Vipshop: Small and Beautiful Climbing Out of the Trough, Watching the Giants' 'Life and Death Battle'

On the evening of August 14th, Beijing time, $Vipshops(VIPS.US) released its Q2 2025 financial report. Compared to the previous quarter's low performance, this quarter showed some recovery. The main highlight is the return to positive growth in GMV this quarter, and the guidance indicates that revenue growth will also return to positive in the next quarter. The main downside is the significant increase in stock-based compensation, leading to a decline in GAAP operating margin and profits falling short of expectations. Specifically:

1. Overall performance: Vipshop's total revenue for this quarter decreased by 4% year-on-year, still at the lower end of the guidance range (-5% to 0%), showing initial signs of improvement (the decline narrowed by 1 percentage point quarter-on-quarter), but it was completely in line with sell-side expectations, neither good nor bad.

2. However, the core operating indicator—GMV rebounded this quarter, with a year-on-year growth of 1.6%, finally showing a warming trend. According to data from the National Bureau of Statistics, the cumulative growth rate of online sales of apparel products rose from -0.1% at the end of March to +1.4% at the end of June, indicating that the industry-wide recovery in overall apparel consumption should have contributed significantly.

Although the actual GMV growth rate seems slightly lower than the expected 1.8%, the underlying driving factors show that the GMV growth this quarter is of relatively high quality. The decline in active users narrowed from 4% last quarter to 1.8% this quarter, and the decline in order volume also narrowed from 6% quarter-on-quarter to 2.4%. The recovery of these two more important 'volume' indicators was better than expected.

The drag on GMV, which seems slightly lower than expected, is mainly due to the narrowing increase in average order value (from 7% to 4%, likely more influenced by product mix).

3. Corresponding to the signs of recovery in operating indicators shown this quarter, the company guides a revenue growth range of 0% to 5% for the next quarter, indicating that the phase of five consecutive quarters of year-on-year revenue decline has finally ended, and growth is resuming. The implied expectation is that indicators such as GMV, users, and order volume will continue to recover.

4. In terms of gross profit, the gross margin continued to narrow year-on-year this quarter, but the extent decreased to only 0.1 percentage points, better than market expectations. This suggests that the company likely did not significantly increase price subsidies or discounts. However, since the gross margin still slightly declined, the gross profit amount fell by 5% year-on-year.

5. On the expense side, Vipshop's total operating expenses this quarter were 4.56 billion, up 6% year-on-year, nearly 500 million more than expected. The unexpected expansion of expenses is surprising.

However, specifically, the main marketing expenses narrowed by 3% year-on-year, slightly lower than expected. Other R&D and fulfillment expenses also declined year-on-year, without expansion.

The issue lies in management expenses, which increased by 400 million year-on-year instead of decreasing, but according to the company, the majority is due to increased stock-based compensation expenses from the Shanshan Outlet project.

5. Due to the issue of stock-based compensation expenses, the expansion of expenses under GAAP exceeded expectations, resulting in an operating profit of 1.7 billion this quarter, a year-on-year drop of 24%, falling short of the expected 2.07 billion. This can be considered the biggest flaw in this quarter's performance. However, considering that this stock-based compensation should be a one-time impact, it is not necessary to be overly critical.

Dolphin Research's View:

As mentioned earlier, Vipshop's performance this quarter is a rebound from the previous very poor performance, which lowered the base and expectations, making it unlikely to get worse, only better.

The most important narrowing of the decline in users and order volume drove the GMV growth to turn positive. The guidance for revenue growth to turn positive next quarter indicates that operating indicators will continue to recover. All these point to Vipshop's performance cycle having climbed out of the lowest point and is on the path to recovery. This is the biggest positive signal conveyed by this performance.

In other aspects, during the period of sluggish growth, Vipshop also maintained a restrained attitude towards subsidies and expense investment, not attempting to regain users and growth through aggressive subsidies. It maintained the gross margin without significant decline, and expenses excluding stock-based compensation are still shrinking, meeting profit expectations, which is commendable. (But conversely, there is no better-than-expected performance on the profit side).

Regarding the judgment on Vipshop, as a 'small and beautiful' e-commerce platform, one of its advantages is that it does not get involved in the 'life-and-death battles' of the leading platforms. Compared to giants like JD.com and Alibaba, which almost wiped out their quarterly profits due to the food delivery war, leading to significant pressure on recent stock prices, Vipshop at least will not encounter similar 'unexpected events.'

Of course, the flip side is that Vipshop cannot provide a broad story and imagination space, largely constrained by macro consumption, especially the performance of apparel & beauty categories. Therefore, there is no need to be overly optimistic about how high the company's subsequent performance can recover, using the industry market situation as the main reference.

Ultimately, Vipshop's investment logic has always been undervalued value stocks. This quarter, Vipshop repurchased nearly $350 million worth of shares, repurchasing about 4% of the company's total market value in a single quarter, with about $650 million of repurchase quota remaining. Its direct shareholder return has always been one of the most consistent and reliable among Chinese concept stocks.

From the trend of the past two quarters, the company's net profit for fiscal year 2025 should only decline very slightly compared to last year, expected to be around 7.4 billion. Therefore, the company's current market value corresponds to a net profit of about 8.6x this year. It can be seen that after this performance, the company's stock price and valuation have also recovered to around the previous high, reflecting Vipshop's relative advantage when competitors are deeply involved in the 'food delivery war.'

Dolphin believes that for Vipshop, an 8x PE can be used as the center, 6x as the safety line, and 10x as the optimistic scenario, looking for opportunities within the range.

The following are the core charts of the financial report:

I. Operating Indicators