Good day, everyone, and welcome to Vipshop Holdings Limited's first quarter 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 proceed ma'am.

Hello, everyone, and thank you for joining Vipshop's first quarter 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 fact we 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 Mr. Eric Shen, our Chairman, 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.

Good morning and good evening, everyone. Welcome to our first quarter 2015 earnings conference call. We are very pleased with our first quarter 2015 financial and operating performance, which once again showed stronger tale of our flash sale e-commerce biz model, and the success of our organic expansion and operating capabilities. Our impressive top and bottomline performance was largely driven by the strong growth in total active customers, repeat customers and the total orders, the growth of our customer base showed success of our strategy to improve the shopping experience and expand our product selection. We believe that by improving our mobile platform and expanding logistics capability, we will continue to offer our customer great shopping experience that keeps them coming back and spreading the growth. Additionally, mobile continues to be a strong growth driver, and we made great efforts in enhancing the shopping experience on mobile devices. Our investments tend to use big data to offer a easy to use and the personal experience for customer over mobile devices. We saw increased return from our investments in mobile, which accounted for 72% of our GMV as compared to the average of 33% in the China's online shopping market according to iResearch. Moreover, we have also made good and fast progress with our cross-boarding e-commerce business, which we started in the fourth quarter last year. In just one quarter we were able to grow this business by over 360% quarter-over-quarter. At this point, let me hand over the call to our CFO, Donghao Yang, so that he may discuss our trends to further improve our operating and the customer experience as well as financial results.

Thanks, Eric, and hello, everyone. We are very pleased with the first quarter 2015 financial results, which demonstrate how well our team continued to execute and deliver. With our expanding platform and improving operating capabilities, we are well-positioned in China, as we look towards the future. There are several key metrics that we believe reflect the growth and health of our business. They are, one, our platform expansion, demonstrated by the growth in our revenues as well as total active customers and repeat customers. And two, our operational expansion, demonstrated by our intense last-mile capabilities and warehousing capacity. Further improving these metrics are our top priorities, as they measure the progress of our strategic initiatives, which are to scale on product platform, increase engagements of customers and deliver a strong return for our investors. Looking at first quarter results, we are very pleased that we achieved clear and tangible progress in both of these areas. First, our expanding scale. The 100% revenue growth we delivered in the first quarter is a strong foundation to build upon as we move forward in 2015. Furthermore, total active customers continued on this path of steady growth in the first quarter, increasing by 75% year-over-year to 12.9 million. And we expect strong growth to continue in 2015, as we further expand our product offering and provide superior shopping experience to drive further customer growth. The total repeat customers also grew significantly at 89% year-over-year to almost 10 million. And the number of orders from repeat customers accounted for nearly 92% of our total order volume in the first quarter. We believe our success in this metric is intertwined with our initiatives to enhance the shopping experience for customers, especially on mobile devices. Second is our enhanced in-house last-mile delivery capability. Currently, approximately 70% of…

[Operator Instructions] Your first question comes from the line of Wendy Huang from Macquarie.

I have a few questions. The first one is about you warehouse expansion. Can you give us update on your warehouse expansion target by the end of this year? I think previously you guided this Q expanded to around 1.6 million square meters. And second, in terms of the cross-border e-commerce we are seeing lots of other peers doing very aggressively on this front. Can you provide your thoughts on that front? And lastly, if you can provide GMV contribution breakdown by cosmetic, home goods and baby maternities that would be helpful?

So Wendy, the first question is simple and short, so we remain to achieve 1.6 million square meters of warehouse capacity by the end of this year. As you know, that cross-border e-commerce is very popular here in China and Vipshop's is well prepared, and categories that were engaged in is very beautiful for these business. We started the cross-border e-commerce mid-last year, and we have already made meaningful and drastic progress in the first quarter of 2015. And Eric was saying that we already partnered with more custom support and negotiated partnerships with brands overseas and he expects to have a meaningful end-market growth in the not too long future. So Wendy, we do not disclose the GMV from baby and children wear, but we can tell you that cosmetic GMV is around US$265 million, up from US$249 million in the fourth quarter of last year.

Your next question comes from the line of Cynthia Meng from Jefferies.

