Ladies and gentlemen, thank you for standing by. Good day, everyone, and welcome to the Vipshop Holdings Limited First Quarter 2021 Earnings Conference Call. At this point, I would like to turn the call to Ms. Jessie Fan, Vipshop's Director of Investor Relations. Please proceed, ma'am.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's First Quarter 2021 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 fact 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 or 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 David Cui, our CFO. At this time, I would like to turn the call over to Mr. Eric Shen. Shen-zong?

Good morning, and good evening, everyone. Welcome, and thank you for joining our first quarter 2021 earnings conference call. We believe it's another quarter of strong financial and operational results in the first quarter of 2021, driven by the continued robust growth momentum in our number of active customers. During the quarter, our total number of active customers grew by 54% year-over-year to 45.8 million from 29.6 million in the same period last year. As a result, our GMV for the quarter increased by 59% year-over-year to CNY46.1 billion from CNY28.9 billion in the same period last year. GMV for apparel-related category, which are our bread and butter, grew even faster by 70% year-over-year. These successes are the result of our focus on the execution of our merchandising strategy. We have long-term collaborative relationships with our suppliers, particularly in our core categories. Leveraging those relationships, we aim to deepen our partnerships with them to increase contribution from our made for VIP products as we continue to offer value to our customers through differentiated offering from market-based platforms. We believe we will acquire more new customers, while increase the stickiness of our existing customers. Going forward, we remain committed to continuing to strengthen our leadership in China's discount retail market, aiming to generate sustainable value for our customers and suppliers. As this point, let me hand over the call to our CFO, David Cui, so that he may discuss our strategy in more detail and go over our operational and financial results.

Thanks, Eric, and hello, everyone. We are pleased to have delivered another quarter of solid top line growth, coupled with strong profitability. During the quarter, our total net revenue continued to see strong growth, increasing by 51% year-over-year to CNY28.4 billion from CNY18.8 billion in the prior year period. In addition, our profitability improved on a year-over-year basis. Our non-GAAP net income attributable to Vipshop's shareholders for the quarter increased by 74% year-over-year to CNY1.7 billion from CNY986 million in the prior year period, and our non-GAAP net margin attributable to Vipshop's shareholders for the quarter increased to 6.0% from 5.2% in the same period last year. Looking ahead, we aim to grow our top line as fast as possible, while keeping our margins stable through offering diversified desirable products carefully procured by our strong merchandisers on a daily basis. We will attract new customers and retain existing customers while growing their ARPU over time. We are committed to delivering long-term sustainable value to all of our shareholders. Now moving on to our quarterly financial highlights. Before I get started, I would like to clarify that all the financial numbers presented today are in renminbi amounts, and all the percentage changes refer to year-over-year changes, unless otherwise noted. Total net revenue for the first quarter of 2021 increased by 51.1% year-over-year to CNY28.4 billion from CNY18.8 billion in the prior year period, primarily driven by the growth in the number of total active customers. Gross profit for the first quarter of 2021, increased by 54.7% year-over-year to CNY5.6 billion from CNY3.6 billion in the prior year period. Gross margin for the first quarter of 2021 increased to 19.7% from 19.2% in the prior year period. Total operating expenses for the first quarter of 2021 were CNY4.4 billion as compared with…

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Eddy Wang. Please go ahead.

So my question is just about the outlook for the second quarter as well as for the second half of this year. So we noticed that we had a host of quite successful promotion event in April. So I just want to check whether or not the 20% to 25% revenue growth in guidance for the second quarter already factoring this very strong -- the event, promotion event in April? And if Shen-zong, can give more color on how the outlook for the revenue growth outlook for the second half, it will be very helpful.

Eddy, the second quarter guidance, we see it as rather conservative. There are a couple of factors in consideration. One is that last year, we didn't run the April '19 promotional event, but we did run it this year. So on that basis, it's quite positive. But then also last year, we saw extremely strong growth in May, particularly during the May holidays because that was when everyone started to come out of their quarantines and really starting to travel and buy new clothes after the lockdown in China. So this year, we are facing much tougher comps in the beginning of May. We are going to have to see how the June promotional event period and the summertime goes to get a full picture of the second quarter. However, we are growing quite steadily, and we are achieving sustainable growth driven by strong user growth. So we are confident about our growth in the second half and in the long term. More specifically, we saw quite strong user growth, especially in the number of male customers that shopped with us. We believe that this is driven by our expansion into more categories focused on sportswear, for example, as well as better personalization. In addition, we also saw strong growth in the number of paid Super VIPs, which are our most loyal customers that contribute to quite the sizable chunk of the overall revenues. So we are quite confident about the long-term growth of the business and the long-term healthy development of the business.

