Ladies and gentlemen, good day to everyone, and welcome to the Vipshop Holdings Limited Fourth Quarter and Full Year 2015 Earnings Conference Call. At this point, I would like to turn the call to Ms. Millicent Tu, Vipshop's Director of Investor Relations. Please go ahead.

Thank you, operator. Hello everyone and thank you for joining Vipshop's fourth quarter and full year 2015 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 facts we may make during this call are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as anticipates, believes, continues, estimates, expects, intends, is/are likely to, may, plan, should, will, aim, potential, or other similar expressions. These forward-looking statements speak as only of today 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, our Chairman and Chief Executive Officer and Co-Founder and Donghao Yang, our Chief Financial Officer. At this time, I would like to turn the call over to Mr. Eric Shen. Shen-zong?

Good morning and good evening everyone. Welcome to our fourth quarter and full year 2015 earnings conference call. 2015 was an exciting year for us, marked by many achievements. First of all, we topped RMB40 billion in annual sales, representing 74% growth. Secondly, we reached nearly 37 million active customers by the end of this year, representing 51% growth. And third, customers grew their average spend on our platform by 15% to nearly RMB1,100 per user. Turning to our quarterly progress, we reaccelerated our growth in revenue, active users and total orders by optimizing marketing dollars more efficiently and further investing in promotion events. Our goals going forward are to continue to expand market share and acquire new users. To achieve this expansion, we have a strategy aimed at both enhancing the user experience to improve the mobile offering, product selection, consumer financing, logistics, and so on; and optimizing marketing spend and promotions on our platform. With the strong success of our platform so far, supported by our robust growth strategy, we remain confident in the future of our Company. At this point, let me hand over the call to our CFO, Donghao Yang, so that he may discuss our strategy in more detail and go over the financial results.

Thanks, Eric, and hello everyone. We are very pleased with our performance in the fourth quarter and full year 2015. As Eric mentioned, during the fourth quarter, we were able to simultaneously reaccelerate growth in revenue, active users and total orders, while maintaining stable customer acquisition costs and marketing expenses as a percentage of total revenue. Furthermore, even as our gross margins sadly contracted due to increased promotional activities, our operating margins strengthened to 5.8% from 4.5% in the prior-year period. The resilience of our operating margins, through increases in absolute expenditures on promotional and marketing activities, demonstrates the powerful operating leverage we have created with scale. As we further optimize our investments in marketing and promotional activities to drive top-line growth, we expect this virtuous cycle to strengthen and lead to further economies of scale that bolster operating efficiency. As discussed, platform expansion is a key goal of ours going forward, which we aim to achieve both through optimizing marketing spend and continuing to enhance the user experience through various initiatives. One such initiative is mobile product enhancement. In the fourth quarter we continued to optimize the mobile shopping experience on our platform, which now accounts for 82% of our total GMV, up from 66% a year ago. The rapid ascension of mobile share of our GMV further validates the appeal of our retail offering over mobile screens. Another part of our strategy to enhance the customer experience is to expand and diversify product selection. Our emerging cross-border offering fits right into that strategy, by providing an ecosystem of foreign brands to offer their unique products to Chinese consumers. Our cross border business continues to gain momentum and has reached roughly 5% of GMV. We believe that this figure will continue to steadily increase in 2016, and that this…

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. We have the first question from the line of Eileen Deng. Please ask your question.

Hi, management. This is Eileen Deng standing in for Alan Hellawell this evening. I have three quick questions. Firstly, do you think the inventory in this quarter can be largely adjusted in the March quarter taking into account the Chinese New Year effect? And secondly, are we likely to increase the supplier financing? And how do you measure the default risk? And lastly, how intense will the rebating and couponing will be in the future? Thank you.

Well, thank you very much for your question. I guess your first question is related to what's happening in the macro environment, right the total inventory out there? Well, we do not have enough information to give an answer to that question, but we believe that in China, especially when the economy -- the growth of the economy is slowing down, there should be more and excess inventory out there. So it would be a good thing for a discount retailer like Vipshop. Your second question, supplier financing. First of all, we have built a very capable team. We have hired people from traditional commercial banks who have tons of experience working with suppliers or in supplier financing business. And secondly, we have a lot of information about our own suppliers, so we know pretty much about their creditworthiness. And thirdly, we have our for the factoring business, it's the money that we owe to suppliers that we use as a guarantee for the loans. So it's very safe. And for other pure credit loan business, sometimes most of the times we have like inventory in our warehouse from that supplier that we can use as a guarantee for the loans. So, overall our supplier financing, the default risk is very, very low. And third question?