I have one question for either Donghao or Eric. The third-party marketplace business is margin enhancing for your type of business model. How big can management envision this business will become for Vipshop in the long-term? Maybe three to five years, how big this business can be? Will that be still for imagery disposal kind of flash sales third-party business model or would you also be expanding into in-season? And then, if yes, how do you vision would be they differentiating competitive edge when compared to other e-commerce players like Alibaba and JD?

So Cynthia, maybe on the first part of question, Eric, is saying that we are now intentionally controlling the revenue contribution as a percentage to the GMV. And in the past few quarters it has been hovering around 10%. This is primarily to consider the user experience, which is met by new compared to that from the principal business. And as you have observed, the company has been investing very aggressively to expand our warehouse capacity, all of marketability, all of which is to improve the user experience overall, and imagining into that next three to five years, we anticipate marketplace percentage to be around 10%. The majority of categories on that marketplace are still primarily focused on mostly home goods, some highly standardized SKUs like [indiscernible], and we'll start opening in-season and out-season across that platform. So margin, obviously, from the marketplace is almost 100% contributing to profit, but we are trying to track the balance between profitability improvement and user experience.

Your next question comes from the line of Alicia Yap from Barclays.

I have a question. In your view can you share with us how far are we in terms of penetrations to the addressable user base, as we grow further into the lower-tier cities, any impact on the consumer behavior in terms of their knowledge on using smartphone for shopping, for navigating the page? So have you seen any change on user behavior in general as well for the demand for flash sales product?

So Alicia, Eric just mentioned that the entire online shopping population is now around 400 million. And given that we have just started accumulating users, so there is a lot of room for us to capture that opportunity. And user behavior on the mobile is we are seeing from changing too. In particular, flash sales, more usable product mobile devices, in terms of asset frequency, in terms of shopping, average ticket size and conversion rates, we are seeing better ratio of the mobile product compared to the PC.

Your next question comes from the line of Evan Zhou from Credit Suisse.

My question regarding the order size trend, you only make that -- I thought this quarter the order size actually being going pretty well. I'm wondering if it's due to any like category mix change or any impact from our user base that's causing that, how should we expect the trend going forward. And secondly, I think, another party -- I think, recently there is some third-party reports. I think the differences between our reporting numbers to the local SAIC versus the GAAP number, I'm wondering if you can share any colors and thought on that that would be a lot helpful?

Well, first question was about average order size. Yes, you are right. Our average order size went up pretty significantly in the past several quarters compared to 12 months ago for several reasons. One is the optimization of our customer mix. Starting from Q3 last year, we deemphasized our group by business, where we had less than ideal quality of our customers. By doing that we have been able to improve the overall quality of our customer behavior, including order size, frequency of purchases, as Eric has just mentioned. And another reason was the growth of our mobile business. As of the end of Q1 of this year, 72% of our business was actually coming from mobile users. And mobile users tend to have better consumer behavior, including again higher order size. Your second question about the short seller report from a firm called J Capital, regarding the financial discrepancy between AIC and HEC financials. While we've noticed that report, and that recent J Capital report contains very surprisingly ground-lift acquisition of our company. In particular, we note that the J Capital report allegedly cite to publicly available AIC financial files. But the alleged low consolidated AIC financial numbers, as provided by J Capital, actually deviate significantly from our public AIC files in all of the sited regions in the report. Because the J Capital report appears to have used data of questionable, unreliable or perhaps untrue sources that may confuse the public, we would usually not consider it justified with a response.

Your next question comes from the line of Binnie Wong from Merrill Lynch.

My question comes on the active customer growth. As we see this quarter is actually lighter than our topline growth versus like as we sometimes see in the past quarters, active customer growth tend to be stronger than our topline growth. Doest that mean like competition intensified? And also as we look at the marketing cost per new customer that's also increasing. So how should we expect this to by active customer growth marketing cost per new customer to trend into 2015?

