Good day, everyone, and welcome to the Vipshop Holdings fourth quarter and full year 2014 earnings conference call. At this point, I would like to turn the call over to Ms. Millicent Tu, Vipshop's Director of Investor Relations. Thank you. Please proceed.

Thank you, operator. Hello, everyone. And thank you for joining Vipshop's fourth quarter and full year 2014 earnings conference call. Before we begin, I'll read the Safe Harbor statement. During this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates and projections about Vipshop Holdings Limited and its industry. All statements other than statements of historical fact that we make during this call are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as anticipate, believe, continue, estimate, expect, intend, is/are likely to, may, can, should, will, aim, potential, or other similar expressions. These forward-looking statements speak only as of the date hereof and are subject to change at any time and we have no obligation to update these forward-looking statements. Joining us on today's call are Mr. Eric Shen, Chairman, our Chief Executive Officer and Co-Founder; and Donghao Yang, our Chief Financial Officer. At this point, I would like to turn over the call over to Eric Shen.

Hello, everyone, and happy Chinese New Year to all of you. Welcome to our fourth quarter and full year 2014 earnings conference call. We are very pleased to have closed out 2014 with four quarters of strong financial performance and operational expansion. Our impressive top and bottomline performance was driven by the expansion of our customer base. During 2014, we added nearly 17 million new active customers, closing out the year with almost 24 million total active customers, a 150% increase from last year. 2014 also saw strong growth in the number of orders from repeat customers as well as continued strong growth in total orders, which more than doubled to over 107 million. A key thing in 2014, both in market and for us, was mobile expansion. According to Enfodesk the number of mobile shoppers in China reached over 300 million in 2014, a 35% year-over-year growth, outpacing the 25% growth of PC online shoppers. During 2014, almost 53% of our GMV came from mobile devices, and looking at the fourth quarter, the number was nearly 66%. As mobile is becoming the ideal solution for e-commerce users, we believe our flash sale model, which offers new events daily with a careful selection of popular branded products in limited quantities, during limited time period, is well-suited for mobile shopping. It allows shoppers to act on the events for their favorite brands anytime, anywhere, and we head into 2015 with strong growth momentum. We will continue to invest in using big data to study customer behavior, inheriting shopping experience for users and expanding market share. We are very confident that our mobile platform has the potential to offer better user experience. At this point, let me hand over the call to our CFO, Donghao Yang, so that he may discuss our plans to improve our operations and the customer experience, as well as the financial results.

Thanks, Eric, and hello, everyone. We are very pleased with the fourth quarter and full year 2014 financial results, which exceeded our prior expectations across the board. For the full year, we grew our total net revenue by 122% to $3.77 billion and our net income attributable to shareholders by 162% to $137 million as compared to the full year 2013. Our quarterly results also continued to impress, with net revenue reaching $1.36 billion, a 109% year-over-year increase and net income attributable to shareholders reaching $57 million, a 123% year-over-year increase. In addition to the impressive growth and financial metrics, we also greatly improved our logistics systems with our last-mile delivery services coming online in many new localities. As of the yearend, our last-mile infrastructure could support approximately 50% of our total orders, and we expect that by the end of 2015, we can extend these capabilities to cover 70% of our order volume. We firmly believe that by developing our last-mile delivery capacities we are able to significantly improve the end-user's experience and ultimately reduce delivery costs, as we continue to grow order volume. In anticipation of escalating demand for both our core business as well as offering strategic colocation capabilities, we have been accelerating our warehouse expansion. As of the end of 2014, our total warehouse capacity have reached 1 million square meters, exceeding our original target, moreover supported by our initiatives in other areas, such as marketing as well as by the scale effect of our business. On a cumulative basis, we closed 2014 with over 7,000 suppliers, more than 13,000 brands, of which more than 1,600 are exclusive. This powerful ecosystem that we have built allows us flexibility to explore new ways of cooperating with brand and optimizing our product offering for customers. And we believe…

[Operator Instructions] And the first question comes from the line of Alan Hellawell from Deutsche Bank.

I would love to get some more detail on your in-season sales offering, just in contrast to your classic one to three year old aged inventory flash sales. How does it impact the P&L? What percent of GMV does it represent now? And what level are we likely to hit by the end of the year?

So Alan to answer your question, we have started to pursue more volume for brands that are selling in-season slow moving inventories and custom-made products and that percentage is continuing to increase, although we don't provide specific number.

Alan, let me take your other question about the impact of this increasing in-season product sales on our P&L. Actually the impact on our P&L is very limited, because we charge very similar take rate for the in-season product as our off-season excess inventory, so the impact on our P&L is very limited.

