Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Fourth Quarter and Fiscal Year 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 for Baozun. Please proceed, Wendy.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our fourth quarter and fiscal year 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 about our financials and outlook and 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 based 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 the assumptions that the company believes to be reasonable as of today 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. Now please turn to Slide number 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. 2023 kicked off our journey of transformation. Throughout 2023, Baozun Group demonstrated our resilience and adaptability to transformation. BEC reinforced its omnichannel capability and improved service quality, consolidating our leadership within the digital commerce ecosystem. BBM contributed additional revenue stream and extends our value creation from supply chain to also supply chain fulfilment. We also further enhanced our cash generating capabilities with cost optimization resulting from process reengineering and a more efficient working capital management. Overall, despite, challenging market conditions our annual operating cash flow and free cash flow, both grew by double digit year-over-year and surged to record highs. This has significantly strengthened the financial health of the group. Total revenues of the group grew 5% year-over-year to RMB8.8 billion, underpinned by incremental contributions from Boswell Brand Management. BBM executed its strategy of premiumization for GAAP China and achieved an impressive gross margin of 54% for the year. This is in turn resulted in much lower operating losses, far surpassing our initial forecast. This breakthrough in our first year is the result of having established a solid foundation for growth and success in brand management. BBM is a key component of Baozun Group's second growth curve. Baozun International, BZI, represents a longer term opportunity for which we continue to lay the business foundation and the infrastructure. As BBM ramps up expansion following its acquisition of Hunter IP, BZI will play a vital role to expand Hunter into Southeast Asia, starting with Singapore and Malaysia this year. This is a good example of the synergy and collaboration between our business units. We believe that our expertise in technology applied to operations and business transformations is at the core of Baozun's identity. We're happy to share that Baozun has been acknowledged as a representative vendor in Gartner's 2024 market guide for distributed order management system. We are proud to be the only Asian vendor selected alongside global retail service giants, such as Oracle, SAP, IBM and Salesforce. This is a recognition of Baozun's outstanding technical capabilities in the industry. Looking forward, we remain cautious about the macro uncertainties, yet we are confident that our ongoing transformation has strengthened our business fundamentals and our value proposition to brand owners. Our main focus this year is to continue to execute our plans diligently and patiently in a sustainable manner. With a healthy cash flow and a balance sheet, we will be ready to seize new opportunities and provide lasting value to our shareholders. This January, our board has also approved a new share repurchase program of USD20 million over the next 12 months. We will execute this program from time to time, taking into account factors such as trading window and the marketing fluctuations. Let me now pass the call over to Arthur for a review of our financials and update on our e-commerce business, BEC; then to see Sandrine for more elaboration on BBM.

Okay, thank you, Vincent and hello everyone. Let me do a quick review of the financials for the fourth quarter and the full year of 2023; after which I will discuss our BEC business in more details. Please turn to Slide number three. Baozun Group's total revenues for the fourth quarter of 2023 expanded nearly 9% RMBto 2.8 billion compared to the same quarter last year, driven by incremental BBM revenue of RMB458 million. Due to a weaker economic environment, our e-commerce revenue declined to RMB2.4 billion. Further pursuing a high quality business model, we scaled back on low margin product sales and trained low value added service revenues. Consequently, product sales revenue of e-commerce decreased 23% year-over-year, notably in the appliance, electronics and fast moving consumer goods categories. This was partially offset by increased sales from healthcare and beauty categories. Baozun Brand Management generated total revenue of RMB458 million, a sequential improvement of 53%. Our total product sales revenue grew by 36% to RMB1 billion and the gross profit for product sales more than doubled to RMB315 million. Product sales gross margin for Baozun Group totalled 30%, significantly improved from 17% a year ago. The growth of our gross profit and growth margin was mainly attributable to incremental contribution from BBM. Group income from operations was RMB6.4 million during the quarter, of which e-commerce operating income was RMB50.1 million. BBM continued to show good momentum in reducing its operating loss to RMB43.7 million. Gap's premiumization strategy with discount control, new China for China product launch, and new store openings have all met our expectations. These initiatives will provide a foundation for better profitability in the coming quarters. Sandrine will cover the details later. On the group level, our net loss significantly narrowed to RMB2 million during the quarter from…

