Earnings Call: Q2 2021

Aug 18, 2021

Ladies and gentlemen, good day, everyone, and welcome to Bibshopp Holdings Limited's 2nd quarter 2021 earnings conference call. At this time, I would like to turn the call to Ms. Jessie Zheng, Bibshopp's Head of Investor Relations. Please proceed, ma'am. Thank you, operator. Hello, everyone, and thank you for joining the IPshop Q2 2021 earnings conference call. With us today are Eric Shen, our Co Founder, Chairman and CEO And David Sui, our CFO. Before management begins their prepared remarks, I would like to remind you that the discussion today will contain forward looking statements 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 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 our results 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 GetSmarter. 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 Q2 2021 earnings conference call. In the Q2, we kept up our solid business momentum with core operating metrics continue to trend healthily. Our user base maintained its strong growth, driven a continued increase in total GMV. During the quarter, our total number of active card users RMB48.1 billion. Our most valuable user group showed especially strong growth momentum With cumulative Super VIP membership increased by nearly 50% year on year, contributing about the third the total GMV in the Q2 of 2021. This encouraging development was a result of our relentless effort to carry bridge our strategic focus and increase operational synergies. In the Q2, we continued to robust execute on our merchandising strategy. Our buyer teams successfully collaborated with increasing number of suppliers and brand partners. As a result, we have not only been able to attract either increasing amount of unique branded merchandise to be sold on our platform, but have been able to do Soh, SVIP Shoppers' favorite discount price. In addition to our traditional deeply discount inventory covering Tensive Range of Brands. We now also carry a considerable proportion of made for VIP shop products. These are products specially customized for VIP shop by our brand partners. We are committed to increase the breadth and the deeps of our merchandising portfolio to offer users a differentiated selection of high quality merchandise, While creating dynamic price advantage for our discount sales, in the second quarter, We successfully institute refinement at an operational level. User experience is one of our clear Priority. To this end, we implemented several initiatives, including better matching our merchandising selection to target users and improving overall incentive for our most valued users. On top of this, We also leverage effective marketing to attract more younger shoppers to our platform. Looking forward to the second half of twenty twenty one. We remain committed to execution our merchandising strategy. We are dedicated to create value for our new and existing customers, While also increasing the value we added for our core brand partners, we believe this will solidify our leading position in China's discount retail market. At this point, let me hand over the call to our CFO, David Cui, who will go over our operational and financial results. Thanks, Derek, And hello, everyone. We are pleased to report a strong set of results for the Q2 of 2021. During the quarter, we delivered solid top line growth with total net revenue reaching RMB29.6 billion, representing a year over year increase of 22.8%. We also witnessed the sustainable growth momentum in business development, which is evidenced by our number of active customers and total orders growing by 32% and 30% year over year, respectively. Non GAAP net income attributable to VIT Shop's shareholders also increased by 11.3% year over year to RMB1.5 billion. In the Q2 of 2021, we repurchased approximately US301 million dollars of our ADS in accordance with the US500 million dollars share repurchase program we adopted in March earlier this year, showing both our confidence in the robustness of our business model and our dedication to delivering long term value for our shareholders. Before I get started with detailed quarterly financial highlights, I would like to clarify that all the financial numbers presented below are in RMB and all the percentage changes refer to year over year changes unless otherwise noted. Total net revenue for the Q2 of 2021 increased by 22.8% year over year to RMB29.6 billion from RMB24.1 billion in the same period last year, Primarily driven by a large number of total active customers. Growing profit for Q2 of 2021 increased by 20.6 percent year over year to RMB6.0 billion from RMB4.9 billion in the same period last year. Gross margin for the Q2 of 2021 was 20.1% compared with 20.5% for the same period in 2020. Total operating expenses for the Q2 of 2021 RMB4.8 billion compared to RMB3.8 billion in the Q2 of 2020. As a percentage of total net revenue, total operating expenses for the Q2 of 2021 were 16.4% compared with 15.8% in the Q2 of last year. Fulfillment expenses for the Q2 of 2021 RMB2.1 billion as compared with RMB1.7 billion in the same period in 2020. As a percentage of total net revenue, fulfillment expenses for the Q2 of 2021 decreased to 6.9% from 7.0% in