Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited Third Quarter 2022 Earnings Conference Call. At this time, I would like to turn the call to Ms. Jessie Zheng, Vipshop’s Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop’s third quarter 2022 earnings conference call. With us today are Eric Shen, our Co-Founder, Chairman and CEO; and David Cui, our CFO. Before management begins the prepared remarks, I would like to remind you that the discussion today will contain forward-looking statements made under safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our safe harbor statements, in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this call to the extent any forward-looking statements may be made. Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income and non-GAAP net income per ADS are not presented in accordance with U.S. GAAP, please refer to our earnings release for details relating to the reconciliation of our non-GAAP measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen.

Good morning, and good evening, everyone. Welcome and thank you for joining our third quarter 2022 earnings conference call. We delivered strong earnings growth on net of revenue decline in the third quarter, as we carefully executed on our proven business model. During the quarter, macro and pandemic uncertainties weighed on the top line recovery, but customer trends improved month by month, and overall repeat orders and purchase frequencies hold up well. Through further optimization of operations, we achieved 50% profit growth and meaningful margin expansion year-over-year. As we moved quickly to adapt to external changes, we also pushed ahead with initiatives to reinforce the strength of our platform for the long run. Let me share some of our business progress in the third quarter. First, we continued to enhance our merchandising capabilities. We attracted more diverse and high-quality partners to our platform and expanded our product offering, especially in the trendy and high-end segments. We deep dived into different categories to capture the emerging customer trend as people ramped up spending on [indiscernible] or Chinese fashion sites, [ph] outdoor and athleisure outfit, et cetera. Apparel related GMV booked positive growth year-over-year during the quarter. We also worked more closely with key partners on the Made-for-Vipshop customized offerings, which become an important line for many brands to achieve greater sales efficiency. And most of the products had better conventions than the average level of certain brands or categories. Second, we gained better customer traction. In addition, prudently investing in external channels, we increasingly leveraged our upgraded product selection to acquire and retain customers. Increasing proportions of customers are Gen Z and male customers who are appealed to more brands that reflect their values. And paid members continue to grow nicely as more high value customers enjoy the sensible membership’s privileges. Active Super VIP customers grew by 21% year-over-year and contributed 40% of online net GMV. Third, we worked hard to unlock technological capabilities throughout our business processes. We made great efforts to further digitalize our merchant platform, adding tools like membership system and customer review for brand partners to better identify opportunities for growth. We also made continuously improvements in personalization, refining search, speed, and seeing basic recommendations for customers to discovering their desired selections while typing into their underlying needs. Looking ahead, our business has been consistently based on the premise that customers love value for money, which holds even more-true today. We are committed to offering exceptional values on the wide area of branded quality products. And we will continue to win new customer and elevate the trust and the loyalty of existing ones. We are confident in our prospection for quality and sustainable growths in the long-term. At this point, let me hand over the call to our CFO, David Cui, who will go over our financial results.

Thanks, Eric, and hello, everyone. During the third quarter, our revenues came in line with our prior guidance. While the overall consumption was still under pressure, we did see a gradual recovery in spending on apparel-related categories with strong execution across our business operations, which included preemptively securing supplies or seasonal trends, and proactively launching promotional channels. We managed to minimize the negative impact from the pandemic resurgence on the top line recovery. And once again, we demonstrated a strong profitability with margins hitting their best levels since the beginning of 2021. Gross margin trended upward to 21.7%. Thanks to our continued effort in optimizing cost structure across different categories. Non-GAAP net income increased by 55% to RMB 1.6 billion, and non-GAAP net margins stood above 7% as we remain disciplined in operations. In addition, we continued to preserve shareholder value by steadily executing our share buyback program. During the third quarter, we repurchased approximately $257.6 million of our ADS. Near term, we remain focused on profitability and we’ll work from every aspect to drive operational efficiency. We believe we are financially strong enough to navigate the ongoing uncertainties as well as to reinforce our business fundamentals, which will help us eventually return to growth track. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented below are in Renminbi and all the percentage changes are year-over-year changes unless otherwise noted. Total net revenues for the third quarter of 2022 were RMB 21.6 billion as compared with RMB 24.9 billion in the prior year period, primarily attributable to soft consumer needs for discretionary categories amid a challenging macro environment with the COVID-19 resurgence in China. Gross profit was RMB 4.7 billion as compared with RMB 4.8 billion in…

Thank you. [Operator Instructions] First question comes from the line of Thomas Chong from Jefferies.

