Good day everyone, and welcome to Vipshop Holdings Limited First Quarter 2016 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.

Thank you, Operator. Hello everyone and thank you for joining Vipshop's first quarter 2016 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 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 anticipates, believes, continues, estimates, expects, intends, is/are likely to, may, plan, should, will, aim, potential, or other similar expressions. These forward-looking statements speak only as of today 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 Chairman, Chief Executive Officer and Co-Founder; and Donghao Yang, our Chief Financial Officer. At this point, I would like to turn the call over to Mr. Eric Shen. Shen-zong?

Good morning and good evening everyone. Welcome to our first quarter 2016 earnings conference call. Our first quarter results once again showed strong power of our platform to attract and to retain customers and suppliers. Active customers and total orders continue to grow at the year-over-year pace north of 50% and pushed our top-line to reach over RMB12 billion for the quarter. Now, after several quarters of testing and adjusting our process for balancing profitability and customer acquisition growth with marketing and promotions, we feel we have improved control between these competing levels and issued experienced more stable growth going forward. Focusing on our market opportunities, in this highly fragment discount retail segment, we have only just began to sketch the surface by leveling our growing expertise and the footprint, as well as procurement and the logistics capabilities, we aim to expand and target new users in wider age group. These users often have different fashion demands through our Big Data; our buyers can better customize our recommendations for each of these users with a wider range of merchandize. It will enable us to grow our current space of just over 50 million total users and the target largest segment of China’s 400 million plus online shoppers. We also aim to further expand our penetration of existing suppliers as well as adding new ones through both of these means, we aim to further grow the discount to retail space and to consolidate market share throughout China. Looking ahead, our focus remains on top-line and customer growth. We will achieve this by offering our customers a nice shopping experience from product discovery to deliver to be more exactly by spending selection, ensuring quick and consistent delivery times, and providing friendly after sales services, which includes a painless return policy. Our discount retail offering remains unique in the Chinese market and we have built a deep mode to protect our core business. Once again, we are committed to our robust growth strategies and are confident in the future prospect of our company. 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 the financial results.

Thanks, Eric, and hello everyone. We are pleased with our first quarter 2016 financial results. As Eric mentioned, during the first quarter, we continued to achieve strong growth in revenue, active users, and total orders, even as we have been focusing our efforts on growing our top-line and expanding our market share, we were able to further strengthen our operating margin to 4.9% from 4.6% in the prior year period, our non-GAAP operating income margin to 6.3% from 6% in the prior year period. The continued growth of our operating margin and stability of our gross margin demonstrates the tremendous operating leverage inherent in our business model and reflects our ability to reinvest earnings into propelling growth while maintaining healthy margins. During the remainder of 2016, we will continue to focus on our growth strategies through increasing investment in promotional activities and marketing initiatives, while maintaining stable profitability. As we announced in our previous earnings call, we have recently launched a financing program for customers in order to boost customer spending, after several years of operating a successful financing program for suppliers. As of March 31, 2016, the total balance of credit outstanding to customers was approximately RMB570 million and our total balance of credit outstanding to suppliers was RMB488 million. We have introduced our consumer financing program to help us further increase stickiness and enhance the overall customer experience while boosting the average spend per customer. And the strategy behind our supplier financing has always been to strengthen our supplier relationships and secure more preferred inventories which in turn translates into increasing the order volume and improving the customer experience. Recognizing the rising concerns and associated risks of internet finance, we implemented strong credit check and risk assessment systems from the instruction of both the supplier and consumer financing…

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Mr. Binnie Wong from Merrill Lynch. Please ask your question.

Hi, good evening, Donghao, Eric, also Millicent. Thank you so much for taking my question. So on the 2Q growth all of here it implies a stable revenue growth rather than usually a deceleration of from a higher base sequentially. Was wondering if this is reflected a full quarter impact of the 419 promotions, given lack of promotion may cause a natural reduction of demand after most promotional event. And also in relation to the growth strategy, we thought that the order size actually come down this quarter apart from seasonality, how should we think about that it’s related to a mix shift for younger customer which buying less buying may be a smaller ticket size, how are we going to improve this metric, and basically I heard you monetize big per user. And lastly it’s just a housekeeping question on the geographical breakdown by city tier in terms of the GMV or orders. Thank you. Thank you so much.

Well, let -- okay, thank you Binnie for your questions. Let me take your first question and Shen-Zong will take the other two. So the -- our guidance for Q2 has already taken into consideration the full impact of the April 19 promotion on the quarter.

[Foreign Language].

[Foreign Language].

