Hello, ladies and gentlemen, and thank you for standing by for Baozun's Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. After managements prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call to Ms. Wendy Sun [ph], Investor Relations Director. Please proceed, Wendy.

Thank you, operator. Hello, everyone. Thank you for joining us today. Baozun's earnings release was distributed earlier today and is available on our IR website at ir.baozun.com as well as on GlobeNewswire services. On the call today from Baozun are Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Junhua Wu, Chief Growth Officer; and Mr. Robin Lu, Chief Financial Officer. Mr. Qiu will review business operations and company highlights followed by Mr. Lu who will discuss financial and guidance. They will be available to answer your questions during the Q&A section that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expect, anticipate, future, intends, plans, believes, estimates, target, going forward outlook and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known and unknown risks, uncertainties and other factors all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Future information regarding these and other risks uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information future events or otherwise except as required under applicable law. Finally, please note that, unless otherwise stated all figures mentioned during this conference call are in renminbi. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.

Thank you, Wendy and thanks everyone for joining our earnings call today. We closed out the year with a strong quarter where GMV increased 43% year-over-year. While China's broader economy is slowing, growth in the e-commerce sector remains strong as an emerging base of increasingly affluent middle-class Chinese continue to drive consumption growth. We strongly believe that the e-commerce industry and the digitization of retail industry will continue to grow at a faster pace than the overall economy, which we are ideally positioned to benefit from. We continue to expand the number of brand partners we work with, which grew rapidly to 185 as of the end of fourth quarter, an increase from 152 during the same period last year. The newly added brands are primarily in apparel, cosmetics and FMCG categories and include an American lifestyle brand, a global jewelry brand and a global casual clothing and accessory retailer. The rapid acceleration of new brand partners added during the quarter demonstrates the growing strength and the reliability of brand and the services we now have in the market. As our reputation strengthens, so too are the number of global leading brands we are in talks with at the moment. We are seeing an increasing number of high-end brands approaching us to help them to execute their e-commerce strategies in China. We eagerly look forward to working with these brands to expand their presence in China's e-commerce market, where we expect to see their contribution to GMV steadily increase over the next two to three years. I'm very excited to say that, our pipeline for the year has never been stronger. The growing array of exclusive end-to-end solutions we have on offer and our omni-channel capabilities were again critical this year in driving growth during the fourth quarter. Total net…

Thank you, Vincent. Let's now go over the fourth quarter financial results. We delivered another solid quarter with GMV increasing by 43% year-over-year. Non-distribution GMV in particular increased by 45% year-over-year. We believe year-on-year comparison is the best way to review our performance. All percentage change I'm going to give will be on that basis. Once again, please note all figures mentioned in the financial review section are in RMB. Firstly, total GMV during the quarter increased by 43% to ¥12 billion. Our focus remains on growing our non-distribution business, which saw GMV increase by 45% this quarter. Total net revenues increased by 41% to ¥2.2 billion. Product sales revenue increased by 25% to ¥975 million. The increase was primarily attributable to the increase in product sales revenue resulting from the increased popularity of a brand partner's products and Baozun's increasingly effective marketing and promotional campaigns. Services revenue increased by 57% to ¥1.2 billion during the quarter. The increase was primarily attributable to the rapid growth in sales from existing brand partners and the addition of new brand partners under the company's consignment model and the service fee model. Total operating expenses were ¥ 2 billion compared to ¥1.4 billion in the same quarter last year. In particular, cost of products increased to ¥790 million from ¥630 million, primarily due to the higher costs associated with the increase in product sales revenue. Fulfillment expenses increased to ¥512 million from ¥340 million, mainly due to an increase in GMV from the company's distribution and the consignment model business and the increased warehouse rental expenses. Sales and marketing expenses increased to ¥544 million from ¥343 million, primarily due to the addition of online store operational staff, an increase in promotional and marketing expenses including digital marketing expenses. Technology and the content expenses…

Thanks sir. [Operator Instructions] Your first question comes from Nicky Ge from China Renaissance. Your line is now open, please go ahead.

