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Operator: Ladies and gentlemen, good day, everyone, and welcome to the Vipshop Holdings Limited Fourth Quarter and Full Year 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.

Jessie Zheng: Thank you operator. Hello, everyone, and thank you for joining the Vipshop fourth quarter and full year 2021 earnings conference call. With us today are Eric Shen, our 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 U.S. 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 statements in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this call to the extent that 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’s shareholders 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 reconciliations 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: Good morning and good evening everyone. Welcome, and thank you for joining our fourth quarter and full year 2024 earnings conference call. We believe the set of results were above our expectations in the fourth quarter to finish a challenging year. While consumers still spend cautiously on discretionary categories, our team has proactively doing changes to address those priorities with a focus on retail fundamentals and strong execution. At the category level, we saw some strength in apparel, which turned into positive growth in the fourth quarter of a high base. Our team moved swiftly to include a more unique off-price seasonal offerings that meet customer needs, especially in sportswear and outdoor products. For the full year, apparel categories were up 2% from the year ago, accounting for 75% of our total GMV, the highest level in our history, that helped us once again close RMB200 billion in total annual sales.

Our non-apparel business also clearly not narrowed its loss of sales in the fourth quarter, driven in part by the [Technical Difficulty]

Operator: Ladies and gentleman, please remain on the line, your conference will resume shortly.

Jessie Zheng: Hi, can you hear me?

Operator: Yes. Please continue.

Jessie Zheng: Hello?

Operator: Please, continue we can year you. ladies and gentlemen, please remain on the line, your conference will resume shortly. Thank you. The presenters are back on line, please Continue. You can continue from the very CEO.

Jessie Zheng: From the CEO part.

Eric Shen: Okay. Good morning and good evening, everyone. Welcome, and thank you for joining our fourth quarter and full year 2024 earnings conference call. We delivered a set of results well above our expectations in the fourth quarter to finish a challenging year. While consumers still spend cautiously on discretionary categories, our team has proactively driven changes to address those priorities with a focus on retail fundamentally and strong execution. At the category level, we saw some strength in apparel, which turned into positive growth in the fourth quarter off a high base. Our team moved swiftly to include more unique off-price seasonal offerings that meet customer needs, especially in sportswear and outdoor products.

For the full year, apparel categories was up 2% from a year ago, accounting for 75% of our total GMV, the highest level in our history that helped us once again across RMB200 billion in total annual sales. Our non-apparel business also clearly narrowed its loss of sales in the fourth quarter, driven in part by the outperformance in home appearance and digital products, as we capture growth opportunities from the government’s trade-in program. On the customer front, Super VIP membership extended its double-digit growth, which is a strong validation of our team’s commitment to delivering a differentiated experience. In the fourth quarter, active Super VIP increased by 50% from a year ago and accounted for 51% of our online spending. On an annual basis, we had a total 8.8 million active SVIP members who contributed 49% of our online spending last year.

We are encouraged by this initial improvement after we identified key near-term actions in each area and moved with urgency. In merchandising, we are getting shaped on brand and productive portfolio to stay highly relevant to customer needs. Value is on the full display through a series of operational adjustment and target incentives that help our customers shop for holidays and seasonal promotions, and we are engaging more with family shoppers with a more balanced assortment of apparel and non-apparel products to drive in sentimental growth in frequency and multi-category purchases. With these changes, we are better positioned going into 2025. Importantly, we remain very committed to our long-term strategy in kind of retail for brands. And we dedicate our efforts to the long-standing status that have been successful in driving quality growth, that includes our unique business model, a merchandising approach with no compromise on quality and authentic, a strong focus on value that include low price and compelling views and the suits of the service that highlights reliabilities, all these are put together through a differentiated strategy.

More specifically, of the business highlights, we continue to invest in our merchandising capabilities to become even more reliable destination for our customers. Following three years initial enhancement program, our team has been reshaped, developed new expertise and master how to work in more impactful ways. We brought in over 1,500 new brands last year, including officially partners with many high-profile global brands. We build deeper relationships with several hundred co-brands, secured great in demand value for money offering throughout the year and managed our product portfolio and on a great level of breadth and the deep. Most recently, our team has started dive deeper categories by category to seek opportunities by further expanding in the brand supply that we expect customers to truly feel the cherry-hunting excitement.

Another area of focus has been adding more unique supply to make our differentiated product offering even better and bigger. The Made for VIP line did become a meaningfully driver for more than 200 brands who have joined this program last year. We saw pre-sister strength in sales all year long, benefiting from quality customer and repeat orders as well as clearly better conversions and compared to the general merchandising within the same brand categories and price range with some brands up to 20% of their sales on our platform came from made for VIP last year. Turning to customers. We remain largely pressured, but are willing to spend when they find the right balance of quality products and a compelling price. Our SVIP customers are clearly more resilient and have a strong response to promotions and subsidy because the real value we provide for them.

