VIP Shop reports Q2 2025 revenue decline but projects 0-5% growth in Q3, driven by strong customer recovery and enhanced merchandising strategy.

OPERATOR - (00:00:00)

In accordance with the US 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.

Eric Shen - (00:00:16)

Good morning and good evening everyone. Welcome and thank you for joining our second quarter 2025 earnings conference call. In the second quarter our team acted swiftly to revive customerer activities and the sales momentum driving stabilization in our business. These efforts delivered measurable progress against our key priorities for renewed growth. Total GMV returned to growth driven by clear strength in in apparel related category reflecting our refined adjustments in the merchandising portfolio, Total active customerer also showed clear signs of recovery. Super VIP membership sustained its double digit growth in the second quarter active Super VIP customerer increase by 15% year over year contributing 52% of our online spending. This high value customer segment continued to outperform in terms of sales and revenue growth. With the fast moving industry dynamic, we remain anchored to the vision of the discount retail for brands. We believe at its heart discount retail for brand is about offering customerer beloved brands and high quality product at exceptional value. While the execution many innovate, the fundamentals stay true. Great brand, great quality and great value to achieve this we are making changes to sharpen our merchandising strategy which is key to deliver unique compelling value to brand partners and customerers. We are relying our merchandising team to better capitalize on our own evolving customerer trends and lifestyles while enhancing cross category synergies. Operationally, we are taking a more holistic approach to plan and manage our brand and customerer interactions to maximize platform wide value creations. We will also unify the marketing, customerer growth and engagement efforts to advance customerer value through each life cycle stage across customerer segments. We hope these initiatives will inject great agility and efficiency into our business model, creating a self reinforcing flywheel that advanced our growth priority from merchandising operations to customerer engagement. So start with merchandising. We are pursuing a path that is unique VIP Shop. We focus on the three pillars of our merchandising strategy, relevancy, differentiation and specialization in a competitive environment with standing out by consistently offering customerers high value brands that they love, exclusive made for VIP shop, customerized products and carefully curated portfolio of highly sought after items. In the meantime, we keep up with new trends, new styles and innovative fabrics and materials in each category. This ensures a steady and sustainable inflow of inventory that aligns with shifting customerer demand. In the first half we added close to 500 brands to our platform which are gaining traction among customerers. The Made for VIP shop line is a key part of our differentiation, delivering a more compelling brand of the quality and value that results in high value customerers repeat purchase and bet conversions. In the second quarter it maintained strong sales momentum contributing a meaningful portfolio of our appellate sales for many brands. This customerized product accounting for more than 20% of their sales on our platform. In the second quarter we added more high fashion selections achieving improved sales loop. We saw growing customerer recognition of our platform as the go to place for fresh sale and treasure huntings. Leveraging our global sales capabilities, we will have the steadily stream of differentiated items that flows into our assortment so that shoppers always have something to discover as they come back. For our customerers, we continue to create a unique experience that not only reinforces the affordability and the reliability they love, but also inspire them to discover the value and the freshness we offer. This is coming from optimized traffic allocation along with the customerer journey, enhanced SKU, improved search and the recommendations for both existing and new offerings. A good example of our customerer centric approach is the Super VIP loyalty program. In the second quarter we upgrade our private sales for Super VIP member offering high beloved brand products to create a great sense of exclusive and delight. We expect the loyalty program to deliver a more differentiated and personalized experience for our top tier customerers. Lastly, we continue to develop and leverage AI capabilities as part as our overall technology advancement to drive growth and efficiency. We are deepen corporate collaboration with business team to expand AI application cases and deliver measurable results. We see promising early traction across our AI initiatives. AI generated reviews and Q&As are contributing to enhance customerer journey. AI driven per sales support is showing initiative, initiative benefit to conventions and issue resolutions. Besides, AI powered marketing contents demonstrate effective reach to potential customerers. Despite the near team challenges, we are investing in multiple ways to grow share across our merchandising portfolio and customerer segment. Our roadmap for sustainable profitable growth in the long term relies on the consistent and collaborative execution every day. It stay true to who we are always being while adapting to evolving trends, enhancing our capabilities and always thinking about our unique role in retail for today's customerers. At this point, let me hand over the call to our CFO Mark Wang to go over our financial results.