the Q2 of 2020. Marketing expenses for the Q2 of 2021 were RMB1.4 billion RMB1.0 billion in the same period of 2020. As a percentage of total net revenue, marketing expenses for the Q2 of 2021 were 4.8% compared to 4.3% in the Q2 of 2020. The increase was primarily due to higher investment the Q2 of 2019. Technology and content expenses the Q2 of 2021 were RMB369.9 million compared to RMB305.4 RMB4 1,000,000 in the same quarter in 2020. As a percentage of total net revenue, technology and content expenses for the Q2 of 2021 decreased to 1.2% from 1.3% in the Q2 of 2020. General and administrative expenses for the Q2 of 2021 RMB1.0 billion compared to RMB804.6 million RMB in the Q2 of last year. As a percentage of total net revenue, general and administrative expenses the Q2 of 2021 were 3.4% as compared with 3.3% in the same period 2020. Income from operations for the Q2 of 2021 increased by 18.6% year over year to RMB1.5 billion from RMB1.2 billion in the Q2 of 2020. Operating margin for the Q2 of 2021 was 5.0% as compared with 5.1% in the same period last year. Non GAAP income from operations for the Q2 of 2021, which excluded share based compensation expenses and amortization of intangible assets resulting from business acquisition increased by 16.1 percent year over year to RMB1.7 billion RMB1.5 billion in the Q2 of 2020. Non GAAP operating margin for the Q2 2021 was 5.9% as compared with 6.2% in the Q2 of 2020. Non income attributable to Vipshop's shareholders for the Q2 of 2021 was RMB1.1 billion RMB1.5 billion in the same period last year. Net margin attributable to Vipshop's shareholders quarter Q2 of 2021 was 3.7% as compared with 6.4% in the prior year period. Net income attributable to VITAS Job's shareholders per diluted ADS for the Q2 of 2021 increased to RMB1.56 from RMB2.24 in the Q2 of the previous year. Non GAAP net income attributable to VIT Shop shareholders for the Q2 of 2021 increased by 11.3% year over year to RMB1.5 billion from RMB1.3 billion in the second quarter of 2020. Please note that non GAAP net income attributable to VIT Shop's shareholders excludes a number of items. The details of which can be found in our earnings release. Non GAAP net margin attributable to Vipshop's shareholders for the Q2 of 2021 was 5.0% as compared with the 5.5% in the same period last year. Non GAAP net income attributable to Vipshop's shareholders per diluted ADS for the Q2 of 2021 increased to RMB2.10 from RMB1.92 RMB in the Q2 of 2020. As of June 30, 2021, the company had cash and cash equivalents and restricted cash of RMB16.5 billion and short term investments of RMB3.6 billion. Looking forward to the Q3 of 2021, We expect our total net revenue to be between RMB24.3 billion and RMB25.5 billion, representing a year over year growth rate of approximately 5% to 10%. Please note that this forecast reflects our current preliminary views of the market and operational condition, which is subject to change. With that, I would like now to open the call to Q and A. To we have the first question. This is coming from the line of Pritong Zhang from CICC. Please go ahead. Hi, Sheng Zhong, Cui Dong and JCR. This is Fei Dong from CICC. Thanks for taking my question. I have two questions. My first question is regarding to the competitive landscape. We observed some short video platforms are doing really well this year in their e commerce business And some brands are exploring destocking at these channels. How should we think about the competitive landscape of destocking industry going forward? Any color would be very helpful. The second question is regarding to the Q3 guidance. How should we think about the Q3 guidance? Did we observe any impact from the pandemic in July August, so as we factored in our Q3 guidance, Should we expect acceleration in the Q4 if the pandemic gets well contained? Okay. Let me translate the first answer to the first question. In terms of live streaming models. There are a lot of platforms that are selling through live streaming, whether it's branded or it's low in season low moving, slow moving, old inventories. I think these platforms primarily capturing a lot of customers' attention. But no matter what, the most important thing is merchandising, whether it's pricing advantages or brand advantages, that's the most important thing our customers. For VIP shop, actually we do less live streaming, but what we focus most is to creating differentiated value for customers in terms of both branded merchandise and the pricing advantages. So despite the fact that short video platform has some impact in in terms of attracting a lot of time spent from customers that it will have just some limited impact on our own business. In terms of the Q3 guidance, there are a few factors entering Q3. We've seen consumer sentiment is not as strong, amid weaker macro environment, which was partially related to some natural disaster the restructuring of COVID-nineteen here and there. And recall that we had a tough phase in the same quarter of last here as we did see some strong recovery from the end of COVID-nineteen. And also Q3 is traditionally a live season and also live for the apparel industry. Turning to Q4, Typically, Q4 is the peak season where apparel ticket sizes