In addition, the fund is enticing to get even better deals through the provide sales and special offers. We are happy to see that SVIPs continue to spend much more and more frequency than the regular customer. And the vast majority of them have renewed their memberships with us. Given how fast thing are changing, it is all the more important to put technology to work to drive growth and efficiency. We have made relentless efforts to optimize search and recommendations, which starts to incrementally improve customer experience and conversions. In addition, we are using the latest general AI model to help our team work in a more productivity way, enables them to serve brand partners and customers with greater efficiency. We have made initial attempts and applications cases such as shopper guide, marketing contents, customer service and analyze tools for brand partners.

Despite ongoing uncertainty, we are confident in our long-term development of our business given the continuing of our strategy, the merchandising strength we are building upon and the growth initiatives we are taking in merchandise expansion and deepened engagement with different customer cohorts. Most importantly, we have infused more flexibility into our business to compete and win in an environment where our customers are focused on value. We are confident in our ability to move beyond the current situations and return to sustainable and profitable growth in the long-term. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Mark Wang: Okay. Thanks, Eric, and hello, everyone. In the fourth quarter, we achieved a better balance in our business. We took sweeps and disciplined actions to reallocate resources to maximize growth while preserving solid profitability. Top-line came in better than our guidance as our team has made early endeavor to cease growth opportunity in both apparel and non-apparel business. Leading into categories where we know customers were trying to get ready for holidays, seasonal or family needs. Gross margin decreased year-over-year, but remained at a decent level of 23%, reflecting our step-up investments in customer incentives to drive quality growth. On a full year basis, gross margin is an eight-year high of 23.5%, benefiting from the all-time high contribution from our apparel business.

With the improved business scale and consistent execution of operating efficiency, our bottom-line held up pretty well in both absolute profit and margin in the quarter. This helped us record over RMB9 billion in full year non-GAAP net profit attributable to Vipshop’s shareholders at a solid margin of 8.3%, which was largely comparable to a year ago. As we await consumer discretionary spending to normalize over time, we believe we are on the right side to returning to healthy growth in the foreseeable future. We continue to move at pace and align our focus around merchandising for categories, value offering and customer impact. These growth initiatives are well supported by the spend in our profit and cash generation capability. Turning to capital allocation.

In 2024, we returned a total of approximately $770 million to our shareholders through annual dividend and buyback. For 2025, as we consistently communicated, we will return no less than 75% of our full year 2024 non-GAAP net income attributable to Vipshop’s shareholders in a combination of annual dividend and buyback. This reinforce our commitment to shareholder value creation in the long-term. 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 the percentage changes are year-over-year change, unless otherwise noted. Total net revenues for the fourth quarter of 2024 were RMB33.2 billion compared with RMB34.7 billion in the prior year period.

Gross profit was RMB7.6 billion compared with RMB8.2 billion in the prior year period. Gross margin was 23.0% compared with 23.7% in the prior year period. Total operating expenses was RMB5.1 billion compared with RMB4.9 billion in the prior year period. As a percentage of total net revenues, total operating expenses was 15.2% compared with 14.0% in the prior year period. Fulfillment expenses decreased by 2.5% year-over-year to RMB2.46 billion from RMB2.53 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 7.4% compared with 7.3% in the prior year period. Marketing expenses increased by 10.3% year-over-year to RMB930.3 million from RMB843.2 million in the prior year period. As a percentage of total net revenues, marketing expenses was 2.8% compared with 2.4% in the prior year period.

Technology in the content expenses decreased by 5.5% year-over-year to RMB469.2 million from RMB496.4 million in the prior year period. As a percentage of total net revenues, technology and content expenses was 1.4%, which stays flat as compared with that in the prior year period. General and administrative expenses increased by 20.0% year-over-year to RMB1.2 billion from RMB1.0 billion in the prior year period. As a percentage of total net revenues, general and administrative expenses were 3.6% compared with 2.9% in the prior year period. Income from operations was RMB2.9 billion compared with RMB3.7 million in the prior year period. Operating margin was 8.6% compared with 10.6% in the prior year period. Non-GAAP income from operations was RMB3.4 billion compared with RMB4.0 billion in the prior year period.

Non-GAAP operating margin was 10.2% compared with 11.4% in the prior year period. Net income attributable to Vipshop’s shareholders was RMB2.4 billion compared with RMB3.0 billion in the prior year period. Net margin attributable to Vipshop’s shareholders was 7.4% compared with 8.5% in the prior year period. Net income attributable to Vipshop’s shareholders per diluted ADS was RMB4.69 compared with RMB5.35 in the prior year period. Non-GAAP net income attributable to Vipshop’s shareholders was RMB3.0 billion compared with RMB3.2 billion in the prior year period. Non-GAAP net margin attributable to Vipshop’s shareholders was 9.0% compared with 9.2% in the prior year period. Non-GAAP net income attributable to Vipshop’s shareholders per diluted ADS was RMB5.70 compared with RMB5.79 in the prior year period.