So Binnie, just to summarize what Eric just said, as you mentioned that this quarter and year-over-year the total active customer growth rate is higher a little bit. This is largely due to the impact of the group buy channel. The percentage of group buys this quarter was much less compared to the same period last year. And as you can imagine group buys tends to has a lower ticket price, which is easier to acquire new customers. And however, not all quality of new customers are the same. But our main channel is very important for us, and by testament on that channel tend to have high value. So we decided to deemphasize the group buy business, but if we exclude the impact on the group buy for our main channel, net revenues orders, customers, year-over-year growth is very, very strong, which is all in line with overall net revenue growth. So we are not so concerned about the growth rate of new active customers, because our main channel is the most important channel for Vipshop. And one thing to add is that deemphasizing the group buy business drive up that ARPU, the average ticket size per customer, which is very good. In fact, the new active customer acquisition cost did not go up much compared to our last quarter. And going forward, we intend to aggressively invest in our marketing, and in particular target marketing to drive overall user growth.

Your next question comes from the line of Jin Yoon from Mizuho.

Donghao, in your prepared remarks you mentioned expanding capacity investing in IT and obviously the last mile, and operational efficiency that comes with that. Can you quantify in any way or any how, how these investments have led to certain operational efficiency, for example, like shortening inventory period times or faster fill times or faster delivery to the end user. Can you quantify how they transitioned over the last two years, that the amount of money that you spent, have kind of improved the lead time into the final delivery process?

Yes, you're right. We've done a lot of things in the past several years to try to reduce the fulfillment expenses, especially as a percent of revenue, so including warehouse expansion, acquiring last-mile delivery capability, and shortening the delivery time, and et cetera, and including the collocation initiatives and all that. Well, the impacts of those efforts and initiatives have been obvious. If you look at our fulfillment expenses as a percent of revenue, it has been consistently coming down in the past several years, but it would be pretty difficult for us to quantify the impact of each individual effort or initiative, but the total impact has been pretty obvious.

Your next question comes from the line of Chi Tsang from HSBC.

I have similar question. Wondered if you can give us an update on just your plans on consolidating some of your investing couriers, and relatively what the impact might be on margin after you do that?

Sorry, we actually can't hear you. Can you repeat your question?

My question was in the past you've mentioned that you're interested in your plans to consolidate some of the investing couriers in your network. So I'm wondering, could you give us an update on that? And also what the impact on margins might be after you do consolidate the investing couriers?

Well, exactly since early 2014, we have decided to be pretty aggressive in acquiring regional courier companies across the country, so, so far over 70% of our packages are being delivered by either our own delivery teams or our local courier companies where we have equity stakes. And also we're covering 29 provinces of the total 31 provinces in China, so we have made very significant progress in that regard. The impact on our margins of profitability from those acquisitions is very, very insignificant, so a lot of the courier companies that we have acquired have been our long term courier partners even before the acquisitions took place. So the overall cost of Vipshop haven't changed much, simply because of the acquisitions.

Your next question comes from the line of Tian Hou from T.H. Capital.

The question is related to your promotion. Normally, in April 19, since your IPO you would have those store-wide annual promotions, which made a big deal in the past time. And however, in 2014, you were like had 400% annual growth. However, this year we observed that April 14 promotion seemed like really didn't happen. And as the e-commerce company, I do think promotion is important. So I wonder, how do you see this? Is there any new strategy to put in place regarding your promotion strategies, so what is the rationale behind those changes?

Tian, as you mentioned last year, 19 April of was a huge and successful promotion for us, and this year we ran more promotions here and there, but did not spent in marketing to drive this promotion. With this super promotion, it does hurt our profitability and the company is after a high quality growth and high quality healthy margins. So obviously the company is balancing and trying to strike a good compromise between growth and profitability. And going forward in terms of big promotions, when and how to do it, I think we, set out on pace to redeem a profit rate. Just a few things to add in terms of the benefits of logistics and warehouse investments, a few tangible things to share with our analysts and investors, in terms of the delivery speed, obviously it is much faster compared to what it was by outsourcing to a third party company. And the level of engagement within our own staff with our end consumers has been enhanced, with more personal greetings, and we even now offer collaborative collection for the returned goods on the doorsteps. And in the past when the customers shipped their product back to our warehouses, usually the lead time is longer, but now with, at the doorstep return policy, we can refund the cash back to the customer then and there. So overall the user experience has been much improved.

Your next question comes from the line of Chao Wang from Nomura.

Just wonder, if I look at your PC revenues, it's down year-over-year. Just wondering, if it's a normal industry trend or you have intentionally deemphasized the PC business? And also of the new users how much is from mobile versus from PC?