Mark Wang - Chief Financial Officer - (00:09:08)

Thanks Eric and hello everyone. We have delivered another quarter of healthy profitability with margins hold up well as we moved at pace to stabilize the business. This underscores our team's consistent financial discipline in a dynamic operating environment. During the quarter we prioritized investments in growth initiatives related to customer engagement and the merchandising categories. Where we saw good momentum, we were more agile to dynamically reallocate resources in response to more productive activities that really helped business grow at a profit. As Eric indicated, through a series of organizational change, we have fully enhanced strategic clarity and execution speed across company. Though we are early on our journey, these actions are building tangible traction enabling us to position the business for return to sustainable profitable growth in the quarters ahead. Furthermore, we are firmly on track to deliver on our shareholder return commitment for 2025, which is no less than 75% of the RMB 9 billion full year 2024 non GAAP net income in the first half we distributed a total of over 614 million US dollars through a combination of dividend payments and share buyback, reflecting both our robust cash flow generation and conviction in the company's fundamental value and growth prospect. 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 RMB and all percentage trends are year over year trends unless otherwise noted. Total net revenues for the second quarter of 2025 were $25.8 billion compared with RMB 26.9 billion in the prior year period. Gross profit was RMB 6.1 billion compared with RMB 6.3 billion in the prior year period. Gross margin was 23.5% compared with 23.6% in the prior year period. Total operating expenses increased by 6.3% year over year to RMB 4.6 billion from RMB 4.3 billion in the prior year period. As a percentage of total net revenues, total operating expenses were 17.7% compared with 16.0% in the prior year period. Fulfillment expenses decreased by 2.6% year over year to RMB 2.1 billion from RMB 2.2 billion from in the prior year period. As a percentage of total net revenues, fulfillment expenses were 8.2% compared with 8.1% in the prior year period. Market expenses decreased by 3.3% year over year to RMB 715.9 billion 9 million from RMB 714.7 million in the prior year period. As a percentage of sonnet revenues, marketing expenses were 2.8% which remains stable as compared with that in the prior year period. Technology and content strength decreased by 9.3% year over year to RMB 442.0 million from RMB 487.2 million in the prior year period. As a percentage of Total net revenues, technology and content expenses were 1.7% compared with 1.8% in the prior year period. General and administrative expenses were only $1.3 billion compared with 900.7 million in the prior year period, primarily reflecting an increase in the share based compensation expenses for Shenzhen or less. As a percentage of total net revenues, General and Administrative expenses were 5.0% compared with 3.4% in the prior year period. Income from operations was RMB 1.7 billion compared with RMB 2.2 billion in the prior year period. Operating margin was 6.6% compared with 8.3% in the prior year period. Non GAAP income from operations was RMB 2.4 billion compared with RMB 2.6 billion in the prior year period. Non GAAP operating margin was 9.3% compared with 9.5% in the prior year period. Net income attributable to VIP shop shareholders was RMB 1.5 billion compared with RMB 1.9 billion in the prior year period. Net margin attributable to Vipshop Holdings shareholders was 5.8% compared with 7.2% in the prior year period. Net income attributable to VIP Shop shareholders per diluted ABS was RMB 2.91 compared with RMB 3.49 in the prior year period. Non GAAP net income attributable to VIP shop's shareholders was RMB 2.1 billion compared with RMB 2.2 billion in the prior year period. Non GAAP Net margin attributable to VIP shop shareholders was 8.0% compared with 8.1% in the prior year period. Non GAAP net income attributable to VIP Shop's shareholders per diluted ADS was RMB 4.06 compared with RMB 3.91 in the prior year period. As of June 30, 2025, the Company had cash and cash equivalents and the restricted cash of RMB 24.7 billion. The short term investments of RMB 3.0 million Looking forward to third quarter of 2025, we expect our total net revenues to be between RMB 20.2.7 billion and RMB 21.7 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 10. With that, I would now like to open the call to Q and A.

OPERATOR - (00:17:51)

Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced and to withdraw your question, please press star 11. Again we do ask you to translate your question into Chinese if you are bilingual. Please give us one moment to compile the Q and A roster and the first question comes from Alicia Yap with Citigroup. Your line is now open.

Alicia Yap - Equity Analyst - (00:18:27)

Thanks management for taking my question. My first question is about the latest e commerce competition. Understand that there is very limited overlap but curious to get management's view whether the recent startup initiatives of quick commerce by other e commerce platforms have any impact on Vipshop Holdings. Have you seen any change of purchasing frequency declining or budget spend coming down by your customers? My second question is about the weather. So given the recent uncertainty of weather condition with heavy rain and flood in many areas of China, has that affected the apparel items purchasing demand for the summer clothing? Thank you Diana.

Ninja - (00:19:55)

Ninja.

UNKNOWN - (00:20:51)

Dit.

Eric Shen - (00:21:33)

Thank you Alicia. Thank you for your question. So on the potential impact from the instant or quick e commerce we don't see any material impact on our business. You know we are very much focused on apparel sales and just a small portion of our business is standardized items which are more suitable for quicker delivery. Especially when customers see they can get most of their daily essentials within half an hour delivery, they may switch to shop through quick e-commerce, but overall we don't see any meaningful impact on our business so far and on customer behavior. There could be some change, but at the end of the day it depends on the quality and pricing of the offerings, especially in standardized items. On weather conditions also we don't see very meaningful impact despite volatile weather conditions across many regions in China. Whether it's rain or flood, we don't see very much impact on people's outing travel plans or apparel purchases. And we look at the data across different tiers of cities and we don't see any abnormalities with regard to their travel or apparel shopping activities.