tend to be larger and we will run promotional events as well as everyone else within this industry. So Q4 should hold up relatively well as long as the COVID-nineteen pandemic ends at that time. Thanks. Very helpful. I would like to add on something what Eric just mentioned. Number 1 is that, remember last Q3, We had a booming business post COVID-nineteen. So we had a larger base for this year. So that's why we had a softer guidance for the Q3 this year. So that's the number 1. Number 2 is that We should notice that our active customer base are actually growing year over year 32%. So that That's provide a foundation for us to grow our future business and that's also a strong indicator that our business is healthy and then that should help with our future growth. Thank you. We have the next question. This is coming from the line of Eddie Wong from Morgan Stanley. Please go ahead. I have two questions. First is regarding the can you give us the breakdown of by month in the second quarter Because we remember that in May, when during the Q1 earnings call, you mentioned that your guidance for the Q2 has been a little bit conservative. So we all expect you will have a quite strong growth. But in June, actually, to It seems like that the sales situation is relatively weaker than expected. So can you give us more color on that? And second question is, can also give us some color about how the apparel demand actually in July and so far in August because if you look at the MBS, the retail sales of apparel, which show certain weakness for the apparel demand. So I'm not sure Whether or not this also impact our guidance for the Q3. Thank you. Okay. Okay. In terms of the trend that we have seen in June, as you mentioned our price guidance of 20% to 25 present. Actually in June, we've already seen slower sales due to the longer promotional event for the whole e commerce space. In the past, the e commerce business tend to hold a 1 or 2, 3 day promotional event, but this has become a month long promotional event And it's becoming less and less attractive to customers. And back in June, we tried to deliver some coupons to customers to encourage their fans, but it does not it did not turn very well. So we actually had some control over our margin spend and entering into the first 1.5 months in the Q3, we did see some weakness in the apparel category. It's not as strong as we had anticipated, but it's also not as bad as you probably have imagined. We think that is primarily due to the resurgence of the COVID-nineteen here and there and we are seeing the trend moving slower than before. But at the same time, we also see branded merchandise actually they have very good inventory Because the offline stores are not very not a very good media place to sell due to the COVID-nineteen. So actually they have increased inventory online for So we have to see a view a couple of months to see how this turns out. Thank you. We have the next question from Ronald Keung from Goldman Sachs. Please go ahead. Thank you, Shandong, David, Jesse. So I have just two questions and I'll translate to Mandarin. The first question is on our also on our Q3 revenue guidance of 5% to 10%. Just want to know how that user growth and ARPU It's kind of put within this forecast. Just want to see whether our user growth remains quite strong We're maintaining the trends in the second quarter or and would that imply kind of ARPU will decline further on a year on year basis? And how do we see that into the Q4 as what we talk about as a peak season? And then my second would be on marketing spending that We spent around 37% more in marketing spend in the quarter. You mentioned about some control during June in couponing, But this is still quite an increase. And so are we expecting more spending as we head into the second half? And how should we think of sales and marketing as a percentage of revenue, which is one of the metrics, which has been around 4.8% of revenues in the second quarter. Sush. Hey, Ronald, I take on the second question regarding the marketing expenses. So with respect to marketing expenses, this is probably the area that we have more discretion and the marketing expenses we split between new user acquisition and existing user retention. So we have more this question in terms of how we allocated the spending. And then as you can see in the second quarter, we grow our active customer base by 32%. We would expect that we will continue to grow our customer base. And in terms of the strategy, we will be carefully evaluating how to execute in terms of the marketing strategies. And the objective for us is to maintain our marketing expenditure at a stable level. And now to in terms of the percentage of revenue, We expected that number should remain stable. We would try to improve our efficiencies in terms of how we spend that dollar. Okay. Back to your question on the trend. As you may have noticed, our ARPU for the Q2 decreased by 7% year over year. But for Q3 and Q4, we don't expect similar deceleration. We think the growth the decline will be much moderated. To We have spent a lot of time in reacting in reactivating our old customers as well as attracting new customers. The recall in the Q2 of last year, we actually