[Operator Instructions] We have the next question from the line of Joyce Ju from Bank of America. Please go ahead.

Congrats on the solid first quarter. My question was related to the gross margin profit this quarter. It seems like this number actually down sequentially and also quite meaningfully. So I just want to get color in terms of the future, like gross margin trend. Is it because like we have new discounting strategy or it's because probably we changed our take rate gain with the brands? I just want to get more colors on it.

Joyce, your question on the gross profit and the gross margin outlook. In fact, we're quite optimistic about the long-term gross margin trend. We focus more internally on managing to the bottom line. As we've communicated in the past, we aim to grow topline effect as possible provided that our bottom line remains relatively stable and healthy. So in the first quarter, we've spent more money on reactivating old customers, getting their shopping frequency up as well as paying more benefits to our SVIPs. So for our paid Super VIP members, we are offering selectively to some members an actual 5% off, which during the test period is mostly -- the cost is mostly beared by our own company. But in the future, more brands will participate to share the cost. And we're happy to see the net margin trend in the first quarter continues to be very solid, increasing on a net margin basis, on a year-over-year basis. So over the long run, we're still quite confident and quite optimistic about the long-term outlook of our gross profit as well as our net margins.

We have the next question from the line of Thomas Chong from Jefferies. Please ask your question.

So I have a question about customer acquisition. So do we have any new initiatives or channels for customer acquisition that you can share with us this year? Thanks.

We actually have various very diversified customer acquisition channels, including targeted advertising, including endorsements on TV shows and reality shows as well as cellphone preinstallation. And at the same time, we're also exploring more into short videos, live streaming and so on. What's different this year is that we are going to start to be more -- to try to be even more personalized in our customer acquisitions, uniformed, improved, more optimized operations in terms of how we invest our marketing dollars. So we do believe that is going to be more targeted and give us better results than what we have done in the past. The one thing that is worth mentioning is that we are looking to invest a little more into live streaming in terms of customer acquisition. We don't think that will be a much more meaningful portion of the overall marketing budget, but we do think that it's going to be increasing as compared to before.

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

Just wondering, if we take a longer-term view, let's say, after the conclusion of COVID-19, what kind of the growth rate could be the most comfortable on the stable state and also relate to the margin profile at that time do you expect? Just want to get some sense of your thoughts on that? And also regarding the competition, just wondering what's management thought on recent dynamic change considering anti-monopoly moves and also considering new entries, including some shopping platforms.

Natalie, in the long term, we are aiming to achieve a more steady and sustainable long-term growth, and we're quite confident about the long-term growth potential of our business. Natalie, on the customer acquisition channels, we're actively exploring mini programs as well as short videos and testing with all the partners in terms of customer acquisition. But there isn't a single channel that is at 15% to 20% of the overall customer acquisition contribution. So in the future, we will continue to explore and enhance the performance of our marketing dollars.

We have the next question from the line of Ronald Keung from Goldman Sachs. Please ask your question.

I will be asking on behalf of Ronald. In terms of development of the Vipshop products, as management shared with us in last quarter, VIP has collaborated with a few hundred brands. Just wondering how many brands have we expanded collaboration with in the past quarter and if there's any related operating metrics can be shared would be great. For example, scale of the sales and how many users have purchased Vipshop product on our app, the LV, et cetera?

On the Made for Vipshop collaboration, we are currently already working with around 500 brands on the Made for Vipshop products. However, every brand's level of sophistication and how much product that they're working with us and the contribution for that brand's sales on our platform is a bit different. The good news is that we've seen improved conversion rates and higher sell-through rate for these products than the other products on our platform. Meaning the metrics are quite solid and proves that this strategy is on track. However, as it hasn't been long enough, we need more time to figure out what kind of brands this works best with and how to deepen our collaboration with brands on the Made for Vipshop products. But we do believe that these products will be very important for our long-term growth and to create more differentiation from other platforms over time.

We have the next question from the line of Tian Hou from TH Capital. Please ask your question.

For our 3P business, so what is our strategy to develop this part of the business? By the end of the year, so what is management expectation for 3P business to be percentage of total business?

Tian, on the marketplace development, this quarter, the contribution is less than 5%, around 4.7%, 4.8% of the total GMV comes from sales through marketplace. We do plan to grow the marketplace business, but only provided if the user experience and the complaint rates are under our control. So we want to offer the same level of experience in the marketplace business as our first-party business. But in terms of how much we want to grow that business, in the first quarter, the contribution, as we said, is less than 5%. And in the fourth quarter of this year, we hope to get it to, say, slightly over 6%, but it wouldn't be a very meaningful increase in the total contribution as we still want to focus on the 1P business.

