Ladies and gentlemen, good day everyone, and welcome to Vipshop Holdings Limited’s First Quarter 2018 Earnings Conference Call. At this point, I would like to turn the call to Ms. Jessie Fan, Vipshop’s Senior Manager of Investor Relations. Please proceed.

Thank you, operator. Hello everyone, and thank you for joining Vipshop’s first quarter 2018 earnings conference call. Before we begin, I will 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 anticipate, believe, continue, estimate, expect, intend, is/are likely to, may, plan, 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 Eric Shen, our Co-Founder, Chairman, and CEO; and Donghao Yang, our CFO. At this time, I would like to turn the call over to Mr. Eric Shen. Shen?

Yes. Good morning and good evening, everyone. Welcome and thank you for joining our first quarter 2018 earnings conference call. We delivered solid operational results in the quarter. Our efforts to continue to enhance customer loyalty are bearing fruit. During the quarter, ARPU increased by 25% year-over-year, driven by the strong improvement in shopping frequency. Further, the contributions from repeat customers and orders placed by repeat customers have shown strong improvement. As of the end of March, nearly 1.5 million customers enrolled in our Super VIP Program, which was an over 50% increase, as compared to last quarter. We continue to look for ways to offer value and quality service to our customers, including promotional events on our main app, as well as through WeChat and JD. During this year’s April 19th event, our cross-border business did very well and sales increased by 43% year-over-year. In the coming months, we will also have events for May 20 and June 16th, continuing to bring more exciting deals to our customers. Turning to the partnership with Tencent and JD. We are pleased with the progress we have made so far. In March, we launched our JD flagship store at the front page entry. In April, we opened the WeChat Wallet entry and did a round of promotions with red dots, encouraging users to click into our Mini-program. Our JD flagship store attracted around half a million fans in just two months’ time. We are pleased to see most of the customers from the JD channel are new customers and male apparel is strong. This proves that JD and Vipshop’s customers are highly complementary and there is a lot of room for us to grow together. We have also made solid progress with our WeChat Mini-program. So far, we have seen robust traffic flow, and it is very strong in acquiring new customers. From March to the beginning of May, average daily number of customers and orders from the Mini-program have more than doubled. Comparing to our app users, customers from the Mini-program are younger, and the share of the male customers is higher. In addition, leveraging our technological capability, merchandizing know-how, and national warehousing and delivery networks, we are enabling our brand partners to grow their business within the WeChat ecosystem. For example, on May 8th, 2018, L'Oréal Paris launched its official WeChat Mini-program, which was developed and operated by Vipshop. Our partnership with Tencent and JD is still in an early stage, and it will take more time before we see notable contributions from their channels. Looking ahead, we will continue to work closely with both partners in order to improve the traffic flow and conversion rates, which we believe will help with our long-term top-line and customer growth. At this point, let me hand over the call to our CFO, Donghao Yang, so that he may discuss our strategies in more detail and go over our operational and financial results.

Thanks, Eric, and hello everyone. Before we begin, I would like to note that in the first quarter of 2018, we reclassified costs related to third-party logistics from fulfillment expenses into cost of revenues, which had a 0.9% impact on our gross margin and reduced our fulfillment expenses as a percentage of top-line by 0.9% in the current quarter. The net impact on our operating margin was zero. Turning to our financial results. In the first quarter, our top-line increased by 25% year-over-year, which was at the high-end of our guidance range. We are pleased to see continued improvement in ARPU, primarily driven by the success of our Super VIP Paid Membership Program, various promotional events, and our consumer financing product. Our efforts in improving personalization and enriching our product portfolio also contributed to the positive trend. We believe these factors are key to our future success and will fuel our long-term growth. We continued to build out our overseas warehousing capacity during the quarter and added a warehouse in Frankfurt, Germany. Currently, we have approximately 59,000 square meters of overseas warehousing space in nine locations. As of March 31, 2018, we have approximately 2.8 million square meters of total warehousing space, of which, around 1.8 million square meters is owned by the Company. Our delivery efficiency also improved. During the quarter, we delivered around 99% of orders through our own last mile delivery network, up from 93% in the prior year period. More than 81% of our customer returns were handled directly by our last mile delivery team, up from 67% in the prior year period. Turning to our Internet Finance business. We are currently conducting a Series A round financing to introduce outside capital to support the cash needs of our Internet Finance business. We are in discussions…

[Operator Instructions] First question comes from the line of Alex Yao from J.P.Morgan. Please ask your question.

[Foreign Language] Good morning management. Thank you for taking my question. My question is about second quarter revenue guidance, to what extent have you guys backing in the financial synergy from traffic injection from JD and Tencent partnership into your second quarter revenue guidance? And then secondly, to what extent has your first quarter revenue and the second quarter revenue guidance being affected by change in accounting in revenue recognition policy? Thank you.

