Vipshop (Minutes): Strive to achieve positive profit growth in 2025
The following are $Vipshops(VIPS.US) the minutes of the earnings call for Q4 2024. For the earnings report interpretation, please refer to《 Vipshop: Even with Fluctuating Performance, Shareholder Returns Come to the Rescue 》
I. Core Information Review of the Earnings Report
1. Capital Allocation: In 2024, the company returned approximately $770 million to shareholders through annual dividends and buybacks. For 2025, the company will continue its consistent communication, returning 75% of the full-year non-GAAP net profit attributable to Vipshop shareholders in the form of annual dividends and buybacks. This further reinforces the company's commitment to long-term shareholder value creation.
2. Cash and Investment Situation: As of December 31, 2024, the company had cash and cash equivalents and restricted cash of RMB 27 billion, with short-term investments of RMB 1.9 billion.
3. Q1 2025 Performance Expectations: The company expects total net revenue for Q1 2025 to be between RMB 26.3 billion and RMB 27.6 billion, representing a year-on-year decline of approximately 5% to 0%. This forecast reflects the company's preliminary view of current market operating conditions, which may change.
II. Detailed Content of the Earnings Call
2.1 Key Information from Executive Statements
1. Category Sales Situation: In Q4 2024, despite cautious spending by consumers in discretionary categories, the company team actively responded, focusing on retail fundamentals and executing effectively. The apparel category showed strength, achieving positive growth in Q4 on a high base. The team quickly introduced more unique seasonal items at discounted prices to meet customer demand, particularly in sportswear and outdoor products. For the whole year, the apparel category grew by 2% year-on-year, accounting for 75% of total GMV, marking a historical high, helping the company's annual total sales exceed RMB 20 billion again. Non-apparel business also significantly narrowed sales losses in Q4, partly due to the excellent performance of home goods and digital products, as the company seized growth opportunities from the government's trade-in program.
2. Membership Business Growth: Super VIP membership continued to achieve double-digit growth, strongly validating the team's commitment to providing differentiated experiences. In Q4, active Super VIP members grew by 50% year-on-year, accounting for 51% of all our consumption. For the whole year, there were 8.8 million active SVIP members, contributing to 49% of last year's online consumption The company has seen this preliminary improvement and feels encouraged after determining key actions in various fields and rapidly advancing them.
3. Commodity Procurement Strategy: In terms of commodity procurement, the company optimizes its brand and product mix to align with customer needs. Through a series of operational adjustments and targeted incentive measures, the company fully demonstrates the value of its products, assisting customers in holiday and seasonal promotional shopping. The company also attracts more family shoppers by offering a more balanced mix of apparel and non-apparel products, driving emotional consumption growth, increasing shopping frequency, and promoting multi-category purchases. Additionally, the company continues to invest in enhancing its procurement capabilities, introducing over 1,500 new brands last year, officially collaborating with many well-known global brands, and establishing deeper relationships with hundreds of partner brands, providing high-cost performance products throughout the year while effectively managing the product mix. Recently, the team has begun to delve into various categories, seeking opportunities through further expansion of brand supply, hoping to allow customers to fully experience the joy of shopping.
The "Made for VIP" product line has become an important driving force, with over 200 brands joining the program last year. The sales performance throughout the year was strong, benefiting from high-quality customers, repeat orders, and higher conversion rates. Compared to regular products in the same brand category and price range, some brands saw up to 20% of their sales on the platform last year coming from the "Made for VIP" product line.
4. Customer Strategy: Despite overall pressure on consumers, they are willing to spend on products that balance quality and attractive pricing. Super VIP customers are more resilient and respond strongly to promotional activities, as the company provides them with real value. Furthermore, the company attracts customers to secure better deals by offering sales and special offers. Super VIP customers have higher spending frequency and amounts compared to regular customers, and the vast majority of members have renewed their memberships.
5. Future Outlook: Despite facing uncertainties, the company is confident in the long-term development of its business. The company will continue to adhere to its long-term strategy, which includes a unique business model, uncompromising quality and authenticity guarantees, a strong focus on value (including low prices and appealing perspectives), and services that highlight reliability, all integrated through a differentiated strategy. The company has already taken growth initiatives in product expansion and deeper interactions with different customer groups, injecting more flexibility into its business to compete and win in an environment where customers focus on value. The company is confident in surpassing the current situation and achieving long-term sustainable and profitable growth.
2.2 Q&A
Q: Regarding the revenue guidance for the first quarter. Can management discuss our performance so far this year? Is the actual situation closer to the lower or upper limit of the guidance range? Can management also talk about recent consumer sentiment?
