Vips: Not afraid of performance bottoming out, shareholder returns to the rescue

On November 19th, Beijing time, before the US stock market opened, $Vipshops(VIPS.US) released its Q4 2024 financial report. In summary, due to significantly exceeding expectations in GMV metrics, Vipshop's major financial indicators this season generally outperformed expectations, and generous shareholder returns were highlights. Specifically:

1. This quarter, Vipshop's GMV reached 66.2 billion, roughly flat year-on-year. Although there was no growth, due to previous instances of negative growth, worse retail data this season, and the management's earlier conservative guidance, the market expected a negative growth of 4% to 6% for this season's GMV. The actual GMV being flat year-on-year is a significant beat.

In terms of price and volume, this quarter, Vipshop's order volume declined by 7% year-on-year, which aligns with market expectations. It can be seen that the outperformance in GMV is entirely due to the contribution from the average transaction value. This season, the average transaction value increased by 7% year-on-year, mainly driven by high-spending SVIP users and a recovery in the growth of the company's core apparel and accessories categories, which drove the increase in average transaction value.

However, this season, the number of active users was 45.7 million, a decrease of about 2.8 million year-on-year, which is close to the decline of the previous season (2.9 million) and slightly lower than the market expectation of 46.54 million. It can be seen that in the current intense competitive environment, Vipshop's user attrition continues, and for some price or subsidy-sensitive non-loyal users, Vipshop's appeal is not strong. However, it has stabilized its core SVIP users and core apparel and accessories categories, at least maintaining its basic user base.

2. Due to the outperformance in GMV, Vipshop's total revenue this season still declined by 4.2% year-on-year, but significantly better than the market expectation of -8%. By revenue type, product sales revenue declined by 5% year-on-year, significantly better than the previous season's -10% performance. Revenue from advertising, logistics, and other ancillary services grew by 4% year-on-year, which is roughly flat compared to the previous season.

3. From a gross profit perspective, although the average transaction value has clearly increased, the gross margin this season declined by about 0.7 percentage points year-on-year, further widening from the previous quarter's decline of 0.4 percentage points, with the actual gross margin at 23% lower than the expected 23.4%. It remains to be seen whether management will provide an explanation for this. However, despite the decline in gross margin, under the outperformance in revenue growth, the gross profit amount of 2.63 billion is still better than expected.

4. On the expense side, Vipshop's total operating expenses this season were 5.07 billion, a year-on-year increase of 4%, which is also higher than the expected expenditure of 4.9 billion. In the context of revenue and gross profit still contracting year-on-year, this season's operating expenses showed positive growth year-on-year and exceeded expectations, indicating that the performance in controlling expenses is not satisfactoryAmong them, marketing expenses amounted to 930 million, which is roughly in line with the expected 920 million, but the year-on-year increase of 90 million still shows that in the current competitive environment, various platforms have to spend on marketing and subsidies.

Additionally, management expenses increased by 20% year-on-year, which is the main reason for the overall expense exceeding expectations this quarter. Specifically, this is mainly due to the increase of approximately 240 million in equity incentive expenses recognized in management expenses this quarter compared to the same period last year.

5. For the guidance for the next quarter, the company expects revenue to grow by -5% to 0% year-on-year, with a median of 27 billion, which is better than the market expectation of 26.6 billion.

Dolphin Research's Viewpoint:

As mentioned earlier, the biggest highlight of this performance is that GMV did not decline by the expected 5% to 6%, but instead remained flat year-on-year, significantly exceeding expectations. Driven by this strong performance in the underlying operational metrics, revenue, gross profit, and profit indicators are all better than expected from the perspective of expectation differences.

However, we must also note that the order volume, active user numbers, and the aforementioned key financial guidance are still on a downward trend year-on-year. In absolute terms, the performance remains relatively weak. As a relatively small player in the still fierce e-commerce competitive environment, Vipshop will face considerable operational and performance pressure. Moving forward, it should focus more on defending its core SVIP users and the apparel category, while attempting to drive price increases through category expansion or product mix optimization to create additional incremental space.

Although the performance cannot be considered absolutely good, Vipshop's shareholder returns are still outstanding within the scope of Chinese concept stocks. After exhausting the previous repurchase quota, the company announced a new repurchase plan of $1 billion, set to expire in February 2027. It also announced a special dividend of $0.48 per ADS, totaling $250 million. Based on the $1 billion repurchase quota being used on average over the next two years plus this special dividend, the total cash return to shareholders for the fiscal year 2025 could reach $750 million. Relative to Vipshop's market value before the market opened, this represents a shareholder return of 9% to 10%, which is quite considerable even among high-dividend assets. Therefore, even if Vipshop's subsequent performance does not break away from its current weak state, the excellent shareholder returns alone are enough to attract some capital.

The following are the detailed financial report conditions:

1. GMV did not decline, the biggest highlight of this quarter!

This quarter, Vipshop's GMV reached 66.2 billion, remaining roughly flat year-on-year. Although there was no growth, due to the negative growth in the previous quarter, worse retail data this quarter, and the management's previously pessimistic guidance, the market's expectation for this quarter's GMV was still a negative growth of 4% to 6%. Therefore, the actual flat year-on-year performance is already a significant beat.