Good evening Vincent, Robin and Wendy, thank you for taking the questions. I have two questions here. My first question is about our guidance. Our first quarter guidance is very strong, but our full year guidance has a wider range and it looks conservative. Just wonder whether management could provide more color of our guidance assumptions, especially on the macro and the cellphone category. And my second question is about margin. In the fourth quarter, we've seen that marketing costs increased a lot. Is there a particular reason for the increase? And how should we think about the margin trends for 2019? Thank you.

Okay. Hi Nicky, it's Robin. I will take your questions. The first one about the guidance, we provide both Q1 outlook and the whole year outlook for year 2019. For the whole year, we take some uncertainties off the macroeconomics situation into consideration when we do the whole year forecast. In Q1, we have better visibility for the Q1 and we do think there are strong growth for our GMV and the net revenue as well. I think that's two reasons. The first one we have about 33 brands come in last year most of the brands coming from Q2 through Q4 which start to make a greater contribution to our GMV and the net revenues. And meanwhile we think we have a very strong pipeline or accelerated pipeline to acquire more brands. The second one, we provide more services to our existing brands. And also we see strong growth in our same-store sales growth in Q1 as well. So this is two reasons we gave you the outlook about 55% to 60% growth rate in Q1. And about your second question, you talked about the marketing. I think that's a mixed factors for the marketing expense. The first one, we recall from the middle of 2017 we start to do the digital marketing service, which almost tripled its revenue but it's still in the ramp-up stage. It's in the lower margin, which has some impact on our total marketing expenses. But we think that's a strategic initiatives, for example our way -- part of our new brands we acquired we just start with marketing service and then we acquire them as our GMV brand. The second one with the ramp-up of the digital marketing services, we think we have greater opportunity to improve the margin of the service. And also for the invested brands with more service we will have better take rates. So it's the strategic initiatives we do. And of course, now within Q4, we do see some uncertainty in macroeconomics. And in the marketing expenses we do see some of the brands spend more in the marketing, which has some impact on our marketing. We do see like a one-off stuff in the marketing expenses.

Got it. Thank you, Robin.

Thank you.

Thank you, Nicky. Your next question is from Billy from Haitong. Your line is now open. Please go ahead.

Hi, management. Thanks for taking my question. I just wanted to ask about our new client sign-up during quarter four. In terms of absolute number, we signed up the most clients this quarter in our listing history. I was just wondering why there was a sudden jump in the increase in number of clients? Was this structural or some company-specific reason? And also could you give us a breakdown or nature of the new client signed on during quarter four? Thank you.

Thanks for the question. From the year of 2017 we start to build and enhance a lot of different capabilities including marketing, logistics and technology. So of these two years of efforts rental or capacity to serve the new client is getting much better than before. So we would dare to have more new clients to be on board. So that is what happened in the past several months. So we can see rental we can -- the pipeline is strong and we can serve more and more brands in a more quality manner. We have much more confidence in serving a bigger size of clients. So that is the key reason I think.

Yes. Additionally, I think, as I mentioned, we have the acceleration of the new brands. For example, we have a technology investment and we have a digital marketing services expanded digital marketing services. Those initiatives really -- we'll really benefit from those initiatives because initially some of the brands have come to us for the technology connection and they come to us for the digital marketing service in the very beginning and then become our full-service clients. So we think that model, I mean, the growth mode it has been improved by us since despite the second half of last year. And we do think we have -- we are very confident that we can acquire more brands in 2019 and contribute more to the GMV.

Great. Thanks. Just as a quick follow-up if I may. Should we expect the same pace of additional brand partners each quarter going forward from now?

We cannot back by for each quarter. But for the whole year I would say we would have much larger number than 2018.

Thank you. I’ll get back into queue.

Thank you.

Thank you, Billy. Your next question is from Alicia from Citigroup. Your line is now open. Please go.

