Ladies and gentlemen, good day everyone and welcome to Vipshop Holdings Limited's Fourth Quarter and Full-Year 2021 Earnings Conference Call. At this time, I'd like to turn the call to Ms. Jessie Fan, Vipshop's Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's fourth quarter and full-year 2021 earnings conference call. With us today are Eric Shen, our Co-Founder, Chairman and CEO; and David Cui, our CFO. Before management begins their prepared remarks, I would like to remind you that the discussion today will contain forward-looking statements made under the 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 a 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 reconciliations 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 to everyone. Welcome and thank you for joining our fourth quarter and full-year 2021 earnings conference call. We are delighted with our solid business performance in 2021. Despite a slow fourth quarter impact by the challenging external environment. For the full-year, total active customers increased by 12% year-over-year to RMB93.9 million GMV rose by 16% to RMB191.5 million. Notably, super VIP active customers grew by 50% to RMB6 million and that contributed 36% of online net GMV. Driven by steady growth in both customer base and average revenue per customer. Our total revenue for the year increased by 15% year-over-year to RMB117.1 billion. Non-GAAP net income for the year exceeded RMB6 billion and net margin remained about 5%. Our solid operational and financial performance was led by continuous business upgrade based on our strategic position, and as a discount platform for branded products at exceptional value. To further enhance our co competitors. During the second half of 2021, we focused more on core brands and high value customers to further strengthen our value proposition with them. Among many things, we rely and upgrade values channels on our platform to better empower brand partners and enhance shopping experience for customers. We are encouraged by the business synergy generate from them initiative. For example, multiple brands recorded their highest single day GMV in recent years during the super brand day, and today's top brands sales events. Many more brands came to us providing our customers with more unique and price competitive products. We are pleased to see that the contribution from core brands for the past year significantly improved from a year ago with their GMV growing faster than the overall GMV on our platform. Slew they are deepen their relationship with our brand partners, we were…

Thanks, Eric. Hello everyone. 2021 was the year of challenge uncertainty. Despite this, we achieve the solid performance. Thanks to our continuous efforts. In executing the merchandising strategy and refining operations. Our total revenue for 2021 increased by 15% year-over-year, driven by steady growth in both customer base than average revenue per customer. Although the fourth quarter came under some pressure. Net margin attributable to Vipshop's shareholders for the year remain resilient with sequential improvement in the fourth quarter due to discipline operation, evidenced by more prudent marketing strategy through integrated customer acquisition. Going forward, we remain committed to delivering steady profitability with quality top-line growth and creating long-term value to our shareholders. 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 the RMB and all the percentage changes are year-over-year changes unless otherwise noted. Total net revenue for the fourth quarter of 2021 was RMB34.1 billion as compared with RMB35.8 billion in the prior year period, primarily attributable to softer consumer demand for discretionary categories impacted by the micro economy and COVID-19 pandemic. Gross profit was RMB6.7 billion as compared with RMB7.8 billion in the prior year period. Gross margin was 19.7% as compared with 21.9% in the prior year period. Total operating expenses decreased to RMB5.0 billion from RMB5.4 billion in the prior year period. As a percentage of total net revenue, total operating expenses decreased to 14.6% from 15.2% in the prior year period. Fulfillment expenses was RMB2.2 billion, which largely stayed flat as compared with the corresponding period in 2020. As a percentage of total net revenue, fulfillment expenses was 6.4% as compared with 6.1% in the prior year period. Marketing expenses decreased to RMB1.1 billion from RMB1.7 billion in…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Thomas Chong of Jefferies. Please ask your question.

Hi, good evening. Thanks management for taking my questions. My first question is relating to the consumer sentiment that we're seeing right now. Can we comment about how it is different in Q4 and so far right now in Q1 because when I look at the guidance, it seems that is a negative 5% to 7% which is similar to the guidance in Q4. So just want to see if any changes in terms of our thoughts on macro headwinds. And secondly, I also want to get a sense about how we should think about the recovery momentum in Q2 and coming quarters. And then finally, that is more relating to competition, management comments about the live streaming online shopping competition in China and how it affects our business, any thoughts on how whether we can separate out or quantify the impact on competition and macro headwinds in 2022? Thank you.

