Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Ms. Wendy Sun, Senior Director of Corporate Development and Investor Relations of Baozun. Please proceed, Wendy.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our third quarter 2023 earnings release was distributed earlier before this call, and is available on our IR website at ir.baozun.com as well as on GlobeNewswire services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website where they are available for download. On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Arthur Yu, Chief Financial Officer and President of Baozun E-Commerce; and Ms. Sandrine Zerbib, President of Baozun Brand Management. Mr. Qiu will review the business strategy and company highlights, followed by Mr. Yu, who will discuss the business development of Baozun E-Commerce and Baozun financial; then by Ms. Zerbib to share more about Baozun Brand Management. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the U.S. Security Act of 1933 as amended, the U.S. Security Exchange Act of 1934 as amended, and the U.S. Private Security Litigation Reform Act of 1995. These forward-looking statements are upon management’s current expectations and current market and operating conditions and relates to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission and its announcement notice on other documents published on the website of the Stock Exchange of Hong Kong Limited. All information provided in this call is as of the date hereof and is based on assumptions that the company believes to be reasonable as of this date. And the company does not undertake any obligation to update any forward-looking statements except as required under applicable law. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB. In addition, we may elect to use adjusted in place of Non-Generally Accepted Accounting Principles or non-GAAP in order to reduce overall confusion that may arise from our discussion about financials related to the Gap brand. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, go ahead please.

Thank you, Wendy. Hello, everyone, and thank you all for your time. I am happy to share with you today several key highlights from the third quarter that demonstrate solid progress in our transformation. Our total revenue grew by 5% year-over-year to 1.8 billion driven by incremental BBM contributions. BEC's revenue met our expectations, driven by growth in the apparel category with a 26% year-over-year increase in sportswear. In addition, we further improved our operating cash flow even after accounting for cash outflow from BBM. This marks the first third quarter since our IPO where the company has achieved positive operating cash flow. BBM is executing well on its transformation of Gap China and has shown solid progress towards premiumization. During the quarter, BBM's gross margin of 56% continues to outpace our initial forecast. We also opened 5 new stores, garnering impressive consumer feedback and highest sales per square meter. On my visit to the flagship store in Guangzhou, I was highly impressed with the new Gap. Competing with a large array of quality apparel brands in one of China's top 10 shopping malls, our stores stood out with notably higher brand energy and overall vibe. Furthermore, following the acquisition of Gap China, our Technology Innovation Center quickly simplified its complex architecture by consolidating nearly 70 historical systems into one modern integrated omnichannel operating platform, namely Retail Operating Platform or ROP. The ROP has new architecture, featuring a centralized hub instead of traditional ERP, achieves more real time management and utilizes one pool of inventory to increase sales efficiency and the inventory turnover. This establishes a solid foundation for Gap's continuous digital transformation. In the next phase, our goal is to create an intelligent end to end value chain management system, offering advanced CRM and data capabilities that will significantly enhance inventory, our planning and the private domain autonomy. In addition, we have made solid progress in business intelligence capabilities. Earlier this year, we identified an increasing demand for instantaneous data insights which empowers brand in making well informed decisions. This is vital given the rapidly changing dynamics within the e-commerce industry. During this year's Double 11 event, we introduced a suite of real time intelligence and visualization tools. I'm proud that in such a short span of just a few months, our BI capabilities have evolved to become a leading force in the industry. Lastly, we are very excited to announce a planned 51% equity acquisition of Location or [Locaqing], a top tier Douyin partner specializing in apparel and accessories. We are pleased about combining Location’s exceptional expertise in daily live streaming with our leadership in creative content, compelling portfolio of brand partners and profound e-commerce operating experiences. The synergy solidifies our leadership in Douyin ecosystem and expands on our success in other major brand e-commerce platforms. This marks a significant milestone in our strategic transformation. Let me now pass the call over to Arthur for a review of our financials and update on our e-commerce businesses.