So Chow, you're right, the PC growth rate is decelerating, but overall it's pretty much in line with what's happening in the entire industry, apart from maybe a few numbers, two or three companies, which are eager to maintain stable growth rate. Specifically everything did fall as -- and this is primarily due to the rapid migration from PC to mobile. We still have a large number of customers on the PC side. And in terms of the new customer spread between PC and mobile it's probably 25% from PC and 75% from the mobile devices.

Your next question comes from the line of Ida Yu from CICC.

And I do have a one follow-up question in regard to your warehouse. As your new warehouse in [ph] Chongqing just opened in February, can management share with us any operating data in terms of the size or average daily order profiles of some value-added services that you can provide to your brand partners going forward? And is there any impact on the margin going forward?

So Ida, yes, with the new warehouse in Chongqing, it was recently opened. And if relocate the majority of the activities from workshop to Chongqing, and at the moment we have around 200,000 square meters, which are new and the daily average order is between 120,000 to 140,000. In some cases, we can do better or can achieve a higher numbers. In other locations of our warehouses, we do offer some co-location or 3PL services, so we try our best to offer whatever value-added services possible to our brand partners.

The third-party logistic services that we are providing to our brand partners are actually not happening in the Chongqing warehouse, but instead the regional Foshan warehouse, which is also located near our Guangzhou headquarters.

Your next question comes from the line of Sean Zhang from 86Research.

My question is regarding your growth driver in the next three to five years. According to my model, I do see your furthermore cosmetic is only growing at 59% year-over-year. That means our apparel growing much faster than our total revenue probably over triple-digit. So can I assume going forward in the near future apparel will still be our main growth driver or growth leader in all the category. What's your percentage target in the long-term? I remember, you were telling out before that cosmetic will account for 15% to 20%, while apparel will account for 50% in the future, has that target changed when you look at the result? Just one follow-up on your CapEx plan, can you share with us your number on your CapEx plan for the future?

Let me take that question. Thank you very much Sean for having joined our call. Well, the next two, three, five years, we do believe that still the biggest growth driver would be apparel. As of today, about 50% of our total revenue is apparel. And of course, cosmetic is also growing very fast, but we don't give guidance as to how fast each of the product category will be growing in the future. Your second question, CapEx plan, for this year and probably in next year our plan is to spend around $200 million to $250 million on our CapEx, and most of the money will be spent on warehouse expansion -- for warehouse expansion.

Your next question comes from the line of Piyush Mubayi from Goldman Sachs.

With the broadening of the definition of active customers, how does that impacted relative customer as on a sequential basis, please? Also, what is the split in active customers between Tier 1 and Tier 2 China at this point? Is it close to the revenues split that you talked about a quarter ago? Second question, if I might ask is on your tax spend where you've written in this presentation about the fact that it's increased, spending is increasing this quarter as you're trying to improve predictive customer behavior. Could you shed color on how you envision this developing in the next couple of quarters?

We're trying to calculate the numbers to get to the answer to your question. To your first question, without the broadening of our definition of our active customer, in Q1 2015 our total number of active customers actually increased by 4.1% compared to Q4 2014, that's a Q-over-Q growth rate. And your second question, the answer is, yes, the customer mix between different tiers of cities is roughly very similar to the revenue mix among different tiers of cities. And your third question is about our development -- sorry, can you repeat your third question? Is it about developing our technology -- the improvement, sorry?

Is the data analytics that you've been spending money on in this quarter on the technology to improve predictive consumer behavior, I wanted to understand what's all changes, we could expect that kind of move investment potentially, and any other color that you could add in that area?

So on that side, we have been investing in that service. So on the personalization, customization part we have spent quite a lot of energy in this front. And we have seen some progress in terms of sales improvement due to this effort, but at the moment the improvement in sales by single-digit, and going to future it could be from single-digit to double-digit. We expect that kind of trend to continue. Obviously, cross-sell is more beautiful for personalization, because we're having different brands. We have a diversified customer base, which we have decided we'll continue to invest more aggressively in this regard.

Thank you, ladies and gentlemen. We have ran out of time for any further questions. I would now like to hand the conference back to the management team for closing remarks. End of Q&A

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

Thank you.

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