Alicia Yap - Equity Analyst - (00:23:31)

Thank you.

OPERATOR - (00:23:35)

And the next question comes from Andre Chang with JP Morgan. Your line is open.

Andre Chang - Equity Analyst - (00:24:00)

UNKNOWN thank you management for taking my question. My first question is about the third quarter revenue guidance returning to positive year on year. I want to understand whether there's any comparison effect that helping the Yong Ye growth or we are back to growth trajectory again suggesting that the company will maintain positive growth in the coming quarters. My second question is about the share repurchase. The company bought back nearly US$350 million in the second quarter which is the highest in two years. I wonder if there's any reason for such a strong jump of buyback and should we expect such a momentum to continue into second half this year given the management's commitment in terms of shareholder return for 2025? Thank you.

UNKNOWN - (00:26:13)

And UNKNOWN quote this male UNKNOWN and Kyosana woman, no liquid.

Eric Shen - (00:27:52)

So Andrew, on your first question on Q3 guidance, you know we guided we guide for top line growth at 0 to 5% and we attribute this positive momentum to the efforts we have made in the last few quarters. We've made a lot of organization changes and adjustments in terms of merchandising and operation so that we actually have started to see there are clear recovery in terms of customer growth. Total active customers actually have returned to growth so far year over year. Especially we have seen new customers which have been struggling for a few quarters have returned to growth as well if customers start to regrow. And naturally we are more confident about sales and revenue growth. So we actually and also on the merchandising side, we've been talking a lot about providing more consumer relevant and differentiated offerings, especially to provide them with more items at a competitive pricing. So we've done a lot of optimization on the merchandising front as well. So that's why we guide a positive top line growth for Q3 and we don't think there is any, you know, material basic effect for Q3 and for Q4. We also want to see positive growth in terms of top line. But Q3, admittedly we actually had a high base in 2024. We actually benefited to some extent from the long streak of cold weather conditions. But overall we are confident that we can maintain growth for the quarters ahead and we are looking to accelerate the growth in the foreseeable future after we see our recent changes and adjustments materialize into real growth engines.

Mark Wang - Chief Financial Officer - (00:30:51)

Okay, regarding your second question, thanks for your question regarding the buyback program and actually there is no special reason for increasing the amount of the share buyback in the second quarter. We just committed to return value to our shareholders continuously. As you may aware that we have mentioned before, we are going to return no less than 75% of our full year 2024 non GAAP net income to shareholders in discretionary share repurchases or dividend distributions. Actually that amount is almost around US$900 million. So we just committed to return value to our shareholders and we will continue to invest in our business growth and improving profit and generating cash to support our dividend payout and buyback. Thank you.

OPERATOR - (00:31:48)

As a reminder to ask a question, please press star 11 on your telephone. The next question comes From Wei Xiang with ubs. Your line is open.

Wei Xiang - Equity Analyst - (00:32:42)

Thank you management for taking my question. First, we noticed the relatively stable gap between GMV and the revenue this quarter. Just wondering, could management share any latest trend regarding the return rate on our platform? Do we see any further room to improvement to narrow this gap going forward? Or that gap might widen a little bit considering the very healthy growth of SVIP users in the second half of the year. And secondly, on the other revenue side, could management share the latest progress and revenue and profit trends for Shenshan outlet business as well as some strategic planning and outlook for next year? Thank you.

UNKNOWN - (00:33:43)

UNKNOWN UNKNOWN

Dong Nigga - (00:34:17)

Dong Nigga which.

Eric Shen - (00:35:03)

Thank you. Xiang Wei, on your first question in terms of return rate, we actually see no surprise as regard to return rate. You know, for years we have seen some relatively stable return from customer behavior. It's just that our SVIP customers are growing very nicely at double digits. So we potentially will look at 2 to 3 percentage point increase every year in terms of return rate due to this structural factor. But it will be smoothed out on a quarterly basis, which we do believe that at some point we will see a flattish return rate quarter by quarter. The second question on Shenshan outlets. You know, we have seen very good momentum in terms of Shenshan outlets. We have a total of 20 stores for now and the comparable same store growth maintained at double digits for several quarters and we continue to look for the right cities or locations to expand our outlet business. Given the fact that the outlet industry is actually prospering in China and are actually riding on the tailwind of value for money consumption, and we do believe that there are still a decent amount of cities or locations that are suitable for outlet expansion and we intend to build the outlet business as part of our strategic and long term assets.

OPERATOR - (00:37:17)

I show no further questions at this time. I will turn the conference back to Jessie for any closing remarks.

Jessie - (00:37:27)

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.

OPERATOR - (00:37:40)

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

UNKNOWN - (00:38:41)

UNKNOWN. UNKNOWN