In terms of price and volume driving factors, this quarter, Vipshop's order volume still declined by 7% year-on-year, which is in line with market expectations. It is evident that the unexpected performance of GMV is entirely attributed to the contribution from the average transaction value. According to the company's explanation, the average transaction value increased by 7% year-on-year this season, mainly due to the contribution from SVIP users and the stronger-than-expected performance of core categories, particularly higher-priced apparel and accessories.

However, this season, the number of active users was 45.7 million, a decrease of about 2.8 million year-on-year, which is close to the decline of the previous season (2.9 million) and slightly lower than the market expectation of 46.54 million. It can be seen that in the current intense competitive environment, Vipshop's user attrition continues, and for some price or subsidy-sensitive non-loyal users, Vipshop's competitiveness is not strong.

However, it has stabilized its core SVIP users and core apparel and accessories categories, at least maintaining its basic customer base.

II. Unexpected decline in gross margin

Due to the unexpected performance of GMV, although Vipshop's total revenue still declined by 4.2% year-on-year this season, it was significantly better than the market expectation of -8% growth. Additionally, it is worth noting that the gap between revenue growth and GMV growth has not narrowed significantly. By revenue type, product sales revenue declined by 5% year-on-year, which is significantly better than the previous season's -10% performance. Revenue from advertising, logistics, and other ancillary services grew by 4% year-on-year, with growth rate remaining flat compared to the previous season.

In terms of gross profit, the gross margin this season declined by about 0.7 percentage points year-on-year, further widening from the 0.4 percentage point decline in the previous quarter, with the actual gross margin of 23% being lower than the expected 23.4%. Attention should be paid to whether the management will explain why the average transaction value increased while the gross margin declined. Although the gross margin decreased, under the unexpected revenue growth, the gross profit amount of 2.63 billion is still better than expected. However, the decline in gross profit has expanded to 7.4%.

3. Increased Incentive Expenses Drag Down Profit by Over 20%

On the expense side, Vipshop's total operating expenditure for this quarter was 5.07 billion yuan, a year-on-year increase of 4%, which also exceeded the expected expenditure of 4.9 billion yuan. Despite revenue and gross profit still contracting year-on-year, the operating expenses this quarter showed a positive year-on-year increase and were higher than expected, indicating poor performance in cost control.

Among these, marketing expenses amounted to 930 million yuan, roughly in line with the expected 920 million yuan, but the year-on-year increase of 90 million yuan still shows that in the current competitive environment, marketing and subsidy expenses are unavoidable.

In other expenses, fulfillment and R&D expenditures decreased by 3% to 5% year-on-year, but management expenses increased significantly by 20% year-on-year, which is clearly the reason for the overall expenses being higher than expected this quarter. Specifically, at the end of the year, Vipshop recognized an increase of about 240 million yuan in equity incentive expenses in management costs year-on-year.

Ultimately, although the growth in GMV and revenue growth rates were better than expected, the decline in gross margin and the increase in equity incentive expenses led to a22% drop in operating profit this quarter, with the decline compared to the previous quarter actually widening.However, considering the significant extent to which GMV exceeded expectations, andthe sell-side's relatively pessimistic profit expectations, the actual operating profit of 2.85 billion yuan was still better than the expected 2.71 billion yuan.**

Dolphin Research's Past Research on [Vipshop]:

November 19, 2024 Conference Call: Vipshop: Will 2025 Get Better?

November 19, 2024 Commentary: Vipshop: Just Survive, If You Don't Want to Win, You Won't Lose

August 21, 2024 Conference Call: Vipshop: Will Profits Decline in the Second Half?

August 21, 2024 Financial Report Commentary: [Vipshop: Under the Same Roof, Only the Weak Will Get Weaker?](https://longportapp.cn/zh-CN/topics/23291234?app_id=longbridge) 》

May 23, 2024 Conference Call 《 Vipshop: Staying Cautious in the Short Term, Focusing on Shareholder Returns 》

May 23, 2024 Earnings Report Commentary《 Vipshop: Guidance "Thunder"? No Fear, Buybacks to the Rescue》

February 29, 2024 Conference Call《 Vipshop: Not Seeking High Growth, but Will Gradually Increase Dividends》

February 29, 2024 Earnings Report Commentary《 Cold Weather, Expensive Clothes, Vipshop Lives Up to "Small and Beautiful"》

November 14, 2023 Earnings Report Commentary《 Vipshop: Don't Be Distracted by Thunder, Digging Deeper Reveals Gold》

November 15, 2023 Conference Call《 Vipshop Minutes: Double Eleven Double-Digit Growth, Net Profit Margin Higher than Gross Profit Margin》

August 18, 2023 Conference Call《 Vipshop: Return Rate Will Remain High》

August 18, 2023 Earnings Report Commentary《 Vipshop: Intensifying Competition Among Giants, Has the Sweet Period of "Small and Beautiful" Ended?》

May 24, 2023 Conference Call《 Vipshop: Cautiously Optimistic About Recovery in the Second Half of the Year, New Customer Acquisition Investment Will Increase》

May 23, 2023 Earnings Report Commentary《 Vipshop: Small and Beautiful, Better than Big and "Declining"?》

February 24, 2023 Conference Call《 Vipshop: Not Participating in the Competition, Focusing on Being Small and Beautiful》February 23, 2023 Financial Report Review: “Can a 'Salty Fish' Turn Over? Will Vipshop's Spring Come?”

Risk disclosure and statement of this article: Dolphin Research Disclaimer and General Disclosure