And the next question comes from the line of Yuhong Wang from JPMorgan.

It's Yuhong calling in for Alex. So my question is on the cross-border e-commerce. It has been a rising trend and Vipshop has also launched the cross-border e-commerce channel in September last year. So just wanted to get your view on the overall cross-border e-commerce market in China? And how Vipshop will be positioned in the market? And also, could you share with us some of the metrics of your cross-border channel in Q4 in terms of Jumei contribution in take rates and margin profile?

The cross-border e-commerce or cross-border transaction is going to be kicking off initially in 2015, and we actually share in accordance to that and launched our platform in October last year, and based on the current development it has progressing very well.

And the next question comes from the line of Ella Ji from Oppenheimer.

Actually I have two questions. The first one is relating to your active customers. It is up almost 3 million in this quarter, which is the quickest expansion you have ever had. Could you share with us some colors, where are these new customers from? What do you think is the most effective channel to continue to attract new customer? And then my second question is relating to 1Q guidance. It's reflecting a sequential decline from 4Q, but in the past two years we are seeing a sequential increase 1Q versus last year's 4Q. So could you also share with us some colors?

So Ella, in terms of the geographic point or the stores or the new customers, in Q4, it doesn't differ compared to what it was in the past. And in terms of effective channel to acquire new users, as what we discussed in the past, so we're primarily relying on navigation search, innovative marketing and more importantly the app stores to promote Vipshop's app. And in the most recent quarter, we have seen that our mobile users have been added very fast.

Ella, let me take the question about Q1 guidance. Actually Q1 guidance is $1.25 billion to $1.3 billion in revenue in compared to $1.36 billion in Q4. I think it's actually relatively stable. If look at our past several years, each Q1 is actually up or down 3%, within that 3% range compared to the previous Q4, so I think this Q1 guidance that we've just given is within the reasonable seasonality range compared to the historical pattern.

And the next question comes from the line of Chi Tsang of HSBC.

I just had a housekeeping question first of all. Can you share with us the GMV from the marketplace, please? And secondly, if you can give us any type of commentary for operating margins for 2015, that would be helpful?

So Chi, the percentage breakdown from marketplace in Q4 was around 10%. We primarily rely on our first strategic principle business model, and we are growing that marketplace business very cautiously and steadily.

As such the operating margin outlook for 2015, we actually don't provide guidance for that number. But what I can tell you is the company's strategy is to focus more on growing topline cash and gaining more market share. So the goal is actually to maintain the current operating margin level for the near future and the strategic focus will be on topline growth.

And the next question comes from the line of Cynthia Meng of Jefferies.

I have, although, a housekeeping question. Can management gave us the number of repeated customers and orders placed by repeated customers for the quarter? And also, secondly, I have a more bigger picture question. Can management give us some comment on your mobile traffic? How much is coming from your own app? And where do you see the conversion rate of the traffic coming from Tencent, the conversion from traffic into revenue?

Cynthia, so the repeat purchase rate in the fourth quarter was almost 60% and that number is $8.6 million. About 70% of the traffic is coming from our app; about 30% is from the web browser. And in terms of conversion rate, although we don't provide specific number, but what we can tell you is that the conversion rate is actually higher compared to PC. We have some traffic directing from WeChat, but looking at the current performance the conversion rate isn't that high.

And the next question comes from the line of Alicia Yap of Barclays.

So my question is actually related to the first quarter guidance. So can you help us understand a bit whether the relatively late Chinese New Year this year, is it more a positive or negative to your business? And given this late event, will that also have some impact for, for example, like the spring season promotional event such as March 8, the Female Day?

Well, I don't think that the timing of Spring Festival will have any significant impact on our business, because in the past several years, if you look back we have some years when we had earlier Spring Festivals and some others in the late Spring Festivals. And the Q1 seasonality didn't seem to fluctuate based off of that. So we don't see that's going to happen this year.

Can I follow-up a little bit in terms of the purchasing behavior. So is it usually people tends to buy more ahead after New Year or people will buy more post-New Year, after they get their pocket money?

Well, people do buy more before and after the Chinese Spring Festival than during the Chinese Spring Festival, because you know China, a lot of Chinese people they want to go back to their home during Spring Festival and lot of them are constantly on the road. And also if you look at the courier industry, a lot of the courier guys go home too. So usually our business -- I think the same holds true for most of the e-commerce companies, our business is the lowest during the Chinese New Year period of time.

And the next question comes from the line of [ph] Wendy Huang from Macquarie.

Could you maybe provide some color on the investment focus in 2015? In particular, what's your plan on warehousing expansion last-mile delivering network as well as your sales marketing? And how should we expect these investments to drive the user growth in the coming year?

