses were 18.5% compared with 18.2% in the prior year period. Fulfillment expenses were RMB1.9 billion compared with RMB1.7 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 8.7% compared with 8.4% in the prior year period. Marketing expenses were RMB667.2 million compared with RMB617.8 million in the prior year period. As a percentage of total net revenues, marketing expenses were 3.1% compared with 3% in the prior year period. Technology and content expenses were RMB438.6 million compared with RMB454.2 million in the prior year period. As a percentage of total net revenues, technology and content expenses were 2.1% compared with 2.2% in the prior year period. General and administrative expenses were RMB984.6 million compared with RMB957.8 million in the prior year period. As a percentage of total net revenues, general and administrative expenses were 4.6%, which remained stable as compared with that in the prior year period. Income from operations was RMB1.26 billion compared with RMB1.33 billion in the prior year period. Operating margin was 5.9% compared with 6.4% in the prior year period. Non-GAAP income from operations was RMB1.6 billion compared with RMB1.7 billion in the prior year period. Non-GAAP operating margin was 7.5% compared with 8.2% in the prior year period. Net income attributable to Vipshop Holdings Limited shareholders increased by 16.8% year-over-year to RMB1.2 billion from RMB1 billion in the prior year period. Net margin attributable to Vipshop Holdings Limited shareholders increased to 5.7% from 5.1% in the prior year period. Net income attributable to Vipshop Holdings Limited shareholders per diluted ADS increased to RMB2.42 from RMB1.97 in the prior year period. Non-GAAP net income attributable to Vipshop Holdings Limited shareholders increased by 14.6% year-over-year to RMB1.5 billion from RMB1.3 billion in the prior year period. Non-GAAP net margin attributable to Vipshop Holdings Limited shareholders increased to 7% from 6.3% in the prior year period. Non-GAAP net income attributable to Vipshop Holdings Limited shareholders per diluted ADS increased to RMB2.98 from RMB2.47 in the prior year period. As of September 30, 2025, the company had cash and cash equivalents and restricted cash of RMB25.1 billion and short-term investments of RMB5.9 billion. Looking forward to 2025, we expect our total net revenues to be between RMB33.2 billion and RMB34.9 billion, representing a year-over-year increase of approximately 0% to 5%. 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. We do ask you to translate your question into Chinese if you are bilingual. And our first question will come from Thomas Chong with Jefferies. Your line is open.

Thanks, management, for taking my question. My first question is about the online shopping competitive landscape. Can management comment about the latest trend as well as the potential impact coming from quick commerce? And my second question is about the monthly GMV momentum quarter to date. How is the performance we are seeing in October and November? And how should we think about the 2026 outlook? Thank you.

Okay. So first, in response to your question on quick e-commerce, I think we are definitely not going into quick e-commerce. But we are looking at what appeals to those attracted to quick e-commerce. Convenience is something that matters, but that matters more in grocery shopping, food delivery, and some household essentials that are not apparel-related categories, which consumers typically do not care so much about fast delivery. But, anyway, we have made progress with convenience as part of our value proposition to customers. I think, for example, there are a few notable things. One is the delivery metrics. Next-day delivery has been rolled out for certain standardized categories of products in some cities. Second is accelerating the delivery of apparel products in some key cities. And lastly, the logistics trajectories are actually optimized for customer returns to our warehouse, etc. So these efforts are still focused on driving refined supply chain management to support business growth as well as operating efficiency. Secondly, in terms of the recent GMV sales trend, if we look at October and November to date, actually, we are seeing decent growth momentum. During the entire 11.11 promotional period, we actually recorded decent year-over-year growth. So we are reasonably positive on the business performance of the fourth quarter, which we have guided to 0% to 5% revenue growth. And for 2026, we do see there are opportunities in off-price retail for brands. On the other hand, we do expect consumer sentiment to normalize a bit more. So we will still have reasonable expectations for growth, but we are preserving a roadmap for balanced growth and profitability. So that is the roadmap for our long-term success and distinctly high-quality development.

Thank you. And our next question is going to come from Alicia Yap with Citigroup. Your line is open.

Hi. Good evening, management. Can you hear me okay?

Yes. Yes. We can hear you.

Okay. Yeah. Thanks for taking my questions. The first question is, can management elaborate on the details, changes, and restructuring of your merchandising team, and do these changes help the latest quarter performance? Are these mainly on improving your predictions of customer preferences, or is it for improving your relationship on securing better merchandise that fits the super VIP members? And how do you anticipate the changes could help the financial performance? And the second question is, can you also elaborate on how AI has been helping Vipshop Holdings Limited in terms of your financial growth? Can AI help to target churn users and also attract them back to the Vipshop Holdings Limited platform? Thank you.