Just the rebate, higher couponing.

[Foreign Language] Okay. So, Eileen, for the rebate and couponing, we will control that and keep it at a reasonable level.

Operator, we are ready for the next question please.

Thank you, ma'am. We have the next question from the line of Vivian Hao from JPMorgan. Please ask your question.

Hi, Shen-zong, Donghao. Thank you for taking my question. I have two questions here. First of all, our first quarter guidance implies for the first time a quarter-over-quarter drastic decline of about 15%. So we're trying to understand, apart from seasonality, is there any other key factors driving this, and if we have seen any competitive environment deteriorating in this space? I guess in general, trying to understand what is our key growth strategy for 2016. Probably I'll ask you the second question after your answer.

Okay. Well thanks Vivian, for your questions. Well, our Q1 guidance is lower than our Q4 actual revenue number, actually because of a few reasons. First of all, in Q4 we ran a couple of pretty big promotion, including the Double 11 promotion and our anniversary sales promotion on December 8. But in Q1, we don't have any big promotions similar to that scale. And secondly, as our business continues to grow, the base effect determines that we cannot expect our growth rate to be as fast as in the past.

So, Vivian, to add to Donghao's answer. We do not see any intensifying or pressure in terms of competition in the first quarter. And as you know, the Chinese New Year stands right in the middle of the quarter. So it would be -- it wouldn't be such a good idea to have -- to arrange such a big scale of promotion during that period. So we're treating Q1 as a quarter to transition smoothly for our operation. So for 2016 we will grow again at full speed to reaccelerate our top line growth and user growth. And we still feel very confident and there is a lot of market opportunities ahead for us in terms of market share gain.

We have the next question from the line of George Meng from Goldman Sachs. Please ask your question.

Hi. Good evening, Shen-zong, Yang-zong and also Millicent. Thank you very much for taking my question. I have two questions. One is on the revenue side. So we see nice new customer acquisition in the fourth quarter. Can you maybe elaborate a little more about your change to your marketing strategy, as you mentioned in the prepared remarks? For example, what percentage of your advertising spending is now on branding versus performance, and how has that changed from before? And do you see any change of marketing strategy going forward? And also I think because previously most of your revenue is driven by new customer acquisition, of course we have different cohort there. Can you actually give us some update on the cohort? For example, do you see any difference in user behavior or other metrics such as churn rate and also ARPU of your more recently acquired users. For example, the users acquired in 2015, compared to the users acquired in the older days when you relied more on word of mouth? That's the first question. Thanks.

So, George, in terms of marketing strategy, it was pretty much very similar compared to what we did in the past. But of course we were much more aggressive in terms of absolute dollar amount on this marketing front. But we do have internally a fixed or some sort of allocated percentage in terms of personalized marketing, branding and other channels. So we have noticed that for our newly added customers, they tend to be younger. But obviously, on our platform, we do have customers who were born in the '70s, '80s and now '90s. And obviously, and understandably, people who were born in the 90s, they are younger, and therefore their average spend is a little bit smaller compared to the people who were born in the '70s or '80s. So, of course overtime, as I'm sure their ARPU and their average spend can be increased.

We have the next question from the line of Binnie Wong. Please ask your question.

Hi management. Thank you for taking my questions. My first question is on the user growth. It's good that we see it accelerated this quarter. I understand you talk about in terms of the marketing strategy we will have more targeted ads. Just want to understand that, in 2016 any other new initiatives we have on driving the user growth and how should we expect the growth this year? And second question is on the cross border ecommerce. I think on the press release you have been saying that this would be a solid growth driver in the future. But I was just thinking that, would that be also cross border ecommerce, different of the higher fulfillment costs there? Would that be a margin drag maybe in the near-term, or how should we see the growth of this segment will impact our margin profile?

Okay. So our priority is always on growing top line, growing new users. And we have been and will continue to invest in all kinds of the marketing channels available, including new media.

Well, the cross border business, you're right, is one of our growth drivers in the foreseeable future. Margin wise, our cross border business is already profitable. Although its margin, its profitability is not as good as our other businesses, but I don't think there's going to continue to be a drag to our overall profitability going forward. And also, now our cross border business is growing very fast, but it's still relatively a small business in terms of the percentage of the total GMV. As we disclosed in our earnings earlier in Q4, our total cross border business was only about 5% of our GMV. And also cross border business has one very big advantage, which has helped us grow new customers and also retain old customers.