stopped spending money on attracting new customers. So when entering into this year, we saw increasing number of new customers and who may need some time to ramp up their spending, so which is still Actually impacting overall ARPU, but we think that the general trend for ARPU going ahead will be stabilized. We are confident because we've seen very strong growth in Super VIP memberships who grew about 50% year the year in the Q2 and we found that they have been very loyal and spending much more than average customer. Actually, as Super VIP members spend almost 10 times an average customer. So as long as we can grow our super VIP members, we are confident that the ARPU will improve over time. Understood. Thank you. Thank you, management. Thank you. We have the next question. This is coming from the line of Thomas Chong from Jefferies. Please go ahead. Good evening, management. I will ask questions on behalf of Thomas Chong. I have two questions. The first question is about could management share some colors about the outlook for the 7.5% of the year and also 2020 including the revenues and the gross profit margin and net profit margin. And my second question is, we mentioned about attractive young users. Do we have any like updates about the initiation of Yixiao acquisition? So in terms of first question on outlook of the second half and beyond, we think discount sale is actually our resilient and long term business. And many consumers have a mindshare for discount sale With our customer base continuing to expand, we are very optimistic that we are going to have a relatively stable growth outlook. And in terms of net margin, we've mentioned many times, we will continue to balance our top line growth and profitability, And we've been very profitable for many quarters. And in the future, we will continue to maintain a solid level of profitability. And on our second question on new customer acquisition, we have various customer acquisition channels And in the past, we had been leveraging a lot of traditional channels like digital advertising to acquire younger shoppers, especially those who are born after 2,000. We have been seeing a very decent ramp up the contribution of the shoppers who are born after 2000, up by 6% year over year in the second quarter. And in the future, we will try to be more active in exploring more innovative customer acquisition channels such as live streaming, short video, etcetera, to attract increasing number of younger shoppers to our platform. The next question comes from the line of Nelson Chiang from Citi. Please go ahead. Hi, management. Thanks for taking my questions. So I have two follow-up questions. The first question is regarding your guidance and your outlook. So looking beyond the Q3 revenue guidance and your expectation on the 4th quarter, Do you have any preliminary view on next year or medium term normalization growth of the discount merchandising industry? And do you expect Piazza shop to grow faster than the industry growth in future? So my second question is Also regarding the new user profile, so wondering if management can provide more qualitative colors in terms of user mix lower tier cities and their spending behavior from the new acquisition channel like a short video platform. Okay. In terms of the industry outlook versus VIP shops, you should be aware of that We are a fundamentally solid business. And if compared to traditional e commerce platform, We might see less we might face greater competition, but if you look at the acro related tech segment. We are the number 1 in discount sale. We are very confident that our core competency in discount sale will outpace other peers in this particular segment. As you may know that The general e commerce industry still grew like 20% year over year. But for us. We are looking for relatively steady growth for the long term future. In terms of user spend and user behavior across different tiers of cities. We have been seeing very stable trend in terms of GMV contribution, user acquisition for ARPU. There is not so much changing in the behavior of different tiers of cities. Let me add on something on this. So I think we want to differentiate ourselves with other e commerce platform in terms of that, we're only focusing on apparel related categories. And while the other e commerce platforms may carry many more other categories, so We are confident that we have the maybe the leading leaders in terms of how we process payroll sales and inventories. So we should outperform to in these categories as compared to our other e commerce platforms. Thank you very much. Thank you. We have our next question. This is coming from the line of Natalie Wu from Haitong International. Please go ahead. Hi, good evening management. Thanks for taking my question. And I'm asking the question on behalf of Natalie. My first question is concerned about new initiatives of the company. So can management share any colors to help us understand, are there any new initiatives or businesses that we are now taking a trial in and can we share about their recent development? My second question is more concern about our user engagement and user experience. Just now I think management mentioned that there were some refinements