Okay. So first, the recent organizational changes, simply put, we have realigned the entire organization for the long-term environment. Actually, it is not one department change; it is across the entire organization, among different teams, including merchandising, customer operation, and technology, etc. I think the major purpose of this organizational change is to infuse more agility and efficiency into our business model, especially as our founders are much more hands-on in daily operations. So the team can make quick decisions and turn these decisions into action. Also, we have replaced some of the senior leaders of the major merchandising team with new talent. So, basically, we have refreshed the entire organization and made consistent upgrades so that teams can collaborate at new levels to unlock synergy. For example, on the merchandising side, as we mentioned on the call, for some of the divisions, we are trying to build reshaped assortments, including apparel and non-apparel categories, to bolster cross-category purchases and customer engagement. We have actually adopted an integrated approach from marketing, growth, and engagement so that we can become more efficient in attracting, activating, and retaining customers through a series of adjustments. On the technology side, we focus on building the teams into the next phase of technology advancement, etc. So we are implementing all these changes so that we can always stay ahead of market trends and customer expectations. On the second question about AI, definitely, we are trying to accelerate AI across our business. It is just a simple fact that AI application can be very vital to driving business growth and efficiency. For example, we have added a lot of visualized model backgrounds to facilitate customer experience in virtually trying on clothes and making better choices, etc. So, actually, AI has brought benefits to conversion, directly contributing to sales growth. Also, we have made a lot of effort on AI advertising. A growing share of our marketing campaigns actually leverage AI-generated content to upgrade marketing creatives and media placement. This has actually improved customer acquisition efficiency. Of course, we are also experimenting with AI agents to be used in solving problems like customer churn or how to keep customers engaged on our platform, how to improve their customer experience with our platform. We do believe AI has a lot of potential in driving efficiency as well as supporting our long-term growth.

Thank you. And our next question will come from Andre Chang with JPMorgan. Your line is open.

Thank you, management, for taking my question. I have two questions. The first question is about the operation. We noticed the company delivered decent net profit growth in the third quarter. However, the operating profit and the operating margin still delivered some decline year-on-year. Now management mentioned before that increasing the GMV and the revenue should help economies of scale in the margin recovery. So we want to know when and whether management expects that the operating margin and the operating profit can return to positive year-on-year growth. The second question is about the recent news talking about the management of the company thinking about a Hong Kong listing. We wonder if there is anything management can share on this front. Thank you very much.

Hello, Andre. Thanks for your question. Your first question is regarding our gross margin. Actually, our gross profit margin declined in the third quarter and reflects our efforts to provide more customer incentives, especially for SVIP and other high-value customers and standardized products, to maximize sales and revenue growth. For the longer term, we expect gross profit margin to be comparable to the level in 2024 and largely stable around 23%, depending on the change of product mix from the third quarter. Regarding marketing expenses, we also increased a little bit to attract more customers. We think that in the future, those merchandising capabilities, AI technology applications, and marketing expenses will be the main triggers for our GMV growth. For your second question, we have been closely following the changes in the capital market. If there is any progress, we will update the market. Thank you.

Thank you. And our next question will come from Wei Xiong with UBS. Your line is open.

Thank you, management, for taking my question. Firstly, we have seen the active customer number and revenue growth have turned positive this quarter. Should we expect continued sequential improvement in the fourth quarter? What are our investment plans and operational focus for users and customers at the moment? How should we think about user growth and revenue growth for next year? Secondly, just wondering, what are our latest thoughts on the shareholder return program for next year? Thank you.

So let me first translate your response to your question on customer and revenue growth for 2026 and beyond. For the longer term, we always stay focused on achieving steady growth in customer revenue and earnings. We believe the sustainable and profitable revenue growth model should be driven by high-quality growth in customers as well as ARPU. For the near term, we do expect customer growth will accelerate. For example, in Q4, as compared to Q3 in terms of year-over-year growth. For 2026, we continue to believe that revenue growth should be driven by growth in customer numbers and in addition to ARPU. We have made a lot of efforts in driving customer growth and have been experimenting with a lot of new ways, whether it is marketing formats or channel investment, etc. All these efforts are oriented towards acquiring new high-quality customers, activating dormant or inactive customers, as well as continuing to expand our SVIP high-value customer base. We do have confidence that for the long term, we can drive top-line growth on the basis of both customer growth and ARPU expansion.

Okay. For the second question regarding the total return to shareholders, our return to growth demonstrates our disciplined capabilities to manage the business to achieve balanced goals. We are more confident that we can achieve relatively stable and healthy profit and cash flow levels. In the past, we have returned over $3.4 billion to shareholders since April 2021 in the form of buybacks and dividends. For 2025, we are on track with our commitment to returning no less than 75% of the full-year 2024 non-GAAP net income to shareholders. As of the date we published the third quarter results, we have returned a total of over $730 million through dividends and buybacks. For next year, we will continue to invest in our business to grow, improve profit, and generate cash to support our dividend payment and buyback. We will evaluate the appropriate level next year. Thank you.

Thank you. And I show no further questions in the queue at this time. I would now like to turn the call back to Jessie Zheng for closing remarks.

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

This concludes today's conference call. Thank you for participating, and you may now disconnect.