So Binnie thanks for the question. The ASP came down this quarter year-over-year due to several reasons, some Eric mentioned that year-over-year the cross-border contribution was one factor, obviously cross-border tends to have a lower ticket size. And then the other factor is the increased contribution from beauty and cosmetics products during the quarter and then the other factor would be the -- we had seen that for new customers that born in the 90s is increasing quite significantly. So to give you some example in this quarter almost 45% of new users were born in the 1990s but that number was about 30% in the first quarter last year but we’re not too concerned about this situation actually should be a good sign, it shows that a company is able to attract younger consumers and we found that these younger consumers after one-year their average ticket size is able to be improved by about 12% to 15%. [Foreign Language].

[Foreign Language].

Overall we feel confident that the average ticket size in the future can be improved. So Eric just mentioned that after the government introduced note and new tax reform policy, we had seen the average ticket size for this business actually increase by about 17%. And the other thing is, yes, during the quarter beauty and cosmetics contribution increased a bit but we do not anticipate that percentage to move that much further, we would continue to focus on shoes, handbags, and apparel. So the other questions on the new customer spending which Eric just talked about, we feel that we are able to improve the average ticket size after one-year being with the company.

[Foreign Language].

The geographical breakdown has not changed much Tier 1 and Tier 2 combined account for about 51% whereas the other 49% comes from Tier 3 and 4. There is one percentage of shift between Tier 3 and 4 but that’s not very much noticeable.

Okay. Thank you so much. This is very clear. Thank you it’s very helpful. Thanks.

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

Hi, gentlemen this is Chao Wang calling on behalf of Chi. Just wondering like what you can comment on the macro impact and also comment on the competitive intensity for the customer growth?

[Foreign Language].

[Foreign Language].

Overall, I mean the general commodity consumption in China is a bit weak but we are actually not seeing this slowdown in consumption in our key categories which is apparel, handbags, and shoes, we’re still experiencing very stable growth in our business and what’s more, we are in a discount retail industry. So we should be able to fare relatively well in the current macro weakness and we still feel there are lot of opportunities in the market share gain.

[Foreign Language].

[Foreign Language].

[Foreign Language]

[Foreign Language].

So we’re still able to and at least seeing some good growth in our new users and in particular since last Q4, we made some structural changes in our marketing strategy and that kind of shift has been proved very effective. So we would have been able to grow in our new user base.

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

Hi, good evening Shen-zong, Donghao, and Millicent. Thanks for taking my question. I have just one question to may be Shen-zong on the overall strategy down the road and I think you made some comment on the prepared remarks that we actually been figure out the balance between the revenue growth and marketing promotion expenses. And our aim is to actually more stabilize growth going forward. I was wondering like any color you can provide on how do we -- how can we understand the stabilized growth going forward like what kind of our satisfactory target that we can talk about in the next couple of years. [Foreign Language].

[Foreign Language].

So Evan just for the benefit of others, I quickly summarize what Eric said just now. So the top priority is top-line growth. Having said that the company still would like to maintain certain level of profitability why we are reinvesting some of that. And overall the business is growing healthy, steadily, and even in Q1 you saw that the gross margin came down a bit but actually that was largely due to the smaller contribution from the other net revenue line because the marketplace net GMV in the quarter was much smaller compared to the same period to last year. And then the other thing was cosmetic contribution was increasing a bit compared to the same period last year. Therefore the gross margin came down a bit. So we still feel we are able to find a good balance to control, I think the profitability at the same time reinvesting for top-line growth.

[Foreign Language].

So as Eric mentioned in his opening remarks that we actually started to tap into the market. There are a lot of opportunities lying ahead. In particular in the B2C market our current expectation is that we’re probably about 4% of the B2C overall market and if there are opportunities, it enable us to grow and increase our market share faster to probably 8%, 6% by all means we go for it. So the emphasis is top-line growth.

[Operator Instructions]. The next question comes from the line of George Meng from Goldman Sachs. Please ask your question.

Hey good evening management. Thank you very much for taking my question. I have a question regarding your cash flow and also the Internet finance part of your business. I understand it's you're not treating that as a separate business. But just want to understand, for example, on the consumer side, what's the adoption rate and also in terms of risk assessment of what's the state deferral rate or any of those recent metrics that you can share with us. And also I think Donghao you mentioned that RMB570 million outstanding balance at the end of the March for the consumer finance product. But just wondering what percentage of that balance is actually the interest-free part and what percent is actually bearing our interest, because I think basically your consumers can actually get interest-free basic lying for almost two-month right. And also I think this is the first time you actually give us a breakdown of the Internet finance impact during the quarter. So about RMB310 million in this quarter I think that's a delta of the outstanding balance of the two things, but can you also give us a breakdown of how much of this RMB310 million are from the consumer side and then the remaining I suppose should be from the supplier side. And also on the supplier side, what's the current adoption rate in terms of the supply chain financing and what's your target going forward. And finally, I think related to that, do you have any plan to may be leverage external financing our resources rather than just use your own balance sheet. Thank you very much.