[Foreign Language] Thanks management for taking my question. My question is about the consumer sentiment given the outbreak of pandemic as well as the macro headwinds. Just wanted to get some color from management about the trend in recent months as well as ok in 2023. Thank you.

[Foreign Language]

So, actually in recent months, our business has been obviously affected by the pandemic challenges and the consumers are still staying on the sidelines. But on the bright side, we have seen our customer trend has been improving month by month and has been moving towards --close to being flattish or even having some growth. So, we are actually on the right track in terms of customer numbers. So, we expect in the coming months, GMV should stay relatively stable. For the next year, we still will focus on customer growth as long as we have the right customers, platform. And with the pandemic challenges going away over time, we are pretty optimistic about our GMV and customer growth for next year.

We’ll now take our next question. Please stand by. This is from the line of Ronald Keung from Goldman Sachs. Please go ahead.

[Foreign Language] Thank you, management. First question is on your fourth quarter revenue guidance, that implies that year-on-year decline has sequential improvement versus the third. Want to hear how have we done in the Singles’ Day November event, and has our business seen some inventory driven demand, supply driven demand that is driving some sequential improvement? Second is our net margin has reached a new high. And within that, we’ve seen that the marketing cost fell around 50% year-on-year. Is this a new normal or into next year will we actually start to spend a bit more? And how should we think about the margin outlook for next year? Thank you.

[Foreign Language]

So, let me first translate Eric’s comments. For Q4, we expect revenues further to narrow to a single digit decline, despite the fact that have been more or less disrupted by the pandemic, especially actually, we are located in Guangzhou and our office headquarters have been in restricted areas and we have to work from home. So, we still are facing a lot of uncertainties. But -- and also on the logistics side, we have several millions of parcels pending delivery. So, that’s definitely going to impact our business. But, we are quite confident that we will navigate this through these uncertainties and achieve normal business growth. On the profitability side, we have been -- we have strong profitability and going to demonstrate our efforts in various areas in terms of cost savings and rational spending initiatives. For example, we have been very prudently investing in external channels as to customer acquisition. We’re still focused on acquiring new customers, and we are quite proactive in trying to attract the right kind of new customers to our platform based on the LTV model. We are not going to spending away very freely. So, that’s helped us save a lot of customer acquisition costs. And on the other side, we have been streamlining our cost structure from every aspect. We did manage to achieve a lot of cost savings throughout of business processes. And we still have some potential to optimize our cost structure. And lastly, we are not blindly sending away coupons. We’d rather work with a lot of brand partners to share the cost and be quite prudent in delivering coupons. So, we have seen profitability is solid and we are confident to manage that kind of profitability. It’s not a 1 time thing. We’re going to achieve sustainable profitability.

Eric, partially answered your questions regarding the profit margin and the marketing expense ratio. I would like to add two more points. One is that our improvement in our profit margin is not just coming from our savings of marketing expenses, but also coming from our improvements in our gross margin, as a result of our operational efficiencies and better selections of our inventories that we carry and we pay particular attention to our products margin and the rebates and the like. So, that’s one point. The other point is that, we do focus our efforts more on our Super VIP grow and that results in much better customer portfolio for us. So, number of our Super VIP grew significantly in this quarter year-over-year.

This is from the line of from Alicia Yap from Citi.

[Foreign Language] Good evening, management. Thanks for taking my questions. This is Vicky Wei on behalf of Alicia Yap. My first question is, would management provide some details on impact from logistic disruption and the latest return rate trend? And how should we think of the fourth quarter ARPU trend? My second question is, would management provide some color on the latest competition and brands’ attitude as well as level inventory level?