Hi. Good evening, management. Thanks for taking my questions. I have one question. Could management elaborate a bit more on the growth target for the company? What could Baozun do more to help service the brand better that currently you are not already done so that your target and plan to achieve? And then if Baozun were to also plan to penetrate more into the domestic brands will eventually the margin profile for these domestic brands would that be higher or lower than the global brands? Thank you.

Thank you, Alicia, for the question. Vincent here. Yes you're right, we are actually with the investment in technology and logistics and digital marketing. Now we have multiple entry points to target the different clients including the domestic brands. And also not only it is entry point, but also we can deliver related services to these kind of brands to serve them better in different angles. So that gives a better position. Besides we can deliver a one-stop solution the first time but we can also do it one by one. A client can come to us just for logistics services and then we offer technology service to them and similarly to others. So for us right now we can -- for example, we can target a lot of domestic brands, which we didn't do a lot in the past with technology, because technology is the best part for solution for them and logistics maybe for the other group of potential clients. So, this strategy is very successful, and give us a lot of flexibility and the possibility in targeting new clients.

Yeah. About the margin, I think it's hard to say domestic margin -- device margin and the global brands margin; it really depends on the category and the product mix. And additionally with this moment when we talk about the service with the local brands, most likely we would utilize our technology and they're more into radio service or copper retention service to the local brands, which naturally increase the margin.

Thank you.

Thank you, Alicia. Your next question is from Eileen from Deutsche Bank. Your line is now open. Please go ahead.

Thank you, management for taking my questions. Congratulations on the strong 1st, January guidance. I have a question regarding our investment in R&D technology in the long-term. Is this -- we talked many times on the strategy around Azure [ph] and cloud and the overall warehousing technology. I'm wondering how do management view such investment in the long-term to support that -- can support our brand partners and our growth in the financial wise and also in the operation wise? Thank you. And a follow-up on the fourth quarter, same-brand growth rate if management can give that percentage that would be great. Thank you.

Okay. I will say something about the operation side first. Yes, for example, let me just talk about the technology side R&D. We believe that in the modern e-commerce online retail, technology plays a very crucial part to make business successful. So, we have to and we are doing so in investing heavily in technology. That is the truth. And this investment can return in two different directions. One way is that technology investment by doing the investment we can have a bunch of proprietary efficiency tools, automation tools to help ourselves in delivering a much higher efficiency than before. So that is -- can also help us in making -- to have a better profitability. The other way to do that is I just mentioned that by utilizing the new technologies, tools, products, cloud-based solutions, new retail initiatives, we can serve a lot more new clients, which we can't in the past, for example, a lot of domestic brands. So for the operation side, we invest in technology and the logistics and the supply chain to serve a broader base of potential clients. So that is about the operational and the strategic thinking. For the financials impact…

I will take the -- about the financial impact. As you see with the likely higher growth in the technology investment in 2018, we don't expect to have a significant growth in 2019. We'll be relatively slight flagged for the technology investment. So about your second question, are you asking about same-store growth? It's not clear for me.

Yes, this is just a housekeeping question. On the fourth quarter GMV growth, what is the same-brand growth rate? Thank you.

Okay. For the same-store sales growth, in overall we have 39%. If we excluded the 3C brand, which has been actively impacted in Double 11 and the first quarter, our growth would be 48%.

Thank you very much. That will be very helpful.

Thank you.

Thank you. Your next question is from Joyce from Bank of America Merrill Lynch. Your line is now open. Please go ahead.

Thanks, Robin. Robin, Vincent and Wendy, congrats on closing the year on a solid result. I have two questions. My first question is regarding the blended take rate, because we know, like, Robin mentioned, we are actually adding more and more fashion, cosmetics and FMCG brands. Should we expect branded take rate to improve year-over-year for 2019, given they are perceived as more profitable categories? And my second question is regarding the VAT, because based on the GMV -- distribution GMV and distribution revenue the company provided, we have seen the VAT rate since like declined over the past couple of quarters. And also, we know recently there are new policies like a decline in VAT rate. So I wonder what's the impact on our future financial results? Thanks for the…