[Foreign Language]. So one thing to add, Binnie, is we talked about the marketing strategy and the investment channels. But for 2016, another way to add to our user growth initiative would be to optimize our suppliers and optimize the merchandizing. This will be beneficial to acquire new users, at the same time increase the overall quality for our existing old customers.

[Operator Instructions]. We have the next question from the line of Chi Tsang from HSBC. Please ask your question.

Good evening. Thank you so much for taking my questions. I have two questions. The first question is; we've seen very strong customer growth in the fourth quarter. I was wondering if you could help characterize the quality of the customer growth in terms of, geographically where they're coming from, what they're purchasing? Are they -- is it mostly driven by cross border? Any color would be helpful there. Secondly, in the sector we've seen more deal making, some privatizations. I was wondering if Eric can share with us his view on the potential of combining with a larger player to gain more scale. Thanks so much.

[Foreign Language] So Chi, in terms of the customer quality, this is very similar compared to what we had in the previous or prior cohort. But, as Eric mentioned, in the previous question, he did say that we have seen an increase in the number of customers that were younger, and particularly born in the '90s. So when they are young, obviously their ASP is a little bit lower, but not too much lower compared to the other age-group type of consumers. [Foreign Language] We don't have any such plans at the moment in terms of privatization. Nor do we have any plan at this moment to merge --

Merge with large players.

Yes.

We have the next question from the line of Natalie Wu from CICC. Please ask your question.

Eric just mentioned for those buyers who born after 1990s, actually those ARPUs could be lower. But just wondering what about the loyalty, let's say, retention rate, average number of orders placed, maybe compared with those who was born in seventies and eighties? Also actually your GP, gross profit margin is down a little bit. Just wondering is it due to the revenue mix just a change, or just due to the actual coupon that might be stand-out in the fourth quarter? And how should we look at the trend of that gross profit margin in 2016?

[Foreign Language] So logically, the repeat purchase for the people who were born in the '70s is better than the '80s and these were better than people who were born in the '90s.

Okay. Well, I'll take your second question about our margin in Q4. Well, our gross margin was slightly lower compared to a year ago in Q4, mostly because of the promotional activities that we did in the quarter. But going forward, we still be very careful about how aggressively we want to use our coupons and other rebates. So we do expect our gross margin, in the coming quarters, to be relatively stable compared to the past few quarters.

We have the next question from the line of Evan Zhou from Credit Suisse. Please ask your question.

Hi. Good evening, Donghao and Millicent and Shen-zong. Thank you for taking my questions. I have two questions. First is on our exponentially new directions and initiatives such as the new categories for -- I also heard that we are planning to launch the private label for ourselves. So just wondering if you can share any color on that front, it would be very helpful. [Foreign Language]. The second question is regarding the cash flow. Just wondering, we still have pretty decent plan on expansion of our warehouses and also we're expanding our finance initiatives as well as also having bought a land and also bought a new headquarter. So just wondering, in terms of cash need, is our operating cash flow enough for us to kind of sustain these CapEx plans for the next couple of quarters?

[Foreign Language] So for the benefit of everyone I will quickly summarize Eric's answer. In terms of categories expansion, we will continue to focus on our core categories, in particular tier one categories for such as apparel, handbags, shoes, followed by beauty, mom, home goods, etcetera. A lot of brands expressed a lot of interest in diversifying and deepening cooperation with Vipshop. They can supply custom made channels for Vipshop. So at this moment we do not have plans to go into the private label business.

Okay, Evan, let me take your second question about cash flow. First of all, our cash flow is very, very strong. In Q4, we had an operating cash flow of more than RMB1.6 billion in this one quarter. And secondly, some of the CapEx items that you've mentioned, were one-time items. For example, we spent a lot of money on the piece of land where we're going to build our future headquarters. So that's a onetime item. And also to have our own headquarters, office space in the future will help us save costs in the long term. And you also mentioned the cash needs from our financing activities, including supply financing and consumer financing. And there are solutions to help us finance those businesses. For example, in the market there have been several ABS, asset backed securities' products that have been sold by other Internet companies to finance their Internet financing operations. So going forward we are very confident that our cash flow will be sufficient to support our other investment -- our CapEx operations.

We have the next question from the line of Cynthia Meng from Jefferies. Please ask your question.