[Foreign Language] Okay, so Alex, thanks for your question. I would like to take the second one. There have been actually two changes in our finance segment, one, as I mentioned earlier in my remarks, we reclassified cost related to third-party logistics from fulfillment expenses into cost of revenues in the first quarter of 2018, which had a 0.9% impact on our gross margin meaning our gross margin was actually brought down by 0.9%. But at the same time, our fulfillment expenditures were also brought down by the same 0.9%. So the net-net impact on our operating margin and net margin was zero. And the second change that we’ve made was actually related to our – there is a return period of seven days. So, in May 2014, this could be a bit lumpy and technical. So in May 2014, the Financial Accounting Standards Board issued an Accounting Standard Update ASU amending revenue recognition guidance requires more detailed disclosures to enable users can understand the nature. Okay, to put it in short, so we actually changed the way that we account for, the orders that we ship out during the last seven days in a quarter. So the company offers customers with an unconditional right of return for a period of seven days upon receipt of products sold from its platforms. Under the previous revenue standards, revenue was deferred until the seven days return period actually expires. However, under the new revenue standards, revenue is now recognized at the point of time and control of goods has been passed with the customers upon receipt of goods by the customers. And the company makes accrual on the expected sales return in relation to the seven days unconditional return policy. So you can see decent explanations actually in our earnings release. The actual impact of this change of accounting policy in Q1 was actually a bit negative, meaning, our revenue – our recognized revenue for Q1 2008 would have been a bit higher without this change in our accounting policy. So without the change, the year-over-year growth – revenue growth in Q1 2018 would have been slightly over 26%, instead of the current 24.6%. So, Q2, I think a similar impact would be having place. So in the new revenue recognition method, our revenue in Q2 may be slightly under estimated.

And Alex, can you translate what Donghao had answered to the guidance to your first question. For our guidance, we had getting very little contribution from Tencent and JD and that is because we only opened the JD entry in March and only opened the Tencent’s entry in April. So we are still working our parties to continue to adjust the operation with them and also working on some of the back-end integrations and such. So, there are different ways to operate in JD such as our fast sell channel and we continue to work with them to learn about those different ways of retaining customers and pushing sales and also within Tencent because they are coming back fast amount of traffic. We also need to learn about the kind of crowd that is to coming through our Mini co-brand and to find compatible customers to convert them. So we are definitely working very hard on both fronts and we hope to be able to see our contribution coming in the second half of this year, but it’s still early in process.

Thank you. Next question comes from the line of Eddie Lo from Merrill Lynch. Please ask your question.

Good evening. Could you talk a little bit about competition? Two if I may, number one, how you think about the cut by the new platform such as [Indiscernible] players, can you address the middle tier cities? And have you seen, in the three promotions, putting any pricing pressure on our orders and products? So, thinking [Foreign language]

To translate, regarding the first question regarding new fast food such as pizza dough and also the mini programs on some retail merchants, we did noticed that we were going to be very well. But we are actually not the direct competitor because of the low ticket size. So the customer overlap is very, very minimal. But they are very good at social e-commerce and operating within the WeChat ecosystem. So that’s why we are also in that trend working with WeChat very closely to realize a lot of the value that is within our social e-commerce. And regarding the market competition, on some of the promotions and marketing, in the first quarter and the current time, we actually haven’t seen a whole lot of competition in terms of advertising. But, we actually chose to spend more in terms of giving discounts back to our customers. Therefore, spending more on gross margins instead of marketing expenses.

Thank you. Next question comes from the line of Alicia Yap from Citigroup. Please ask your question.

Hi, good evening, Eric, Donghao and Jessie. Thanks for taking my questions. My question is related to the integration process with JD and Tencent. So, other than taking time to build the fan interest and also translate to conversion rate over time. It will be great if management could share your thoughts and feedback from maybe perhaps like brainstorming about the progress over the last couple months, were there anything that you feel or you wish your team would have done differently, such as like, maybe analyzing the potential user traffic interest respective to JD and Tencent channel or made any necessary adjustment to your SKU or the interface layout in each of the platform. Or will you consider changing any of the duration process or the sales promotion tactics to draw more interest from users going forward? And then, just related to that is that, what would be the rough conversion percentage number that you would meet your internal expectation and is there a timeframe that you have that you could achieve the target? Thank you.