We have the next question from the line of Ashley Xu from Credit Suisse. Please ask your question.

I just want to ask about how do we see the destocking needs from brands in past few months. And how do we see their needs in second half this year and whether the previous bar code against some international brands would impact the overall needs in 3Q and 4Q?

Ashley, as the brands partner of choice in excess inventory clearance, we not only clear excess inventory that are already in stock for them, but we also grow with them via Made for Vipshop products, which we've discussed in the past and earlier in the call. And we also do a lot of in-season, slow-moving extra inventory for our brand partners. And we also contributed in many other formats for example some brands will choose to allocate different SKUs to different e-commerce channels to be sold. So we are actually a top partner for our apparel brand partners, especially in their e-commerce and online sales, which is a very meaningful channel for a lot of our brand partners. And we grow with our customers in terms of -- we grow with our brand partners in terms of both gaining new shoppers for their brand as well as growing their sales. On your second question on the [indiscernible], the event, the impact on international brands is there but quite minimal. At the same time, we're seeing domestic brands picking up momentum. So we're seeing the search results for domestic brands and the demand for domestic brands growing quite fast. Over time, we believe domestic brands are likely to take share from international brands.

We have the next question from the line of Feitong Zhang from CICC. Please ask your question.

This is Feitong on behalf of [Yang] from CICC. Congrats on the solid results. I have one question. It's about category expansion. Will we accelerate the category expansion, for example, in 3C category to acquire more users, especially you mentioned we had -- we're now having more male customers? What -- if so, what would be the impact on the margin? Are we going to subsidize or just destocking for those male brands like 3C, those categories?

So the contribution from male customers was up by around 5% in terms of the number of customers year-over-year. And that's why we saw menswear and sportswear sales growing exponentially. Male customers as a total pool of customers in the overall contribution might continue to grow, but we will still be primarily focusing our efforts on female customers, which are our bread and butter for women's apparel, mainly. Male customers might be shopping with us a lot more frequently, and we might be able to acquire male customers, but still, we are acquiring them via apparel-related categories. So they are not going to come and be buying a ton of cellphones driving down the margins. So from our perspective, it's all about the apparel and wearable category. And we're confident that we can serve male customers quite well in this category. The one really positive thing that we see in how male customers shop is that they have much higher conversion rates and make decisions much more quickly. So we will be improving our personalized shopping experiences for male and female customers when they come to our platform.

We have the next question from the line of Charlie Shen from China Renaissance. Please ask your question.

Actually, I have a question regarding the average revenue per user as well as the trend going forward. So I did a quick calculation. It seems that the average revenue per user for this quarter, if we use U.S. dollar basis, actually year-on-year strategy growth, that's actually the first time for the past few quarters. And even if you use RMB, the decline actually is very, very narrow already. So how you see the momentum or trend of the average revenue trend going forward? And also, can you give us more color on what is driving that. Is that across the board, everyone is buying more? Or, in particular, new users are contributing more on the average revenue or the old core customers are contributing more?

Charlie, the RMB88 free shipping impacted the ARPU in the year of 2020. And therefore, throughout the year, we saw year-over-year decline in ARPU, mostly because customers do not need to get to a certain basket size in order to get free shipping anymore. But now in 2021, you see that trend normalizing. So this is -- as we've communicated prior, this is what we expect, and this is because our customers are still very sticky to the platform. And this is just a change in the shopping habits due to some of the change in policy last year. We will continue to grow our ARPU going forward. One thing that we like to mention is our focus on the Super VIP paid members and their spending. On average, a Super VIP customer spends eight to nine times more than an average customer. So from that perspective, if we can get more customers to join the Super VIP program, we are confident that their ARPU on the platform will also increase over time. Additionally, we continue to focus on personalization and improving the experience of each customers when they come to our platform. So we do believe that, over time, will also increase the ARPU and stickiness of the customers. If we continue to grow the number of customers that shop with us and the ARPU of the customers, we do believe that our long-term growth prospects are quite good. Operator?

Ladies and gentlemen, as we come to the end of today's conference, I would like to hand the call back to our speakers for any closing remarks.

Thank you, everyone, for taking the time to join us, and we look forward to speaking with you next quarter. Thank you.

Thank you.

Thank you.

Thank you, sir. Ladies and gentlemen, this concludes our conference call for today. Thank you for participating. You may all disconnect.