I’m trying to take note and trying not to miss any of those questions. Well let’s start with your Internet finance questions; you have at least five of them. So the first one the default rate. So the default rate for both the supply financing and consumer financing are extremely low and actually as of today, we have never booked any default for the supplier financing product. For consumer financing, the delinquency rate over 90 days is actually 0.5% and default rate should be even lower than that. We just officially launched our consumer financing product December last year. So we still need more time to understand the actual default rate. But so far the default rate has been extremely low. So your second question RMB570 million consumer financing balance. What I can tell you is the majority of that balance is interest rate because we’ve just launched this consumer finance product just recently for about less than six months. So what we’re trying to do is to acquire as many new customers as possible and also the main purpose of our consumer financing initiative is to increase our consumer spending and to grow our core retail business. So we don’t really focus on making a profit on the consumer financing products. And your third question the delta RMB310 million in our cash flow actually the supplier, the balance of the supplier financing actually came down. If you compare the ending balance of end of last year, end of Q4 last year, and end of Q3 last year. So the consumer financing the delta of consumer financing was actually bigger than that RMB310 million. And your next question external financing need. Well the total balance of our both supplier and consumer financing products is still very, very small as and…

Operator?

All right. Your next question comes from the line of Eileen Deng of Deutsche Bank. Please ask your question.

Hi, Donghao, hi Millicent. This is Eileen. Forgive me if this question has been answered before. For management just I have to quantify each of the components of the active free cash flow of this quarter? And also what is the -- this quarters CapEx related too? Thank you.

Well, what do you mean by specifying the each item of the cash flow. Well I’m sorry I don’t quite get that question, go ahead.

What’s the reason of an active free cash flow and can you quantify each of the impact?

Well, the thing is clearly listed in the table as part of our earnings release starting from net cash from operating activities, we have some cash outflow.

Yes I understand.

I’m sorry, I don’t quite follow you.

Can I just make my question more cleared? May be first of all for management just comment on why the -- our operating cash flow level is so low compared to historical levels. And second one is that our CapEx is relatively actually is higher than what we see from the operating cash flow. So what is this CapEx related to?

All right. So the majority of the CapEx was related to warehouse expansion programs and we spent like close to RMB400 million on our -- on the construction of our warehouses and about RMB90 million on land and about RMB140 million roughly on the equipment related to our warehouse expansion.

And why do you see the operating cash flow is more than historical?

Yes we just talked about that. In Q4 we were on big promotions. So we saw significant increase in our top-line growth -- in our top-line in Q4. But our account payable days are usually 30 to 40 days. So we paid a lot of cash for the account payables that we had accumulated in Q4. So that’s another reason why our operating cash flow was not as good as Q1 and in 2015.

Your next question comes from the line of Rob Lin from Morgan Stanley. Please ask your question.

Good evening Shen-zong, Donghao, and Millicent. Thank you for taking my questions. This is Julia from Morgan Stanley. We noticed from our third-party data source that there is a healthy traffic growth trend quarter-to-date, especially a meaningful pick-up in March and also resilient performance in April. Do you see a similar trend and could you give us any color on quarter-to-date traffic and sales trends, and do you see any -- issue for example for best seller items? And secondary, regarding the change only 1,000 people, 1,000 interface project. May we ask how many user parameters have we added recently. For example besides age, address, male/female, et cetera and any update have initiated this quarter and going forward, and do we see improved conversion? And lastly, can I ask a follow-up question on the Internet finance business. Could you may be quantify a -- help us to quantify the financial impact on -- the financial impact of the consumer and the supplier financing on other revenue and costs, and also the profitability of the Internet finance business especially for the supplier finance? Thank you very much.

[Foreign Language].

[Foreign Language].

So rather than talking very specific numbers, I think qualitatively, Eric, we are saying that we believe the trend in the remaining part in Q2 and even Q3 and Q4 should be resilient and good. [Foreign Language].

[Foreign Language].

So, yes, we started to implement personalization webpage as last year. And it has been there effective from a few angles. So number one we found that the personalized webpage is able to increase the sales by about 15% per cohort and then the other metrics that we’re tracking the conversion rate is actually improving and we believe that conversion improvement trend will continue in the future.

[Foreign Language].