Thank you, Vincent, and hello, everyone. Let me do a quick review of the financials for the third quarter of 2023, after which I will discuss our BEC business in more detail. Once again we are reporting in two segments: e-Commerce, which includes Baozun e-Commerce or BEC, Baozun International or BZI and Group Headquarters; and Baozun Brand Management or BBM which includes Gap Greater China. Please turn to Slide #3. Baozun Group's total revenues for the third quarter of 2023 expanded nearly 5% to 1.8 billion, driven by incremental BBM revenue of 298 million. Due to a weaker economic environment and a stronger seasonality, our e-commerce revenue declined to 1.5 billion. Further pursuing a high-quality business model, we scaled back on low margin product sales and trimmed low value-added service revenues. Consequently, product sales of e-commerce decreased by 17% year-over-year, notably in appliance, electronics, and fast-moving consumer goods categories. This was partially offset by increased sales from sports, healthcare and beauty categories. In addition, our focus on innovation enabled double-digit revenue growth in technology and end-to-end solutions within the Tencent mini-program ecosystem. Our total gross profit was largely flat at 1.3 billion. Product sales gross margin for e-commerce and BBM was 13% and 56%, respectively. Gross margin expansion of BBM continues to outperform our initial expectations with a double-digit year-over-year increase. Our adjusted loss from operations was of 90.4 million during the quarter, of which e-commerce adjusted operating loss was 40.3 million, mainly due to weaker macro condition and a stronger seasonality. BBM continued to show good momentum in reduction of its operating losses to 50.1 million this quarter. Next, new China for China product launch. New store openings and new marketing strategies were quite successful. These initiatives will provide a foundation for better profitability in the coming quarters. Sandrine…

Thank you, Vincent and Arthur, and thank you all for joining us today. It is my great pleasure to speak with you. BBM is executing well on its transformation of Gap China, shifting from a discount-driven approach to one that focuses on building consumer love for our brand and products, that is the premiumization of Gap. In the third quarter, we accomplished a wide array of successes in this direction. This includes successful new product launches, new store openings and increased brand marketing and visibility. Together, they lead us to wide improvement in financial metrics, including higher same-store sales growth, faster inventory turnover, stronger gross margin and better than forecasted operating loss for the third quarter as demonstrated on Slide 8. Let me now provide you with additional color on our new product launches. Building upon the foundation established in the first half of the year, this fourth quarter we introduced our new locally designed China for China product, aiming to deliver the right product for the right people at the right time. This product line upgrade is a continuous process and critical to the apparel industry. Our new product line features three new segments, Modern Preppy, Urban Workwear and Premium Blue, in addition to the traditional Gap logo segment. We launched these products with a comprehensive go-to-market strategy. Since the last week of September, we have elevated the Gap brand through a combination of celebrity endorsements, new store openings, new products, Douyin Super Brand Day spotlight, and the I am Gap social buzz. As of October 31st, the I am Gap campaign has generated over 309 million impressions, while [Crave Gap, Just Gap] or [Shong Gap, Chu Gap] in Chinese, it accumulated 222 million impressions across Weibo, Douyin, and Xiaohongshu. We also garnered over 100 million impressions during our…

[Operator Instructions] Our first question comes from Alicia Yap with Citigroup.

I have 2 questions. First is management able to share with us what has been the notable changes that you are served during this year's Singles Day promotion period. For example, the consumer consumption patterns, how brands' promotional efforts and even some of these large e-commerce strategy. Anything that you know that's a big change this year. And also, the marketing campaigns that you help out the brands to execute is effective in driving the intended sales or getting the GMV or the results that the brands want. Any positive or negative surprise that you see that you're able to share with us? For example, any brands that particularly has a stand out in their GMV or even the new user growth or anything that you can see on positive or negative that you can share. And then very quickly on second question, is there any preliminary view that management can share how next year 2024, the growth rate that our joint can achieve?

It's a long question. Let me try to share some of the observation for this year's, the Double 11. So first, I think the overall traffic in the traditional platform like Tmall and JV is lower than the previous years. But on the other hand, there are more traffic shifting to the social media and content based platform such as Douyin. That's number 1. Number 2 is we have seen an increased competition among the different e-commerce platform are offering better price transparency with a better overall customer experience like how to return the goods, how quickly the product can be delivered, so that's a key observation. And then from a brand perspective, this leads to a record high cancel and return rate for all platforms which causing the issues and causing the financial impact to the brand. What Baozun has been helping the brands, are three things. The first one is, during and before and during the Double 11 campaign, we help the brand to create an overall strategy for all channels. So that helps the brand to know what they do for the different channels at the different periods of the promotion. And secondly, given our capability to offer an end to end service including operation customer service and logistics and warehouse, we can link all the service together using our system capability to provide a better overall customer experience and also helping the brand to create a better efficiency. For example during the Double 11, the cancel rate has been high and return rate has been high. But with our system capability, we are able to very quickly release the canceled item back to the shelf, allowing the brand to sell the brand, to sell the product without losing the opportunity during the Double 11. And finally is our support to brand on the good data insight which helping the brand to make real time change and shift on the different phase of the campaign, helping them to achieve a better result. So overall, I think we have made and for some brand exceed our own goals internally. But from a financial perspective, because of the high return on cancel rate, we'll wait to see how much impact that will have on us. In regarding to your second question in terms of the next year, given the foundation we laid out on e-commerce for this year, we believe we will have a positive growth both top line and bottom line for the next year. We are in the process of finalizing our annual operating plan for next year and I will be able to share more in our next call.