Thank you, Vincent and Arthur and thank you all for joining us today. It is my great pleasure to speak with you. Please turn to Slide number six. As you recall in February 2023, recognizing a golden opportunity to reinvigorate an iconic brand, BBM acquired the operations of Gap Greater China with a clear vision to transform Gap into a lifestyle brand tailored to the modern Chinese consumer, BBM embarked on a journey fueled by innovation and strategic foresight. Our vision was to reinterpret American style for the modern Chinese consumer by localizing key elements of the core Gap brand DNA. We pursued a mission to make Gap products and messaging culturally relevant again in Greater China. The goal was not only to revitalize Gap products, but also to reignite consumer love and loyalty, moving away from a discount-driven model to one that resonates deeply with the aspirations of the modern Chinese consumer. We took over a business, which had just closed 86 stores and was plagued by abnormally high levels of discounts all year round and in just 11 months, BBM's multicultural talent and diverse teams coupled with impeccable execution and technology-driven solutions, achieved remarkable results. The transformation of Gap China from a discount-driven brand to consumer centric power health is evident in the following as indicated on Slide number seven. First, team systems and processes; we focus on assembling the right team and implementing robust systems and processes to execute our turnaround strategy effectively. This included restructuring, hiring key personnel and optimizing operational workflows as well as putting in place a whole new set of systems to support our business. Then premiumization of the brand; we embarked on a comprehensive strategy to elevate the brand by focusing on product design, product segmentation, supply chain enhancements and improving store…

[Operator instructions] The first question today comes from Alicia Yap with Citigroup. Please go ahead.

Hi, thank you. Good evening, management. Thanks for taking my questions. I have two questions. One is, what is the latest consumption shopping sentiment that you have observed over the past two months in 2024? What is management expectation of the macro overall and the consumption outlook for this year? While we think it's still early, so not sure, have you started to plan for this year 618 promotional festival? What do you expect that could be different this year versus previous year for the June 2018 promotion period? And then second question is for the BBM business. Just wondering, have you noticed any meaningful difference in terms of the user spending habit? For example, the average purchasing value at the offline store versus what you have been operating, which is the online store, the behavior for the user that you can make some comparison and then if there is opportunity for you to acquire or add a few more brands to your BBM business, could you share with us your decision-making criteria and what kind of brands that you're most eager to add to your portfolio of management? Thank you.

Okay, I will take the first one, Alicia, for your question, and then I will pass on to Sandrine and Vincent to talk about the second one. Regarding the consumption sentiment, I have to say the sentiment is still not recovered very quickly, and the consumer confidence, as we can see, the figures is still very low, but within that, there are some highlight points where we can see some category has performed actually better; for example, outdoor, healthy food and nutrition. So those are the spotlight which we have seen some good recovery on the consumption. Regarding to 618, we haven't formally kicked off the plan for 618. That will start in May. However, we have already focused on to improve the daily sales. For example, doing a good operation and doing a good customer service and try to engage with the customer, which is trying to build a customer base and getting ready for the big promotion in 618 and the difference I have seen for this year is the daily sale becoming more and more important, which means the ongoing operation from a capability perspective is becoming more and more important. So that's for my first question. Sandrine?

Yeah, thank you, Vincent. So thank you, Alicia, for your question. So first, the first part of your question is about online versus offline consumer behavior. It's pretty clear that the premiumization progress that I talked about is going faster offline than online. Nevertheless, online, we have also been able to achieve a much better gross margin than previously. So it's a question of cycle and time. It takes longer. Then regarding your second question, we are actually looking at multiple opportunities, but we are being extremely selective with in mind, I would say, these criteria, the four criteria I'm going to say, which are really the key criteria. The first one is obviously the segment and the category in which these brands belong to. We're looking for brands that are operating in very dynamic segments and there are still pockets of growth which are very interesting in China. The second key criteria is that these brands need to have some true potential to develop in the greater China and potentially Southeast Asian markets. The third one is the synergies with our current portfolio, particularly with regards to supply chain, but not only. It's really a synergetic brand we are looking at and the fourth one is brands that will enable us through the right transaction to act on what has been really key so far to the successful progression of Gap, which is China for China, meaning that we need to be able to work on the product and the second one, we need to be able to really make a digital difference with our technology leadership. These are really the four key criteria for us.

The next question comes from Thomas Chong with Jefferies. Please go ahead.

Hi, good evening. Thanks management for taking my question. My question, first, can you talk about the growth outlook for non-Tmall channels and the contribution to our GMV? And then secondly, as we highlight in the prepared remarks, we are looking into operating efficiencies, improving profitability. So I just want to get some more color about the trend in our operating expenses and our margin outlook. And then finally, please talk about our use of cash and our thoughts about M&A. Thank you.