[Foreign language] To translate what Eric said, in March, we opened our flagship store on JD, but we actually now are starting to - seeing that actually in JD a lot of the apparel sales did not come into actually from home page entry, but from different ways that the products are displaced within JD front page but at the fast channel, their discovery channel and so on. So, we are adjusting our charity to participate more on these events with our brands going forward. And on WeChat, at the beginning we put all of our products, lot of categories into our Mini program, now in discovery that we need to actually have less products, but more accurately matched with the customers who are coming into those channels to improve their conversion and how much time they spend in our Mini co-brand and the sales contribution from - in that channel. And so, given the above, we are going to continue to work with both partners in order to adjust how we operate within the respective ecosystems to improve results. The good news is, in JD, we are already seeing robust 0.5 million fans following our flagship store and in future what we need to do is, to improve our operational metrics given the learning so far. And when we reach out and often what we have to play with them to max the user data to what we have in order to better personalize our product offerings to those customers. So we hope to be able to see an improvement in conversion over the next three to five months and acquire new customers, but at the current stage, the conversion rate is not satisfactory to us yet.

Thank you. Next question comes from the line of Wendy Huang from Macquarie. Please ask your question.

Thank you. Just I want to follow-up on your previous answer on the collaboration with Tencent WeChat. So, can you maybe share what additions are you seeing by working with your WeChat Wallet and also the Mini co-brand? And also, how is your user profile and ASP difference from those two channels? And also on your historical data points, it seems that the quarterly active users have been flattish on year-over-year basis. So what’s your vision behind this? And also, how should we expect the quarterly active user trend going forward? Thank you.

[Foreign language] So, in terms of our WeChat customers, we are noticing that is more gender balanced than the customers in our both apps, meaning instead of over 80% females, we actually are seeing heavier male contribution from the WeChat channel. And even though the ticket price is slightly lower, the ASP is lower by around 10 to low teens percentage, the party of the customer is still very, very good. So we hope to continue to work with them to improve the customer profile and the customers who are already participants within the WeChat channel. In terms of our total customer growth, so, starting in the second half of last year, we actually had shipping challenges to spend more marketing dollars in driving weekly purchases for existing customers instead of heavily going after new customers. With this reflection in a very robust increase in our number of repeat customers and also ARPU increase. So, we found a very sustainable way to retain our old customers and getting them to buy more. But we also realize that new customers is also key to our long-term growth. So starting in the second quarter, we will be more focused on new customer acquisition as well, not only investing in our own marketing strategies, but also working closely with Tencent and WeChat to convert those new customers into our own. So, in terms of customer acquisitions, in the future, we are going to see both old customers buying more and more repeat purchases, as well as new customers coming in. So both channels will help to drive our long-term growth.

Thank you. The next question comes from the line of Jerry Liu from UBS. Please ask your question.

Hello. Thank you. Thank you for your time. My question is also on customer – active customer growth. Given what management just said, should we expect customer growth to return to a positive level in the second quarter? And secondarily, if we look at the second half of the year, as the Tencent and JD partnership benefits, so through the model, what are some of the things we should see first? For example, should we expect to see customer growth accelerate, first of all and then, maybe followed by an improvement in ARPU and then later on, followed by an improvement in net margin? I just want to get a sense of – set the right expectations and get a sense of what are some of the initial things we can see from the partnership? Thank you.

[Foreign language] So, Jerry, Tencent is fully supportive of our collaboration and we’ve realized that in Q2 that we are going to start to do a lot more social e-commerce not just relying on the entry point in the Wallet, because in terms of social e-commerce, there is actually a vast amount of opportunity such as group buy, social sharing, tackling and all of that and we have a team experimenting on all of those things, whether to improve the performance within WeChat. And as far as JD goes, they have very, very strong mobile customers already and they also have a very massive e-mail customer base. So, going forward, we will be working with WeChat in order to get new customers from the WeChat ecosystem and other one that first coming, their asking might be lower. But we are very serious in improving the quality of the customers over time and executing them on our platform to buy more. So we are working to improve the quality of the customers over time and we are confident about that. As far as JD goes, because they are already a very successful e-commerce platform, they already have very high quality e-commerce shoppers. So if the shoppers like us, and we are able to get them to start buying apparels through our flagship store, then the quality is already there.

Thank you. The next question comes from the line of Xiaoyan Wang from 86 Research. Please ask your question.

Thank you, management for taking my questions. I think, two questions. First, on the operating expenses, so the marketing and R&D both show leverage this quarter. I am wondering, going forward, for the marketing, are you spending incremental dollars into new user acquisitions? Or are you shipping some budgets from improving the existing customers to a new user acquisition? And on R&D, do you have plan to hire more technology people to work on the Mini program or data technology infrastructure or are you just relying on the existing IT team to work on conversion? My second question is actually on the balance sheet. So, we saw the operating cash flow is excluding impact from Internet Finance actually this quarter. I guess, the main reason is, comparable shows significant decline quarter-over-quarter. So, is there any specific reason in addition to seasonality, is there any significant change in our terms with suppliers? Thank you.