Our next question comes from Thomas Chong with Jefferies.

My first question is relating to Gap. Can management comment about the strategies and investments that we should expect over the next few years and in particular, how we should think about the revenue scale and the timing to achieve breakeven? And my second question with respect to the e-commerce business in the domestic -- about the omnichannel strategies. Can management comment about the future mix for T-mall, non T-mall channel? Thank you.

Maybe Sandrine, you can go for the first one and we will cover the second one.

Okay, sure. Okay. Thank you, Jeffrey for your question. So in terms of strategy, we are going to pursue what is at the heart of BBM. So at the heart of BBM is really China-for-China and technology empowerment. So we are already on a good track on these two, but we are continuing. And in the specific case of Gap, we will also pursue the premiumization trends that we have engaged in, thanks to our control of supply chain, and to our absolute control of discount. So this will continue with more to come in terms of products, more to come in terms of opening new stores. As you noticed, we started to open five new stores in the third quarter. We have another five planned in the next quarter, and this trend will continue over time and in '24 and beyond. And we are confident that, we can actually speak to our initial plan which was to significantly reduce the loss this year, further half this next year and the breakeven in '25.

Thank you, Sandrine. On the second question regarding domestic and international brands, so basically our observation is, in the recent years, the domestic brand has captured more market share in the middle to low price range segment in each category. At the same time, international brands still dominate the high price range segment with a better overall brand attractiveness and better overall customer experience, and more product innovation and introduction. For Baozun we see opportunity in both the international and domestic brand partners. For the international brands, they would like Baozun to play a role as a strategic partner, offering them an end-to-end one stop solution, including help them to design a strategy for the overall China e-commerce and then help them to execute. So this is something Baozun is very uniquely positioned to provide. For domestic brands, given they are close to China, some of the operations, they normally do in-house. But they come to Baozun asking for help on the value-added service such as the digital marketing, the warehouse management and technology. So with the China e-commerce ecosystem becoming more and more to specialized in each of the services, we believe, we have opportunity in both international and domestic brands.

Our next question comes from Sophie Huang with CMBI. Please go ahead.

Thanks for taking my question I have two questions here. Number one is regarding the Hangzhou location aggregation. So what is the rationale of location and position? And how do we look at the business synergy in the last Baozun's E-Commerce segment and the financial impact from this deal? And the second question is regarding our last June E-Commerce update. We have made progress in the ecosystem for brands. So can you help us to understand the ROI difference between Douyin channel and the Tmall channel and how to improve it? I remember you mentioned that 3 brands performed well in Douyin ecosystem and what about other categories?

We believe the overall trend for the e-commerce in China will have more social and content based e-commerce. So that's the trend we see. And based on that we think the capability to produce high quality live streaming and content is a must to have in the upcoming years. So based on that rationale, we searched the market, we want to find the best match between Douyin capability and also the service provider we are looking for. So we found location, which is an innovative and very solid business with a very deep experience and know how to run the live streaming in both the Tmall and store in platforms. And also after our initial working with location. So a well-run business weighs a healthy profit margin and a talented core team. So we believe the combination between Baozun location, we'll be able to utilize the good system and infrastructure of Baozun, the very deep relationship and ominichannel relationship Baozun has with brands and also the locations, high quality live streaming operations capability and also their combo facility. We think combining those 2 we'll be able to make us one of the best creative content and live streaming service providers in China. And we think this capability will help us to provide the value added service for our high end brands. The second question about ROI, we think the ROI for both the Douyin channel and Tmall channel is currently under, are currently under the prices. So that's because for the both the Douyin and Tmall, we need to know in terms of how to define a successful strategy to improve ROI. So if we think from the brand perspective how to differentiate the merchandising strategy, how to attract the traffic, how to do the digital marketing in those 2 different platforms will determining how good a ROI is about. So that's why we think offering a good capability and working closely with the brands we'll be able to improve ROI for both brands. So in those 2 platforms you will be able to improve ROI if you do very good operations.

Our next question comes from Colin Chan with Citi Securities.

I have 2 questions about BBM. The first question is about Gap. It has been around 3 quarters after the acquisition of Gap China and looking back on the past quarters, what operation results are beyond your expectations and what are below your expectations? And the second question is also about Gap. How to evaluate the improvement of Gap results and what are the key metrics to follow other than the gross profit margin? And when we're talking about to maintain the price of Gap, but in China, especially in this year, people are talking about the consumption downgrade, so what's your observation when you are doing this kind of improvements of Gap?