in Q2 about improving the user experience on the platform. Just wondering what Specifically, what were those refinements? And are there any operating metrics that could help us understand the improvement in user engagement. I'll add something on this. As mentioned earlier, as of the end of Q2, our paid Super VIP drove by nearly 50%. So Super VIP members tend to spend a lot more than an average consumer. So it's already contributed 1 third of our total GMV. So in Q2, we We further increased our incentives to our Super VIP members, including an extra 5% off unselected merchandising. We provided a better targeted product to Super VIP members and improved our services. So in May, we also added a certain life of privileges for Super VIP members. And in future, we will continue to provide more effective membership privileges to improve their shopping experience. And hopefully that will translate to more active customers into Super VIP memberships. Okay. Back to your first and second question. The first question is on the new business development. Actually, we have been very focused on our core business. We've made it clear that we are reinforced our execution on merchandising strategy and everything we do centered on that strategy. We're focused on discount sale and enhance our buyer capabilities to the end. We are trying to optimize our brand portfolio and traffic acquisition with brands to enhance our competitiveness as they are consolidating our long term core competency in the discount retail market. 99% of management focus is on discount retail and the execution of merchandising strategy. Of course, we are trying a lot of efforts in innovative areas. We've been investing to fulfill our innovation, but that's not our current priorities. In terms of enhancing our user experience through some operational refinements, you have to be aware that all the consumers are looking for good brands, good merchandise with good prices and good quality and that should be matched with good services. So we've been investing heavily in bringing our user experience to the next level, including a hash less return or change leveraging our relationship with Xunfeng Express Delivery. And on the other hand, we have been increasing our efforts on our front end and back end in terms of customer service. We've seen that our core metrics evaluating customer service standards like NPS It's improving very significantly. So in the future, we'll continue to invest in our efforts in bringing enhancing our customer service and enhancing our user experience. Thank you, management. Thank you. We have the next question from the line of Robin Yang from Daiwa. Please go ahead. Hi, thanks management for taking my question. This is Robin asking on behalf of John Choi. I have two questions. Given the user growth is strong over the past 4 quarters, but ARPU is still showing a year on year decline, should we expect the ARPU to ramp up in 2022 when the new users normalize and the spending from the older users that we acquired this year to ramp up their spending. Would it be first half next year or the second half of next year? And should we expect Should we expect to see less kupuneng by that time? And also the second question is on regulations. Are we seeing any a positive or negative impact on our company. Okay. On your first question on ARPU trends, we have mentioned ARPU is on the decline in the second quarter, but it's going to At a moderate pace in the quarters ahead because it takes time for new customers as well as our old customers, which Historically, we spent money on our platform, but recently haven't come to spend. So it takes time for these two types of customers to ramp up their spending, but on a quarter over quarter basis, we have seen very apparent pickup in their spending. So actually, we are not too worried about that. As long as we can grow our user base, ARPU is going to improve over time. And we've also mentioned that we are going to invest heavily in our SVIP Super membership program. We want to improve their ARPU going ahead. So with their as their spending has contributed a third of our total net GMV. We are going to translate more customers into SEI team members and that would help us to improve the ARPU over time. On your question on regulation, Overall, we believe the recent developments in terms of Internet regulations such as antitrust and unfair competition as well as data security, especially the ban on forced exclusivity. Our merchants will benefit VIP shop to some extent. That means we will have a more open and transparent market with their competition. We will have more opportunity to partner with the increasing number of brands, which will further enrich our branded merchandise selections on our platform. So generally, we are very welcoming these regulatory developments Because VIP shop is going to benefit from them more or less. Thank you. Due to time constraint, that concludes our Q and A session for today. I would now like to hand the conference back to Jessie for any ending remarks. Please take over. Thank you for taking the time to join us today. If you have any questions for follow-up, please don't hesitate to contact me. We look forward to speaking with you next quarter.