Vipshop: Falling to the bottom again, is there any buyback support this time?

On May 20, Beijing time, before the U.S. stock market opened, $Vipshops(VIPS.US) released its Q1 2025 earnings report. Overall, the results were as bad as expected, with both revenue and profits declining year-over-year, and active users continuing to churn. However, the market had already anticipated this, with most metrics broadly in line with expectations. Details are as follows:

1. In terms of overall performance, Vipshop's total revenue this quarter declined by 5% year-over-year, at the lower end of the previous guidance range (-5%~0%). However, the market had fully anticipated this, with Bloomberg's median sell-side expectation being a 4.7% decline. This was not an unexpected "bomb."

2. Core operating metrics: This quarter, Vipshop's GMV was nearly flat year-over-year, slightly exceeding market expectations of a 0.9% decline. Holding steady on core business metrics without further decline can be considered the "highlight" of this earnings report.

Breaking it down, both active users and order volume declined this quarter, with the former decreasing by 1.8 million (about 4%) and the latter by 6%. However, while marginal users churned, core users became more concentrated. The remaining loyal users had higher repurchase frequency and average order value, allowing GMV to remain flat year-over-year despite volume declines, thanks to price increases (average order value rose about 7%).

However, the gap between revenue and GMV growth persists and has not narrowed, indicating that the higher return rate due to the increased proportion of SVIP users remains unresolved.

3. Due to consecutive quarters of declining revenue (leading to diminishing economies of scale) and potential discounts & subsidies amid growth challenges, this quarter's gross margin contracted by about 0.5 pct year-over-year, but was fully in line with market expectations. With lower gross margins, gross profit declined by 7% year-over-year, a steeper drop than revenue.

4. On the expense side, Vipshop's total operating expenses this quarter were 4.02 billion yuan, down 1.6% year-over-year, reflecting the company's efforts to control costs to offset business declines. However, revenue fell more sharply than expenses, so the expense ratio still expanded by 0.5 pct year-over-year. Specifically, marketing expenses grew about 6% year-over-year this quarter, showing the company increased spending on customer acquisition and subsidies to reignite growth.

Additionally, administrative expenses rose about 2% year-over-year (up 30 million yuan), mainly due to a 60 million yuan increase in equity incentive expenses recorded under administrative costs. Increasing management equity incentives amid poor performance creates a negative impression.

5. Due to the aforementioned gross margin decline and passive expansion of operating expense ratios, this quarter's operating margin narrowed by a full 1.3 pct to 8.7%. Ultimately, operating profit was 2.28 billion yuan, down about 18% year-over-year, a much steeper decline than revenue, indicating worse performance. However, actual results were nearly in line with sell-side expectations, so this wasn't an unexpectedly bad surprise.

6. For next quarter's guidance, the company still expects revenue to decline by -5%~0% year-over-year, similar to this quarter. This suggests no significant improvement is expected next quarter, but the situation won't worsen further. Again, this is largely in line with market expectations.

Dolphin Research's View:

Overall, Vipshop's performance this quarter was comprehensively weak. From underlying user numbers and order volume to revenue, gross profit, and net profit, all key metrics declined year-over-year, with the decline amplifying at each level, resulting in an 18% year-over-year drop in operating profit. In absolute terms, this is clearly very weak performance. However, relatively speaking, all these metrics were almost entirely in line with sell-side expectations, meaning the market had fully anticipated and digested this poor performance.

Given that JD.com and Alibaba's e-commerce businesses performed well in their recent earnings reports, some investors may have bet early on whether Vipshop could also deliver better-than-expected results despite pessimistic expectations. However, as seen in retail sales data, while electrified products boosted by national subsidies drove improved year-over-year growth in Q1 retail sales and online retail compared to Q4 last year, apparel and footwear categories still performed poorly, with online sales of clothing goods down 0.1% year-over-year as of late March. Thus, Vipshop, which focuses heavily on apparel and beauty, was unlikely to mirror JD.com, which leans more toward electrified products.

Looking ahead, the company's guidance suggests next quarter's revenue growth trend will be similar to this quarter's, likely still negative year-over-year. April retail data shows no clear signs of improvement in apparel and footwear sales either. In the short to medium term, there aren't enough signals to suggest a turnaround in Vipshop's growth. Even with potential consumer stimulus policies, they likely won't target discretionary, non-durable goods like apparel and beauty.

On profit growth, while we believe Vipshop could control costs to prevent significant year-over-year profit declines if external pressures persist, management stated last quarter that the company would take measures to restore growth trends. This indicates the current strategic focus is on reigniting growth rather than preserving profits. This quarter's increased marketing spend confirms management's stance, so profits may also remain weak in the near term.

Of course, Vipshop's poor performance is nothing new, and much of its investment value lies in shareholder returns. This quarter, the company repurchased about $16.9 million worth of shares, a relatively small amount. This suggests Vipshop adopts a dynamic repurchase strategy—buying less when shares are high and more when they're low—rather than committing to a fixed quarterly repurchase amount. Historically, Dolphin has no doubts about Vipshop's willingness and ability to repurchase shares. Management previously pledged to return 75% of adjusted net profit to shareholders, implying a current market cap yield of about 10%~11%, still among the highest in Chinese equities.

Assuming FY25 net profit declines 15% from FY24 (a cautious estimate), the current valuation implies about 8x P/E, similar to peers like JD.com and Alibaba, offering no compelling value. Thus, for Vipshop, the best approach remains buying at absolutely cheap prices to profit from shareholder returns.

Key charts from the earnings report:

1. Volume down, prices up—GMV holds flat year-over-year again