Okay, Thomas, four questions. Yeah, let me take them one by one. The first one, outlook for non-Tmall channel. As I mentioned in my earlier part, our mini channel is a trend and it's a strategy we will follow in 2024. And we have put a lot of emphasis on the Douyin and Tencent channel. We also are looking into the new channels like the VIP.com and the rest. We believe given the complexity and the evolving of the China e-commerce landscape, omnichannel is becoming more and more important. From a number of perspectives, our non-Tmall channels has increased, but however, we are not looking at the number by itself. We are looking at capabilities because the capability will allow us to do our mini channel. It doesn't matter where the traffic goes. We will be able to adjust along with the brand very quickly and very easily. So that's the first one. Your second question is about operating efficiency. So from the BEC's perspective, we established a lean management committee looking at how to capture the cost of saving and efficiency opportunity in a very structured way and in that program, we have already delivered very significant savings. So for example, as I mentioned, our regional service center program has transferred 770 positions from Shanghai to lower cost location, which generates more than RMB20 million of savings. That's just one of those example. We have a set of those examples in terms of how to drive the cost of savings. In terms of the BBM, we currently focus on two things. One is from the third party procurement. We actually put a lot of emphasis to deliver over 30% of saving in terms of the third party procurement and secondly, it's the overhead control. When we take over the business, we have streamlined the overhead to save the money. I will pass on to Sandrine to talk about the growth margin improvement in Gap as well, which also driving the market improvement. Sandrine.

Well, for the gross margin, obviously the procurement is an important part of it, as Arthur mentioned, but key all year round has been our absolute control over discounts, so that we really bring the -- we convince consumers to come and see us and buy our products, be it online or offline, not just because they're discounted, but because they are good products with a good brand. So in order to get these results, we had to exercise extreme discipline on discounts, that's number one, but also to bring the right products at the right time in stores, which are more attractive and with the right marketing communication and marketing messaging. This is in order to attract consumers.

Thank you, Sandrine and on the use of cash and also M&A strategy. So for the cash, as you've seen, because of our high operating cash flow, we keep a relatively high net position. So we will use our cash to deliver the shareholder value in both short term and long term. In the short term, as Vincent has announced, the board has approved a repurchase program on our share, and we will start that program once we have opportunity and in the longer term, when we're looking into using the cash to do M&A, we are very selective under the current market situation. We're looking at a target for both strategic fit and also high operating financial status. So in this way, we will be able to use our cash very effectively to drive the longer term value for our shareholder. So that's my answer, Thomas. Thank you.

[Operator instructions] The next question comes from Wang Zhao with CICC. Please go ahead.

Hi, good evening and thanks for taking my question. My first question is that you mentioned that Baozun will launch the footwear brand Hunter in the Southeast Asia. Could you please share some details about the strategies of Baozun's international business in the 2024? And my second question is that could you please share your investment plan in AIGC and how AIGC will be used in company's business? Thank you.

Okay. Thank you, Wang Zhao. This is Vincent. The first question is about our international business. We call it BZI. I think after this almost two years' efforts, right now we have established a full team who can deliver e-commerce services to our target brand, number one, that is. And number two, we also established a brand business team as well. So that means that we can not only provide the traditional e-commerce services in this region just like we are doing in China, but also we can help the brand to have the online and offline business, omnichannel business in Southeast Asia as well. So this gives us a lot of potential to help brands to expand their business into this region. So right now we have established several offices in different countries to run a business for e-commerce services and also the brand business. So Honda is a good example for the brand business. We are going to open online stores and offline stores this year, middle of this year and we are also conducting marketing for brand marketing in Singapore and Malaysia. So Singapore and Malaysia will be the first two places we are going to run Honda business in Southeast Asia. And also our experiences, data, technologies will be all utilized into this omnichannel Honda business. So that is for your first question. The second one is about AIGC. I just want to talk this in two levels. First level is that in a whole group, no matter its BEC or brand business BBM, these two business units, we all use AIGC in general. It means that when we want to generate, no matter it's text or photos or videos, we utilize the results from OpenAI Microsoft, these kind of big players. So you can see AIGC capabilities in different, almost all functions of our business units. So that is in general, we are adapting this capability from outside players. Secondly, based on that, based on the general capability, we also have some specific directions. We want to put more resources to create some leading edge for the business to help them against their own competitors. So right now it's still early stage. We are doing some of the -- some of them are proof concepts. Some of them are minimum [ph] products, but we hope we can make progress this year because compared to your previous years, right now -- we work much more closely with brands, especially Gap and Hunter. So I think we can have much better results than before in this direction. Yeah, that is for your second question. Thank you.

The next question comes from Colin Shan with CITIC Securities. Please go ahead.

Good evening, management. Thanks for taking my question. I'm Colin Shan from CITIC Securities and I have two questions about BBM. The first is that we saw significant narrow down of Gaps lost in the past quarters and the offline same-store sales achieved double-digit growth in the fourth quarter and during this process, what progress is better than your expectation and what measures can be further adopted to improve the margin of Gap in the future? And the second question is that in your experience of running Gap, what's a key knowhow of fully running an international brand in China's online and especially offline market directly and how would that experience be leveraged in your further operations in other brands such as Hunter? Thank you.