So first, after three quarters, not exactly three quarters because actually we took over in the 1st February. We can say that most of the operational results exceed our expectations, particularly when all the indicators that point to better attraction of the brand, which means primarily obviously gross margin that we discussed earlier, which has increased much more significantly than we even expected. But also the inventory turnover that has been also a very, very strong improvement. At the same time, by saying this, I'm showing you some metrics that we consider as very important. The inventory turnover, the same-store sales growth, the conversion rates, these are all metrics that we look very carefully asked because at the end of the day this indicates if the brand is attractive for a consumer or not. If a consumer comes to a shop and buy a brand only because it's discounted, it's actually not a good sign. So from the beginning we've been extremely attentive to these metrics because this is actually how to get back on track to be a positive brand, a brand that attracts consumers. And on all these matters, we are actually quite satisfied. And it's usually beyond expectation. Now where, it's a little bit slower is on the online part of the business, where obviously it takes longer time to achieve this with consumers, although more so as we used to be, Gap used to be very much a Tmall online business, and we saw as mentioned by the [Technical Difficulty] factor for our online business. So that's to answer the first part of your question. Now answering the second part of your question, obviously we do pay attention to our top line, but our top line, we prefer to look at it primarily in same-store sales…

[Operator Instructions]. Our next question comes from Jack Hu with [Alpha Securities]. Please go ahead.

Hi. Good evening management. Thanks for taking my question. I have a small question regarding M&A strategy. We have seen some progress on Gap business after our acquisition. So could management share some thinking on the M&A strategy going forward? Thank you.

Okay. Thank you, Jack. This is Vincent. I will answer this question. And then, Sandrine, maybe you want to add some comments after that. For the M&A strategy, I think we have two parts and the one important consideration, one part is about the BBM. I think for the BBM M&A for potential brands, Number one is that, we think a rental Gap and Hunter is very important for us. So the first thing, we need to do is start to make Gap turnaround a successful one. And to have Gap and Hunter, with all the potentials they have, to turn this to a very positive opportunity for us, that is number one. Number two is that, we will still be very active in exploring potential brands, but we will be very selective for brands. The brand and the opportunity has to be good and then has synergy meet our criteria. So, it will be a very selective way for us to acquire new brands. For BEC, we are acquiring necessary capabilities from other companies or vendors, just like location, we just have done. So in this direction, I think, we will be also very selective and I think right now most of the capabilities of Baozun are very strong. We are strong enough in different aspects. So I think only for those very selective opportunities, we consider to acquire in the future. So overall, I think the one principle for us, which is very important is synergy. No matter if it is a brand or it is a company with special capability we are going to acquire, it has to have a very strong synergy to the existing business. No matter it's a brand business or it is e-commerce business. So, that is the overall strategy for M&A. So, Sandrine, you want to add something?

No, I think I may just say that, yes, of course, we want to, number one, prove the turnaround of the brand, specifically Gap. Number 2, we really want to be very selective and also to be true to our key criteria, which is China-for-China and technology empowerment. So we want to really select brands where these 2 drivers will make a huge difference.

This concludes our question-and-answer session. I would like to turn the conference back over.

I could actually just see Thomas back on the queue, maybe the last one please.

Sure. It looks like we have a re-joiner here. We will now take a question from Thomas Chong with Jefferies.

So may I ask a quick follow-up question? I think it's more relating to the trend for our take rate, can management comments about how we should think about it in the near-term and the long-term?

I will take this one. In terms of the take rates for the e-commerce services, what we observe is some of the basic services like the store operations, the customer service, the take rate, it's under pressure and has a trend to reduce. Our reaction to that is we want to improve our internal efficiency through the economy of scale to make sure we keep competitive in terms of the price we offer to counter the impact of drop the take rate. At the same time we see the take rate for the value added service has been really, for some really high quality service. We see the take rate it's really firm. So that's why we shifted a lot of our efforts into creating a good quality higher value added service in our BEC kind of the service offerings. And at the last, we think from this year we start to do high margin, high quality product sales business. And we believe with more control for the product sales business, we will be able to positively contribute to the gross margin and also to the net profit, these spikes of our high pressure on the take rate. End of Q&A:

This now concludes our question-and-answer session. I would like to turn the conference back over to Wendy Sun for any closing remarks.

Thank you, operator. On behalf of the Baozun management team, we'd like to thank you for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us today. This concludes the call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.