A: Due to the different timing of the Spring Festival, the situation in January or February is not very ideal. Based on the data from January to February so far, the business is within the performance guidance range. Consumer sentiment is slightly better than expected; although full recovery will take time, it has improved compared to the previous few quarters. Since the current quarter has just begun, with promotions in March and spring clothing sales, it will be clearer whether the final performance for this quarter will be at the high or low end of the guidance range, but the business is progressing normally at present
Q: What are the business expectations for the entire year of 2025?
A: We believe that all businesses can return to a positive trajectory in 2025, both in terms of GMV and revenue. Last year, GMV saw only slight growth, and due to the return rate, there remains a gap between GMV and revenue, with revenue slightly declining. This year, we will strive to restore operational indicators. The company will continue to implement a high-quality growth strategy, aiming to seize growth opportunities in customer and revenue while maintaining robust profitability. A portion of profits will be invested in growth opportunities, ensuring overall stable profitability while maximizing growth.
Q: What are the driving factors behind Vipshop's better-than-expected performance in the fourth quarter of 2024? Is it mainly due to effective marketing promotions, or is it also benefiting from improvements in the macro environment?
A: Several factors contributed to the better-than-expected performance in the fourth quarter of 2024. First, from the end of November to December, weather conditions returned to normal, and consumers became more active, which helped winter clothing sales. Second, consumer sentiment was not as bad as anticipated, showing slight improvement compared to previous quarters. Additionally, the company took many positive actions regarding its product mix, offering more cost-effective and demand-compliant products, and conducting some good promotional activities targeting high-value customers, which brought additional growth opportunities.
Q: How much of the total GMV in the fourth quarter of 2024 is related to the trade-in benefits?
A: The trade-in program has helped to some extent, narrowing the decline in sales for non-apparel businesses, but its contribution to absolute GMV remains relatively insignificant. In the fourth quarter, the incremental GMV from home appliances and digital products through this program was approximately RMB 300-400 million.
Q: Can the gross margin in 2025 further increase year-on-year based on the good performance in 2024? If so, what are the driving factors behind it? In the pursuit of quickly turning GMV and revenue positive in 2025, will the net profit margin remain stable year-on-year, or is there room for further improvement? What is the company's latest judgment on the long-term sustainable net profit margin level?
A: In 2024, the company's gross margin reached 23.5%, a new high in eight years, which is a good level. The company will use a portion of the gross profit for investments, such as incentivizing brand merchants to bring more products and inventory, and developing together with brand merchants. The company will prudently assess the commission rates with partners, allowing them more opportunities to expand their business on the platform rather than just maintaining a fixed gross margin for the platform.
Regarding the net profit margin, the company has good control over cost management in expense items and is confident in maintaining stability compared to the past two years. In terms of profit amount, the company will strive for growth. If the business scale can expand, it will alleviate the pressure of operational deleveraging, thus achieving a higher net profit margin and better profit amount levels. Overall, the company is not worried about the profit margin situation, as it has performed well in both gross margin and net profit margin in the past.
Q: In Vipshop's business, are there areas where artificial intelligence can be utilized to improve profitability or reduce costs? A: The company is making rapid progress in the application of artificial intelligence, investing in areas such as personalization, question-and-answer generation, and product recommendations, with multiple application cases. The company is also deploying DeepSeek, focusing recently on finding opportunities to improve productivity and efficiency. For example, in customer service, it is attempting to integrate DeepSeek into self-developed models to enhance analytical and reasoning capabilities; it has also launched new analytical tools to help optimize product assortments and promote promotional activities to maximize commercial opportunities on the platform. Although related applications have not yet been publicly launched, artificial intelligence and the latest generative AI models are being widely applied to internal business scenarios. In terms of customers, the company is also trying to use the latest generative AI models to improve question-and-answer generation, continuously upgrading the models to make recommendations to customers more aligned with their needs. The company will continue to track developments and leverage artificial intelligence to find opportunities for driving growth and improving efficiency.
Q: What are the trends in average revenue per user (ARPU) and shopping frequency for Super VIP members?
A: Last year (2024), the annual ARPU for Super VIP members saw a slight decline, mainly due to the dilution effect brought about by a 16% increase in the number of active Super VIP customers. New Super VIP members typically require some time to increase their spending. If we look at the ARPU of the two-year customer group within the Super VIP customer base, it remains quite resilient, with only a slight decline in annual ARPU. Overall, the Super VIP customer group remains very healthy, and the company hopes to continue expanding the Super VIP membership scale while maintaining the overall health of this consumer group.
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