[Foreign Language]

So, first on the logistic side, currently we have roughly 4 million orders pending delivery. Some of the orders are actually staying in our warehouses or the orders [indiscernible] waiting for to be delivered. And especially of the 4 million, actually 1.4 million are going to Xinjiang, which actually has been locked down over three months. So, it’s really a tough time. Recently the delay has extended to places like Wuhan and Sichuan, Guangdong. So, with the delay we expect to see some pick up in the cancellation or return rates. But 4 million is just -- is still a manageable portion of our total orders. So, we hope that with the pandemic challenges going away over time, we expect delivery and fulfillment efficiencies returning to normal pace, and we can manage to meet customer needs. And on the competition side, I think -- we think our brand partners have quite some channels to choose from. And -- but, one thing is certain that with -- the offline stores are still struggling, especially with the COVID resurgence in the latest third and fourth quarters. And they have a lot of inventory to clear and it’s very hard for them to make money. I think -- we think these brand partners, which should go to the online channels, including us and other channels including live streaming, to clear their inventory. And we are one of the -- of their partners -- and we know, we have a strong value proposition in discount retail and we manage to secure a lot of supply with deep discounts. And some of the -- and some of the suppliers are actually not selling well on other channels and then transfer to our platform, and many of them actually customized offerings for Vipshop. So, as long as we maintain our strong value proposition in branded quality products with deep discounts, we think we can and we will -- we have the competence to meet the growing needs from customers who care value for money product offerings. And there are a lot of inventory out there. And we have very-strong merchandising capabilities and we are confident that we can secure more supplies from all kinds of brand partners and secure growing share of their inventories to our platform.

Thank you. We’ll now take the next question. Please stand by. This is from the line of Andre Chang from JP Morgan. Please go ahead.

[Foreign Language] Thank you, management, for taking my question. My question is about the future upside of our gross margin. We noticed the efficiency -- product strategy has helped company to improve the gross margin over the past two years, but there is still a significant gap against the gross margin that company achieved probably back five years ago. So, I wonder whether the management still sees a good room to improved gross margin toward the historical level through the current strategy or other things, or that we see the near term benefits being released and the margin should be relatively stable here?

[Foreign Language]

Okay. On GP margin, one thing you should bear in mind that we always focus on achieving solid and sustainable net profit margin. Turning to GP margin, one of the biggest factors is actually the cost savings from the customer rebates or coupons. We are not -- we are currently quite prudent on this side. For example, this month, we probably achieved 21% of our GP margin, and if we -- investing a lot of rebate or coupons, that could go down to 19%. So, that’s one of the biggest savings. Second, on take rate, we have said for many times that we’re not going to increase the take rate from brand partners because they are struggling with their business. So, that line should remain stable. This means that the gross margin will not go back to the level of five years ago, say 25%. It should largely remain stable at the current level, at the level we have seen for Q3 and Q4, 2021 something. That’s for gross margin. But on the net profit margin, we still have a lot of potential to grow through further optimization of our operations. We can still achieve certain operating leverage on the procurement, customer acquisition and other G&A expenses. So, for the net profit margin, we still have room to grow.

This is from the line of Eddy Wang from Morgan Stanley. Please go ahead.

[Foreign Language] Thank you for taking my question. My question is about the user behavior change. We noticed that the net sales per customer and net sales per order actually declined year-over-year in this quarter, but on the other hand, if we look at GMV per customer, GMV per order actually quite stable. So not sure this is because of the COVID impact, or it is because that we have the -- GMV generally actually increased, which has resulted in this decline? And what’s your thought about the further trend of this metric? Thank you.

[Foreign Language]

Actually the difference between GMV per order and revenue per order is primarily attributable to higher contribution from apparel categories. Actually we did quite well in Q3 for apparel categories, which booked positive year-over-year growth at 3.5% growth. And normally apparel categories carry relatively higher return -- rejection rates. So that’s why you would see -- ARPU had declined a bit during the quarter. But if you look at the GMV per order, that’s quite stable. And the other thing is that returns and exchanges are totally manageable. It has been consistently reflected in our income statement. It has very little impact on the profit, on the profit level. David?

Yes. I think, Eric answered the key points on this question. Just to clarify that the drop in ARPU is not because of the standardized item. It is purely because of the revenue mix. The apparel, clothes and shoes categories increased. We did pretty well on that part. And apparels have higher return rates. And we believe that the return rates in future will remain relatively stable and that will not worsen as the situation on ARPU. And the other reason that you actually pointed out, is that because of the softer consumers’ demand and people spend less and also the summer season. So, the consumption is soft. And that contributed another reason for that. Thank you.

Thank you. Due to the time constraints, that concludes today’s question-and-answer session. At this time, I will turn the conference back to Jessie for any closing remarks.

Thank you for taking the time to join us today. If you have any questions or follow-ups, please don’t hesitate to contact us. We look forward to speaking with you next quarter.

Thank you. This does conclude the conference for today. Thank you for participating. And you may now disconnect.