Thank you. I think that's a question for me. About the take rates, I think, this is -- some multi-factors to affect the take rates, while -- see the numbers -- while you calculate the numbers in our income statement. So of course the major factor is category mix. You're right, when we acquire more clients from the higher take rate categories, we would have -- in average, we would take -- have a higher take rate. But it's hard to say quarter-by-quarter, or in the whole year maybe that's a trend. But in the quarter, because of seasonality in the product that we provided in each quarter is not very comparable. So, yes, in the whole year, we are confident and we have opportunity to improve our take rate. About the tax rate, there are some impacts on our bottom line, because there are some like tax incentives and tax cut from the government. And we also noticed for the VAT tax -- most of VAT tax reduction pass-through to the consumers, which just encouraging consumers to go -- to shop, which create the overall business conditions, but not in the bottom line.

Got it. A quick follow-up. May I get a -- may we get a sense like how much percentage or how many percentage of our sales marketing expense are actually related to our digital marketing business?

From the revenue side, because that's -- we have -- we booked both the revenue and the marketing expense. You can see -- you can do the small calculation. We are in the -- in the middle range, single digit of the revenue coming from digital marketing. And it's a lower margin and you can do a calculation for the marketing expense by yourself.

Got it. Thanks a lot.

Thank you, Joyce. Our next question is from Monica from Credit Suisse. Your line is now open. Please go ahead.

Hi. Good evening, management. Vincent, Junhua, Robin and Windy, thank you for taking my question. I have two questions here. Number one, regarding our guidance for first quarter, the revenue guidance is 36% to 41% growth, whereas the GMV growth is 55% to 60%. How can we think about the gap between the different growth rates? And what does this implied take rate means? And my second question is about -- we see the higher fulfillment cost in this quarter. And so what I understand, do we have plan to further increase our CapEx for this year and open more warehouses, given we are adding more and more brand partners? Thank you.

Yes, always right question. I think, the first one, we provide the guidance for both GMV and the revenue. Just as I mentioned, there are some seasonality issues like in each quarter and some -- or for example, for some certain brand maybe the product is pretty -- sell pretty good in the second quarter, so which cannot wrap the take rate up and down. And then secondly, from the GMV, we still -- we have data in the dispute and non-dispute in GMV so the take rate cannot simply calculate by the total net revenue divided by the GMV. So it is complex. So what's your second question? Kindly remind me, please.

Yes. Second question is regarding our CapEx plan and maybe more warehouse to add for this year?

We don't have CapEx plan for the -- for adding a warehouse this year. Q – Monica Chen: Okay. So do we have any plan to maybe open more warehouses? A – Robin Lu: No. I think we gradually increased our square feet in the warehouse in 2018 as I think in the -- in our plan I think that warehouse is in Napa, has produced. Q – Monica Chen: Okay, understood. Thank you.

Thank you, Monica. Your next question is from Chen Bi from CICC. Your line is now open. Please go ahead.

Hi. Good evening, Vincent, Robin and Wendy. Thank you very much for taking our question. Actually I have a follow-up question regarding our 2019 full year GMV guidance. We gave a quite strong 2019 GMV guidance with a relatively wide range of 40% to 55% -- to 50%. So could management share some logic or your assumptions behind this guidance like what are the SSG behind or the macro conditions we see behind the upper and lower end of this GMV guidance? And what we see from those new brand contributions we expect under the blue or under the bear case? And for the upper side or for the blue case of this guidance, do we include the contribution from the leading sportswear brand that we mentioned before? Thank you very much. A – Robin Lu: Yes, I mean when we make the estimate, we do take the uncertainties of the macroeconomics into consideration especially in the lower end. And we don't include -- I mean the -- we don't include the sportswear brand in the -- in our current forecast.

Okay. Thank you. A – Robin Lu: So that answered your question?