Okay. Thanks for the question. I will take your question. First of all, we will look like we shift some of our resources from debase, rebate and promotional activities to marketing. So meaning from, we are going to shift some of our resources from the existing customers to acquiring new customers. So, that means, to total Op expenses will not – or the impact on our operating any time will not increase significantly even if we want to shift our strategic focus more towards acquiring new customers. In R&D, I don’t think we are going to need to hire more people, but in some cases, we may want to hire them really good key experts in certain areas, but I don’t think we are going to hire massive number of more people in order to drive our growth in Mini program. So, your second question on cash flow, so, in addition to the reason that you mentioned, there is one more reason that is – that was quite unique for Q1. So starting from the second half of 2017, in a payment from customer return deposited directly back to the customers’ original payment method, instead of being returned to their VIPshop wallets. This change has resulted in a decrease in our advanced receivables from third-party platforms which impacted our operating cash flow. So this reason is mostly regulatory reason that we have to comply with.

Thank you. The next question comes from the line of Chen Bi from CICC. Please ask your question.

Hi, good evening management. Thank you for taking my question. I just have a follow-up question regarding your JD entry. You mentioned in your earnings release that the male apparel is currently the strongest category so far on JD. So, which is doing quite good at female categories? And you know there is also there are other players, so could you maybe share with us if you have any plan to promote more female products on JD, like to essential current product offerings or change your promotion methods that, et cetera. And given JD’s user mix is still more male users dominated, how difficult do you think to promote female products will be on JD’s platform. Thank you.

[Foreign language] So, Bi Chen, even though I mentioned in the earnings release that male apparel is strong, but that was because JD is very, very strong in male customers and that you actually see that we are selling male customers male products within their channel based customers. But we are actually the strongest in female apparels as you just mentioned. So, even though male apparel is stronger than in our core apps, that doesn’t mean male is bigger than female apparel within JD. Actually, when we look at the number right now, in terms of our JD sales, female apparel is still bigger than male apparels and that’s largely attributable to our efforts in operational adjustments. So, going forward, we will continue to do what we are doing in order to push for more female products and more female apparel products to customers within JD. And we think that will show more needful because of our time as well. [Foreign language] In addition to what we said to that, regardless of whether the customer is male or female, it’s still incremental to VIPshop and they are buying apparel who just as – male or female customers are and they are also contributing to our revenue growth.

Thank you. The next question comes from the line of Nicky Ge from China Renaissance. Please ask your question.

[Foreign language] Since you mentioned for – asking my question, I have a question on the merchandizing side, just wanted to get the – get your idea on the merchandizing strategy going forward, especially to match the WeChat the new program and JD going first, and besides of that, relative to some progress with our investing in a piece on within and also could management talk about our progress for by average model and private label merchandizing? Thank you.

So, within JD and WeChat entries, we have put very high quality products some are back-end which is mostly apparel. But in WeChat, because of the social e-commerce ecosystem and the way it offers like to shop within social chatting app. We won’t have more standardized products as compared to our app. And then, apparel is our key and our bread and butter. We are working very closely with them to establish even deeper expertise in terms of merchandizing an assortment. But we do believe that we will continue to work very closely with our suppliers and our brand partners to deepen that relationship and in the long run it will create differentiated entry to barrier for us.

Thank you. The next question comes from the line of Monica Chen from Credit Suisse. Please ask your question.

Well, good evening. Shen, Donghao Yang. Thanks for taking my question. I have a question on second quarter, because second quarter is a big season for promotion and where you have two major events. First of all, can management share more colors on the past April 19th anniversary sales events? And what is our results and highlights? And secondly, can management share more expectation on the upcoming June 19th the mid-year sales events, like what new strategies are we developing this year and what preparation have we made and what is our target? [Foreign language]

So, on April of 19th is a own promotional event. We did okay, but it is not the street expectations. However, we still have May 20th and June 16 the two other promotional events for the second half of this quarter and we are preparing for that very actively. And there are four major promotional events that we look at as the year, two are our own, which is April 19 and December 8th and two are more industry-wide promotional events such as June 16th and also Singles Day.

Thank you. The next question comes from the line of Hans Chung from KeyBanc. Please ask your question.

Good evening, management team. Thank you for taking my questions. So, I have a question about the third-party logistics business. So, can you give me some colors about the currency runrate or the revenue runrate or mix in 1Q? And also, what sort of margin profile and then, how should we think about the growth trajectory or the emerging impacts going forward?

[Foreign language]

Well, let me take your question. Well, third-party logistic services that we are providing to clients outside of VIPshop now accounts for roughly 10% of the total orders that our logistic team delivers. And so, yes, that’s about 10% of our total.

We have reached the end of question-and-answer session. I would now like to hand the conference back to the management for closing remarks.

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

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