Okay. Thank you, Colin, for this question. So on your first question, I think what was a good surprise, really, was the faster improvement of the gross margin than we expected. We had planned for improvement of gross margin. It was actually at the heart of our plan, but honestly, it has been even better and faster than what we had expected. Of course, there is still room to further improve overall the fundamentals of the business, but still, I think it's important to notice that it's actually the most pleasant surprise, I would say. Now, what room we have to further improve, it's going to be through, obviously, further working on refining products and product segmentation. That's pretty clear, but also by using data. We explained that in the first phase of our work, which was '23, we already did quite some work to change all the legacy systems of Gap China and to bring a new platform of systems, thanks to Baozun technology. Now really in the second phase, we want to go much further in terms of data, enabling us to be even thinner in our understanding of consumers and also enabling us to have almost instant reaction in terms of messaging and product once we have this very refined information. So that's for the gross margin. but gross margin also, overall, requires continued discipline. It's a lot about the discipline on discounts and overall, also, regarding our strategy growing forward, now I think clearly we want to go back to a growth strategy with more store opening, continued improvement of our store productivity, and a multichannel approach to our online business. So that's for the first part of your question. On the second part of the question, I think in terms of synergies, clearly it's going to be about the product machine, number one, and number two, the systems, but in terms of overall learning from the experience, it's also about how important the teams and the people are in this business. It's all about people and I think this is something we really worked hard to put the right team together and we're quite happy with our team, but it's also about constantly trying to enchant the consumer's experience with interesting stores, interesting stories, interesting products and this in a time of weaker consumption, this necessary enchantment of consumers is even more important. That's for my answer to your questions, Colin.

Thank you, Sandrine and very clear for my question about BBM and I have a follow-up question about the BC, and since the beginning of the year, almost all e-commerce platforms are talking about and emphasizing about the price power and from the perspective of Baozun and from the perspective of brands, how do you view the competition situation of China's domestic e-commerce platforms and did you see any consumption characteristics changes in consumers' behaviour and how would Baozun react to this trend? Thank you.

Yeah, thank you, Colin and it's a good question. Yeah, we have also observed the increased emphasis on the price point and also the service level from each of the platforms. We believe it's actually a good trend because it will make sure the platform actually delivering a better service to the brand and also to the consumer. From a consumer perspective, quality has always been a thing. So a good quality brand will always have the market. Value for money doesn't mean good quality brands will not be favoured by a lot of consumers. So instead, the latest technology and the transparency of all the e-commerce platform provides a good opportunity for consumers to compare and choose where they buy and that drives two things. Number one is how to design -- how to define an omnichannel strategy for those brands on the current e-commerce dynamic is very important. So that's where Baozun can use our experience and our technology to help. Secondly is the experience, how to improve the online purchasing experience for the brand to help them to increase the conversion. This is also what we can do using the data and technology to enhance. So with that trend, we believe we're Baozun positioned, we are very strong in technology, we are very strong in data. We have a huge experience across different categories. We allow us to grow the market share in the current dynamic of e-commerce.

The next question comes from Cheryl Wei with HSBC. Please go ahead.

Hi, good evening, management. Thank you for taking my questions. I'm asking on behalf of Cheryl. So I have a question regarding the product sales segment. We understand that product sales has been under adjustment and some challenges for two years. How should we think about this trend entering into 2024? So is there any chance we can see this segment, the revenue growth or decline can stabilize this year? And what are the key drivers and the challenges here? Thank you.

Yeah. Thank you for the question. For the product sales, first of all, it has already started to see the stabilization in quarter one and we will see the product sales revenue as our plan starts to increase from quarter two and quarter three onward. For the full year, we expect to see an increased product sales revenue from BEC. From the business management perspective, we put a lot of emphasis on better control of the risk from the product sales. What we emphasize on is two things. Number one is inventory and number two is the commercial terms. We will make sure we rationalize the inventory level to reduce the risk and enhance our cash flow. At the same time, in the negotiation, we will put a strict requirement on our commercial terms to protect our gross margin. So that's the first one. Secondly, as I mentioned earlier, we introduced a new business model on product sales this year, which is focused on acquiring the exclusive distribution ownership for a brand. So in this model, Baozun will have a full control of all sales channel, both online and offline and using our data and system technology, we will be able to enhance the efficiency throughout our system and we believe we will do better than traditional distributors by using our data and technology. And thirdly, as I mentioned earlier, our own incubated brand, [indiscernible], has seen a double digit growth. And in 2024, we expect to see that part will further increase and that will also help to drive the product sales revenue. With those initiatives, we believe we can drive both the online and we can drive both the top line and bottom line of our product sales business.

This 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 all your participation in today's call. If you have any further questions, just feel free to reach out to us. This concludes the call. Thank you.

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