Yes. Actually could Robin share with us like the SSG assumption behind our upper side and the lower side of the guidance if we may ask? A – Robin Lu: Yes. I mean as I said, we have some couple of factors to affect our forecast. So first one, we have a very strong pipeline in our brand acquisitions which means we will have a bigger percentage of the new brand contribution in our GMV in the foreseeable future. And then we will take into consideration about the macroeconomic issues which we are not experts on that, but we do put the factor into the estimate in some certain -- in the overall brands.

Okay. Thank you, Robin.

Thank you. There are currently no more questions in queue. [Operator Instructions] We have a follow-up question from Joyce from Bank of America Merrill Lynch. Your line is now open. Please go ahead. Joyce, your line is now open if you would like to ask a question. Q – Joyce Ju: Just wanted to have a follow-up on our technology investment because we recently saw a PR article from another call service provider and talking about like SaaS service jointly provided with Baozun. Could you just give us more colors in terms of like what kind of technology service we want to expand and if in the near term or like in the midterm if we have any revenue yes guidance or like any cost guidance in terms of this like technology initiatives? Also I just want to double check, Robin you mentioned the flat technology cost that means a percentage of GMV or it's absolute numbers? Thank you.

Okay. Thanks for the question first. Let me talk about the technology and the directions a bit and then Robin maybe can give more on the financial side. Baozun's technology offering right now is quite comprehensive. One direction is to serve ourselves to get a better operational efficiency. So in the past, a lot of job has been done by men in work. But right now, a bigger part -- bigger and bigger part has been done by automated tools and technologies. So, for example, the daily operation of a store will include a lot of tech processing, image processing, upload and also other processing, customer service, a lot of this kind of functions. Right now, each of the building blocks, I just mentioned, is more and more rely on a computer based software, a SaaS based socialized different software to support the operations. So, this gives us a very good support to deliver better efficiency. Secondly, this kind of tools can also serve non-Baozun clients. I mean, not existing clients. They can serve to a broader base of clients. We are delivering these kind of services to clients by cloud based, SaaS based software platform. So that is about efficiency part. The other part is the enabling part, including the website system, including the new retail system. This kind of system is enabling our clients to setup their online stores and also connect their online-offline omni-channel connectivities. So, we have already upgrade almost all kinds of our software offerings to a modern -- more modernized software structure, including cloud based, including SaaS technologies. So, this give us a much better manageability and transparency to us and also to our clients. So that is about technology part.

Yeah, about the -- I mean, the percentage-wise about the investment -- or investment in technology over GMV, so you recall in 2018 the major driver to -- I mean, the major driver in the growth of the technology investment is the technology-focused personnel we hired. And after Q4, we think the size is now for us to grow our technology tools and to guarantee our growth. So, we don't have plan to have aggressive talent acquisition in 2019. In this work we -- I mean, for the numbers, I mean, Q4 numbers is benchmark for the whole 2019 year. And from the percentage-wise with the growth of GMV, I think the percentage will be lower than the growth of GMV at least.

Many thanks.

We also have another follow-up question from Alicia from Citigroup. Your line is now open. Please go ahead.

Hi. Thanks for taking my follow-up. I actually have kind of follow-up questions on the margin strength, the direction for the full year. So, any additional investment that we need to be aware of, such as the area in the digital marketing spend that could affect margin's trends. So any colors on the directions in terms of, let's say, the first half versus the second half trend would be helpful. Thank you.

Yeah, I mean, we grew up our digital marketing from middle of 2017 and we think you know, that will not add more further in our marketing percentage. But as you say, digital marketing itself is a profitable business, with lower margin for this certain stage. So, when you look at the net margin in 2019, I think in the first half year we may -- for the net margin we may take the flight as the same period a year ago, but we do have a great opportunity to improve our margin in the second half of the year, because with more new brands coming in and more services we provide to existing brands, we will have a better margin.

Okay. Great. Thank you.

Thank you. There are currently no more questions in queue. I would now like to hand the conference back to your speakers today for their closing remarks.

Thank you, operator. In closing, on behalf of the Baozun management team, we would like to thank you for your participation in today's call. If you will require any further information or have any interest in visiting us in China, please let us know. Thank you for joining us today. This concludes the call.

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