As of December 31, 2024, we had cash and cash equivalents and restricted cash of RMB27.0 billion, and short-term investments of RMB1.9 billion. Now I will briefly walk through the highlights of our full year results. Total net revenues were RMB108.4 billion compared with RMB112.9 billion in the prior year. Gross profit was RMB25.5 billion compared with RMB25.7 billion in the prior year. Gross margin increased to 23.5% from 22.8% in the prior year. Income from operations increased by 0.8% year-over-year to RMB9.2 billion from RMB9.1 billion in the prior year. Operating margin increased to 8.5% from 8.1% in the prior year. Non-GAAP income from operations increased by 0.5% year-over-year to RMB10.7 billion from RMB10.6 billion in the prior year.

Non-GAAP operating margin increased to 9.9% from 9.4% in the prior year. Net income attributable to Vipshop’s shareholders was RMB7.7 billion compared with RMB8.1 billion in the prior year. Net margin attributable to Vipshop’s shareholders was 7.1% compared with 7.2% in the prior year. Net income attributable to Vipshop’s shareholders per diluted ADS was RMB14.35 compared with RMB14.42 in the prior year. Non-GAAP net income attributable to Vipshop’s shareholders was RMB9.0 billion compared with RMB9.5 billion in the prior year. Non-GAAP net margin attributable to Vipshop’s shareholders was 8.3% compared with 8.4% in the prior year. Non-GAAP net income attributable to Vipshop’s shareholders per diluted ADS was RMB16.75 compared with RMB16.90 in the prior year.

Looking forward to the first quarter of 2025, we expect our total net revenues to be between RMB26.3 billion and RMB27.6 billion, representing a year-over-year decrease of approximately 5% to 0%. 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.

Operator: [Operator Instructions] We will now take our first question from the line of Thomas Chong from Jefferies. Please ask your question Thomas.

Thomas Chong : Hi, thanks management for taking my questions. Congratulations on very solid fourth quarter results. My first question is about our Q1 revenue guidance. Can management comment about our year-to-date performance so far? Are we actually seeing we are more towards the low end or the high end of the guidance? And can management also comment about the recent consumer sentiment? That’s my first question. And my second question is about the 2025 outlook. Yes, I think it is a bit early right now, but it would great if management can comment about how we should think about the revenue and the margin trend throughout the rest of the year? Thank you. [Foreign Language]

Eric Shen : [Foreign Language] Okay. As for Q1 revenue guidance in terms of the year-to-date trend, because of the different timing of the spring festival, it’s not that idea to look at a single month in January or February. If we look at January plus February to-date, I think that actually our business is on track within our guidance. And when we assess consumer sentiment, we believe it’s actually slightly better than expected, although still, we observed it takes time to be fully back on the recovery trend. But apparently, we think it is marginally better than prior quarters. And since it’s still early into the quarter, and we have upcoming promotions in March when we start to sell our spring apparel, and until then, we may have a clear picture of how the quarter is going to end, whether it’s lower or higher end of the guidance.

But for sure, we are on track for now. As for the full year of 2025, we think everything should get back to the positive trajectory. That’s what we hope. Whether it is GMV or revenue, last year, we did note that so where our GMV was just slightly up. And because of the return rate, there is still some gap between GMV and revenues. So revenue is slightly down, but we believe this year, we will make every endeavor to bringing the business back from every — in terms of every operating metric. Of course, we are going to pursue a high quality growth strategy, as we have done consistently, and we will try to make efforts to maximize our growth opportunities in terms of customer and revenue under the condition that we will maintain a solid profitability as well.

We have an opportunity to invest a portion of our profit into growth opportunities, and we will do that. But overall, we will try to make sure we will maintain solid profitability and maximize our growth.

Operator: We will now take our next question from the line of Alicia Yap from Citigroup. Please ask your question Alicia.

Alicia Yap: Okay. Thank you. [Foreign Language] So two quick questions. First is that regarding your 4Q outperformance. Just wanted to know a little bit more the drivers. So is that mainly because of your effective marketing promotion? Or is that also benefiting some improvement of the macro environment? And then second question is, in your 4Q GMV, how much of that is actually benefiting or related to the trade-in benefits? Thank you.