Thank you, Shen-zong, thank you, Donghao and Millicent. I have one question. Recent news reported that the Chinese government will introduce new tax regulations in April this year about the cross border ecommerce, including cancellation of tax exemption for cross border imports, and setting a limit on individual transaction amount. What does management expect this might impact due to the new tax policy? What will the impact be on your cross border ecommerce business?

[Foreign Language]. Okay, so Cynthia regarding the new tax on the cross border, we haven't received any official notice. So it could be at the moment still being speculating. However, if the government do make some final changes or reforms to the tax on the cross border we do think that it's a very healthy move because perhaps it's not so -- perhaps it's one-time enables consumers to buy more lower-end in terms of pricing, cheaper products, but at the same time it opens the market for more affordable and more higher and mid-end products and merchants that come to China.

We have the next question from the line of Jin Yoon from Mizuho Securities. Please ask your question.

I think one of your competitors who reported a few weeks back said part of their GMV growth was a little bit stunted in the quarter -- in the fourth quarter due to weather. Have you seen any weather impact on your business in the fourth quarter? And, if so, is there a level of conservatism that's already built into the guidance?

Okay. So overall the weather in the winter is relatively warmer compared to previous years and the weather pattern is fickle and changing regularly. It's a bit difficult to predict. Q1, if there were impact from weather, it could have impacted the previous weeks, so our guidance.

Well, the only thing we can talk about that is our guidance has already reflected our best estimate, given the seasonality.

We have the next question from Sean Zhang from 86Research. Please ask your question.

We must have done something right in Q4, not just I think improving our traditional marketing-method efficiency, but also large-scale promotion. In your consideration, which one is more important or contribute more to our reacceleration in user growth. And from that, will we draw any implications for our future growth strategy? Are we going to have more major sales events this year? And also, within your 1.6 million current warehouse capacity, what percentage of that is for co-location? And next year you have 2.1 million target for warehouse. And what percent is that for co-location in 2016? Thank you.

[Foreign language] So, Sean, it's actually both. Obviously, the two major promotions that we did in Q4 was very successful, bringing in a lot of customers and, of course, orders. And, in terms of execution, I think the team has done a great job. Okay. So Sean, out of the 1.6 million square meters of warehouse space, about 0.5 million is for co-location and third-party logistics. Eric just mentioned that we will hit the 2 million square meters in the next year. And, obviously, with that 2 million, we will use whatever we can for our core business, but at the same time, try to attract more suppliers to store more inventory in our warehouses, so that we can manage those for them.

[Foreign Language]. So Sean, going back to your other question, which is the promotion frequency. So we will consider and be more selective as well. There's one coming in April.

We have the next question from the line of Henry Guo from Summit Research. Please ask your question.

So a question on the customer. Did you guys disclose, out of these 19.8 million customers, how many of them are new, how many of them are acquired in the December quarter?

[Foreign Language]. So, as for Henry, the new customers that we added for the quarter was 8.4 million. And the repeat customer for that quarter is about 14.7 million.

But these two numbers don't add up to 19.8 million because some of the newly acquired customers in Q4 became repeat customers in that same quarter, if they bought twice or more than twice from us.

We have the next question from the line of Robert Lin from Morgan Stanley. Please ask your question.

[Foreign Language]. So I have I guess, a few questions here. In terms of -- I guess I would say it comes down to the products and how you individualize for your customers, especially the new ones, the post 90s. We haven't talked about Qianximye for a while, and our products mix in terms of brand positioning. Can you update us on the number of brands you have worked with, the type of brands that you need to add for your new customer base of the post 90s, and how you intend to do that in the mobile era for in Qianximye? Second question is by city tier. Can you share with us again tier one, tier two spread versus tier three and below and how that's been trending? I believe last quarter it was about 56% in the tier one, tier two? And the third question was the share repurchase. Obviously we still have about $170 million left in our program. Any timing how we think about share repurchase, would be great.

So, Rob one thing to share is we have customized a webpage for people who were born in the 90s and recommended brands that are suitable for this age group to improve the conversion rate. So looking at the current progress, it's trending well. [Foreign Language]. So Rob, yes largely it's very similar to the prior quarter, in the third quarter. So tier one, tier two altogether is 53%, up from 52% in Q3. And the remaining is from tier three and four combined.

Well, to your third question about the remaining $170 million in our share buyback program, well of course we will continue to look at the market and buyback the programs when we see there is good buying opportunity.

Thank you sir. At this time, we would like to hand the call back to the speakers for today, for any closing remarks.

So thank you all very much for taking the time to join us. And we look forward to speaking with you next quarter. Thank you.

Thank you.