So Wendy, for 2015 it's going to be another investment year for Vipshop. We are going to continue to invest into our infrastructure. In particular, our warehouse capacity is anticipated to reach around 100 million square meters by the end of 2015. And last-mile is another area that we're focusing. And we are expecting that by the end of this year, we would have more than 75% of the orders to be covered by our in-house delivery teams or through the companies that we have equity investments. And 2015, we are going to continue to focus marketing and sales to promote our funding, also driving new customers through the regular channels by acquiring more traffic. We notice that the online shopping population is increasing, and there is still a lot more potential opportunities to grow our new user base. So these are the areas that we're continuing to focus in 2015.

And the next question comes from the line of Binnie Wong of Merrill Lynch.

Given, there is a new competitor entering the flash sales of apparels using a merchandising model. Basically they also have their own procurement team, very much similar to what Vipshop is doing. How does management see that will change the competitive landscape? Can management share with us some of the strategies we have to drive user growth for 2015?

So Binnie, the competitive landscape hasn't changed much. We have had competitors along the way and we have built high entry barriers in the discount retail market. We are by far the biggest in this category and now geared with another factor to act to our high entry barrier. In particular, we are proud to continue to expand our merchandising team and further expanding our warehousing capacity and now we are entering into the last-mile, which is another initiative that we are doing to improve user experience. So overall, we haven't seen anything that is posing direct competition to Vipshop business model. In terms of new user growth and where to driving users, again branding is another area that we're working on; marketing to acquire traffic, so both on the PC and app and mobile platform. Another thing that we have always been relying on is by improving user experience.

And the next question comes from the line of Tian Hou of T.H. Capital.

I have a question related to your mobile. In the Q4, there was a rapid development in the mobile GMV. It took about a 44% of total GMV in Q4, which about 6x of that in 3Q. And at the same time, PC GMV was almost flat compared with Q3. So I wonder what's the trend going forward. And some e-commerce companies saw the lower monetization rate in the mobile versus PC. Do you see the difference between the two model, for the flash sale model?

I think the general trend is very clear. Mobile traffic will continue to grow very fast and account for a bigger portion of our business. And lower monetization for mobile users, we actually don't see that at all, because as an e-commerce company, our customers come to our website with the only purpose of buying something. So it's a natural monetization process; almost the same, if you compare PC to mobile. And I think the companies that you're talking about, is probably trying to monetize some of their mobile users through other ways, for example, advertisement is probably harder, but in our case, we don't see the difference.

And the next question comes from the line of Thomas Chong of Citigroup.

I have a couple of questions. Now, the first question is, can management share about the GMV for cosmetics in the fourth quarter? And secondly is about the GMV by geography. Can management give us some color about what's the contribution from tier 2 and tier 3 cities? And thirdly, is about the headcount expansion plans. Can management provide us some color about the headcount in 2014 and your expectation in 2015? And my last question is about the CapEx guidance. Any color about the CapEx in 2015 and '16 will be great?

The combined cosmetics GMV from Vipshop and LeFeng was $249 million. In Q3, we mentioned that the GMV in tier 1, tier2 was around 51%. In Q4, that number went up to 52%, so there isn't too much change in that regard.

Well, our CapEx for 2015, maybe 2016, is going to be about $200 million to $250 million, but that's a very rough estimate.

And the next question comes from the line of Chao Wang of Nomura.

I have question on the user growth. It seems that some third-party tracking are saying that your mobile app user declined in January. Just wondered, do you feel are those tracking reliable and what do you see the user trend into January? And also, if you could comment on user acquisition cost, when your user base declines are even bigger and bigger?

I also noticed the article that you mentioned from one sell-side analyst. I think the tracking was not correct, because it was only about the PC traffic, the traffic from PC. And as we said earlier in the conference call, our mobile business or traffic is about 66%, almost two-thirds of our total traffic or business. So the tracking of the PC traffic is not representative at all of our overall business trend.

And the next question comes from the line of Evan Zhou of Credit Suisse.

Now question regarding your colocation plan. So I was wondering if Shen could share us with some thought on, say, probably next one or two years, how do you see the colocation fit into your strategic planning? And how do you foresee that to help us obtain our thickness into the supplier side. And also a related question regarding the last-mile delivery there, could you remind us how much percentage of the last-mile delivery team has been brought onto your balance sheet by fourth quarter?