So the parameters include the age profile, the geography allocation whether that you will actually the browsing history, the view page, and the shopping cart histories. So all these would give us traces and notes -- input in order bits and pieces information together the profile of a customer. So we will continue to make progress on this front.

Okay. Let me take your question on the consumer supplier financing business. So our supplier financing business is profitable. We’re currently charging about 8% to 9% annual interest on our loans to our suppliers. But again the impact on our financials to income statement is very, very small because the business itself is very, very small. And consumer financing still a loss-making business, we just officially launched it December last year and majority of the loans that we extend to our consumers are still interest-free but in the future, we will definitely charge interest on our loans for consumers. But the consumer loans do help with our core retail business as we have found out that those customers who use our financing support or product tend to buy 30% more in each order. So basically the average basket size would increase by more than 30% for those customers who use our consumer loans. So as I said earlier the main purpose for financing our business is to support our core retail business.

[Operator Instructions]. Your next question comes from the line of Sean Zhang from 86Research. Please ask your question.

Shen-zong, Donghao, and Millicent thank you for taking my question. Let's go back to user growth. You recorded 53% user growth in the quarter; I think that's still very solid. Can give us some of your updated strategy for how to grow or how to continue to grow user going forward and how we should model this user growth going forward. And may be in terms of category breakdown, may be can you give us what’s the percentage were for apparel, cosmetic, cross-border ecommerce, and their relative growth if that's possible? And a similar question will be, in my model I saw the repaying rate of the old customer that we had in Q4 was in Q1 that was 62%. So it's lower than previous quarters, besides seasonal factor what are other reason that should help us model this line with the trend for this repaying rate going forward? Thank you.

[Foreign Language].

[Foreign Language].

Okay. So Sean for the benefit of others, I quickly summarize. So you saw in the quarter, we had actually acquired a big number in terms of users which is RMB7.4 million. And actually as we emphasized earlier, user growth is our top priority. We have been diversified into a lot of marketing channels including more personalized marketing, leveraging on our branding and going into new media and also launching different campaigns on TV as well. So as you can see we have been able to effectively optimize our brand -- our marketing strategy. And from the operational side, of course we continue to introduce and focus on high quality brand provided more savings in terms of pricing to consumers and now that we’re seeing different age groups of customers coming on our platform able to use much personalize the merchandise to attract and retain these customers.

[Foreign Language].

[Foreign Language].

Okay. Sean before we see it’s how you calculate perhaps we can follow with you after the call. But actually Eric is saying that retention rate; repeat purchase rate is the key metrics that we’re tracking actually Q1 is looking still pretty good. So I will follow-up with you after the call.

Your next question comes from the line of Natalie Wu from CICC. Please ask your question.

Hi this is Chu Hua on behalf of Natalie Wu. Thanks for taking my question. Actually I have three questions. The first one is what’s the trend do you see in the retention rate of new customers born in 1990s and what are their retention rate in one month and in three months. The second one is what’s the first difference between height of order and the average order size. My third question is that we noted that accounts receivable has increased significantly. I was wondering to how much extent is this related to your consumer finance? Thank you.

[Foreign Language].

[Foreign Language].

So the question on retention rate for the new customers born in the 1990s obviously the retention rates are lower compared to other age groups. But this has a lot to do with their lower spending power because of their age. And then the order size, Eric, on the call mentioned that after the new policy under changes on the cross-border in fact the average ticket size shown some significant improvement by about 17% and we believe that trend will continue going forward.

Your last question the ending balance of our consumer finance as of end of March quarter was RMB570 million.

Your last question comes from the line of Li Zhang from Citigroup. Please ask your question.

Hi, management, thank you for taking my questions. This is Li Zhang and I’m asking questions on behalf of Thomas Chong from Citigroup and my question is regarding quarter-to-date performance of royalty operations. So how does it look like from April to now in terms of the growth momentum of your revenue and the number of active customers et cetera and are they in line or ahead of the company’s expectations so far? And I have follow-up questions regarding the guidance. So we understand that company pushed some promotional events to 2Q this year where we noted that the sequential growth is not that strong and we calculate that the midpoint of 2Q guidance is around single-digit around 2% Q-on-Q based on our calculation. So we’re just wondering that does the guidance is too conservative from managed point of view or is there any other reasons behind that or maybe it’s based on the high base effect in 4Q last quarter? Thank you.

[Foreign Language].

[Foreign Language]. All right thanks for the question. Let me try to answer that. Well we do not disclose details about the operations or financial numbers about the current quarter except for our guidance. So our guidance reflects our current view, the performance of our Q2 and may subject to change.

All right. Well again thank you very much for attending our earnings call for our Q1 results and we look forward to speaking with you again on our next earnings call for Q2. Operator?