Eric Shen : [Foreign Language] To your first question on Q4, it turns out to be — we are ahead of expectations due to a couple of a few factors. First, I think it helps a little bit because we start to see consumers became a bit more active from the end of November into December when we see normalized weather conditions that helped our winter clothing sales. And also on consumer sentiment, this was not as bad as we have sold. It turned slightly better than prior quarters. And of course, we did a lot of proactive actions in terms of the merchandising portfolio and more in-demand value for money product offerings. And also, we did some decent promotions in the [sub-fees] (ph) targeting our high-value customers, which brought in additional growth opportunities.

And to your second question on the related category benefiting from the trading program, it did help a little bit because we managed to narrow the loss of sales in our non-apparel business. But in terms of the absolute GMV is still are not that meaningful. It’s around RMB300 million to RMB400 million in terms of incremental from home appliances and the digital products in Q4.

Alicia Yap : Okay, thank you.

Operator: Next, we’ll take questions from the line of Wei Xiong from UBS. Please ask your question Wei.

Wei Xiong: [Foreign Language] Thank you management for taking my question. First, I want to ask about the gross margin trend in 2025. Are we seeing further room to improve year-on-year on the base of the very good results of full year ’24? If there is, what are the drivers behind? And also just to follow up on the net profit margin for 2025, given that we are trying to pursue the goal of GMV and revenue turning positive as soon as possible, are we expecting stable net margin year-on-year? Or — are we seeing further room to improve? And also, what’s our latest judgment on the long-term sustainable net margin level for the company? Thank you.

Eric Shen : [Foreign Language] In terms of the margin trend on GP margin, if I remember, we hit an 8-year high GP margin of 23.5% in 2024. So we actually think that’s a very good level, and we can afford to invest a portion of the gross profit, for example, to our brand partners to incentivize them to bringing more merchandising and more deep discount inventory so that we can grow together. So we are thinking about prudently reviewing the take rate levels with rent partners and allow them to have more opportunity for growing the business on our platform instead of just maintaining a fixed GP margin for the platform. And turning to MP margin. We have pretty good command of managing the cost in the expense items. So we think in terms of the MP margin, we are pretty confident that we can achieve a flattish level as compared to the past two years.

And in terms of the profit dollars, we try to grow our profit dollars as much as we can. If we can grow into a better scale and apparently that will take a lot of pressure on operating deleverage and then we can achieve a greater MP margin as well as a much better profit dollar level. So in terms of the margin profile, we have no concern on that. Actually, we had a pretty good amount of both GP margin and MP margin.

Wei Xiong: Very clear. Thank you management.

Operator: Thank you. Next question comes from the line of Jialong Shi from Nomura. Please go ahead, Jialong.

Jialong Shi: [Foreign Language] So I have two questions. First question is about generated AI. so the AI has become a popular trend these days. So just wondering if there are any areas in VIPS business where AI may help either improve profitability or reduce the costs? Just wonder if management can provide some colors. And the second question is wondering what is the trend for ARPU and the shopping frequency of Super VIP members?

Eric Shen : [Foreign Language] In terms of the AI application, actually, internally we are moving very fast to investing to AI applications, including personalization, Q&A generation and product recommendation, et cetera. And that’s on a number of application cases. Specifically, actually, we are deploying DeepSeek internally as well. The immediate focus is, of course, to try to find opportunities to improve productivity as well as efficiency. For example, on customer service, we’re trying to see whether DeepSeek can be integrated in our self-developed model to improve the analysis and the reasoning as the many dialogues that are taking place on customer service every day, we are trying to find if there is an area of improvement.

And to bring promise, we’re also launching new analytical tours to try to help them optimize their merchandising portfolio, to promote their sales campaigns, to see whether — what kind of actions they should take to maximize business opportunities on our platform. So although we are not rolling out any to see application publicly, but we are deploying AI and the latest GenAI models into our internal business cases on a broad basis. And on the customer front, we are also trying to see whether we can leverage the latest degenerative AI model to improve the generation of Q&A. And we are constantly upgrading the model and try to make our recommendation to customers even better and more precisely and more to their needs. So we are using AI applications in our internal business cases, and we are tracking the developments and we look to leverage AI on a constant basis to find opportunities to drive the growth and the efficiency.

In your second question on SVIP customer. Last year, in terms of annual ARPU, we did see a slight decline in — a slight decline. But that’s more of a dilutive impact from a 16% increase in the annual active Super VIP customers. And it takes — it normally takes some time for new SVIP member to ramp up spending. And if we look at the ARPU two-year customer cohort of our SVIP customer base, actually the ARPU remains very resilient. We only see a slight drop in terms of annual ARPU. So we think that the overall SVIP customer base is still very healthy, and we look to expand the SVIP membership continuously and protect the overall health of the consumer group.

Operator: All right. Thank you. Due to time constraints that concludes today’s question-and-answer session. At this time, I’ll turn the conference back to Jesse for any closing remarks.

Jessie Zheng: 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: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.