So Evan, as of now the majority of the warehouse capacity for us have usage. And in anticipation of the escalating growth of our business, we want to be in a position whereby we have enough warehouse capacity to support our topline. And in terms of the colocation, we have been approached by a few suppliers, who have shown enthusiasm in using some of our warehouses to deepen the cooperation. So this is a initiative that we welcome in order to help those parties to have further room to cooperate.

Well, the financials of our last-mile delivery, most of the revenue are not consolidated, because we've already acquired a minority stakes for now in most of the last-mile delivery companies. But hopefully in the next few year or so, when we have the absolute control, majority stakes of those companies, we will be able to consolidate those numbers into our financials.

And the next question comes from the line of Sean Zhang of 86Research.

My question is on the strong quarter. My question is, when we look at the extra user growth this year, actually it's acceleration from last year, 150% year-on-year growth, last year 130%. I just wanted to know, can you share with us, how VIPS drive such a high growth this year? And what's your target to achieve by the end of 2015? And a smaller question is, I saw that the third-party marketplace GMV percentage has actually decreased from 12% to 13% last quarter to 10% this quarter. I just wanted to know why this proactive approach pursued by the management to drive mainly the first key business, your core business, or this is just a natural fallback of the third-party marketplace in the peak season.

Sean, we are not in a position to disclose the specific number in terms of the user count for 2015, but 2015 is another year of rapid growth for Vipshop. Although the growth rate year-over-year might be slower compared to the previous year, given that the size is becoming much bigger now. We will continue to focus on our first key principle business model, because there is so much room down to grow. And we also understand that for marketplace the user experience is less ideal compared to that of for the first three month of business model in terms of key and delivery services and user experience. So from that regard we'll continue to make a good balance between the two.

The next question comes from the line of Muzhi Li of Arete Research.

My first question is regarding the fulfillment per order expenses. We saw the year-over-year fulfillment per order, the cost declined, but a little bit edged-out from the third quarter. So I would like to have the management to explain what's the driver of this small increase and what we might see from the next quarter? And the second question is a follow-up from the previous one, regarding the balance sheet impact from the investment in the logistic companies. Where we can find these numbers from the balance sheet instead from the P&L?

So the fulfillment expenses declined year-over-year, largely because of, first, due to our growing scale. We have greater bargaining power, so that we can have a lower rate with most of the company partners who we work with. And secondly, our average ticket size went up significantly year-over-year, and then also helped drive down the fulfillment cost per order.

The next question comes from the line of John Choi of Daiwa.

My question is, I was wondering if you guys could share some more color on your product category expansion, especially on the new children, maternity, baby, and also on household products that's realized, we are seeing more and more of those kind of products. What is the rough contribution to the GMV? And in terms of the margin contribution, can you give us more color compared to your accessories or a pair of products?

John, in terms of product category function, we will continue to focus on our existing category portfolio. So the Tier 1 would be apparel, handbag, shoes and beauty product. And the next Tier of categories that we'll continue to focus would be home goods and baby, and children wear. And in Q4 2014, apparels, handbags and shoes contribution is more than 60% to our GMV.

And the next question comes from the line of Ida Yu of CICC.

I just have a follow-up question on the product's category expansion strategy. As we are going to have some new categories expansion in 2015, such as cosmetics and baby and mother care or home goods, so what is the contribution or impact through the P&L going forward?

Well, I don't think there is going to be a negative impact on our P&L, because still the fastest growing and the most profitable category at Vipshop is still apparel. So we wanted to be more aggressive in growing our other categories, but please keep in mind that our apparel business still are our strongest, most profitable and fastest growing business.

And the next question comes from the line of [ph] Wendy Huang from Macquarie.

I have two follow-up questions. One is about your strategy towards the baby and the maternity product category. What's your strategy out there? Will you pursue the expansion mainly through the organic growth or will you try to make a milestone acquisition like you what you did with a cosmetic, a little from a year ago? And also related to that, what are your major competitors seeing the baby and maternity product category? And also I think historically there were some big players up their like the Redbaby. What kind of lessons do you learn from those existing players? And also what challenges are you seeing in expanding in baby and the maternity category? I also have another follow-up.

Wendy, to develop or to expand our baby and children wear, maternity product, we'll grow primarily through in an organic way and not through acquisition, because we haven't had any target. The good thing is with weak product, we share the same customer base, which is female, who has high engagement and loyalty on our website. We are not able to -- haven't found any single competitor in this category, because each of the companies out there had -- the e-commerce out there has its own characteristic.

There are no further questions at this time. I would like to turn the call to Ms. Millicent Tu, Vipshop's Director of Investor Relations, for her closing remarks. Please continue. End of Q&A

Thank you all for taking the time to join us, and we look forward to speaking with you next quarter. Happy Chinese New Year.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all now disconnect.