[Foreign Language] In terms of the first question on consumer sentiment, actually we have seen that it's really weak in the fourth quarter to talk about the warmer weather as well as sporadic COVID-19 cases. And in the first quarter is getting slightly better, because of the weather is getting colder. But still we are naturally impacted by the COVID-19 cases here and there. So these analogies do play some role in our business performance, because we are pretty much apparel category focused platform. [Foreign Language] In terms of the recovery change in the coming quarter, it's really hard to predict for now, given the many uncertainties going on especially, we see that there are still cases of COVID-19 and it's still too early to tell whether the consumer trend is going whether when the consumption is coming back. But overall we should see a relatively stable growth for 2022. We don't expect too much swings in our business performance, it is going to be quite stable. [Foreign Language] In terms of competition, we haven't seen too much change recently. We believe it's getting relatively stable as we think that live streaming platforms, they have a take what they can take in the past from shelf space to e-commerce platforms. We didn't see our competition is getting worse. So we're actually not worried because as long as we get the right merchandising, merchandising for customers, they will always come to us. In terms of the impact of our macro and competition, it's really hard to quantify because you cannot predict reliably whether macro is going to play out. But on the competition side, we're pretty sure that the impact is already there.

Thank you.

Thank you. Our next question comes from Alicia Yap from Citigroup. Please ask your question.

Hi, good evening management. Thanks for taking my questions. I have a couple of questions here. The first one is a question related to the inventory status for the Winter Olympics merchandising. So have you been discussing with your brand partners or maybe your merchandising partners regarding the demand and the inventory situation? Do you see any opportunity that Vipshop can get some of this product that is kind of left over and given the timing do you think you will be benefit more for the Fall and winter season later in late 2022 or do you think there could be some winter clearance activity that you can leverage later in March or April promotion period?

[Foreign Language] In terms of the inventory related to Olympic -- Winter Olympic, we haven't seen a very strong buildup in such inventory. So we do see that both companies have been growing their business on our platform very fast in recent years. But they do not provide any dedicated inventory in terms of such as the scheme of both et cetera, we think that they have a normal level of inventory for footwear. So there is no anticipation that we are going to benefit from any excess inventories related to Winter Olympics.

Yes, thank you. Can I follow-up one question on user growth strategy, so can you elaborate what are the current plans that you're thinking in terms of to help to boost your new user acquisitions later this year? Thank you.

[Foreign Language] In terms of our user growth strategy, I think from the fourth quarter of last year, we have been acquiring quality users in a more efficient and effective way. We don't want to blindly spend money in all the channels to acquire low quality customers. Instead, we're trying to do it in a balanced and the prudent way through integrated customer acquisition. This year, we're going to continue to invest lot of efforts in acquiring new customers, but at the same time, we're going to improve the retention of our existing customers, we will maintain a decent level of marketing spend in new user acquisitions.

Okay, thank you, Jessie.

Alicia, I add a couple more things. Number one is we've seen a number of our Super VIP increased year-over-year. So that's one of the key indicators that are the quality of our customer base is getting better. And then we've also seen that our ARPU stabilized and have a slight increase actually starting last quarter. So we've seen that trend.

I see. Thank you, David for the additional color.

Thank you. [Operator Instructions]. And please ask your questions in English and Mandarin. Thank you. Our next question comes from Ronald Keung from Goldman Sachs. Please ask your question.

Okay, thank you, Shen and David. [Foreign Language] Thank you for taking my question. My first question is on gross margins. Fourth quarter traditionally a higher high margin quarter with apparel high apparel mix. So given this year is not the highest kind of quarter margin quarter. Just want to hear how are we thinking about the gross margin trends and the implications for 2022? My second question is as our business reaches more mature stage. We have a very strong net cash balance sheet, and a sizable earnings per share. We'd love to hear management's thoughts on whether there could be any potential plans even for rewarding shareholders like paying dividends? Thank you.

[Foreign Language] In terms of the gross margin, although Q4 is relatively lower level as compared to the full-year in the same quarter of last year. It's really because of the promotions and the subsidies we did during the quarter. But however, because -- the during the quarter as whether it was relatively warmer and it didn't effectively motivate consumers to spend more on winter clothing. So, the return on this marketing spend is not desirable, but the current level of gross margin is not something that we want for the long-term. We will gradually bring our gross margin to a more normal level in the coming quarters. You don't have to worry about the gross margin going ahead.

In terms of the cash use, as you know, we -- our board has approved a share buyback plan last year. So, we have executed partially in the last year. And given that we may put good profit in the year and then we still see a healthy profitability in the coming year in this year 2020. So, the board and the management is considering alternatives among the share buyback and distribution of dividends. So, it's within the process, and we're considering and evaluating the options right now.

Thank you, Shen and David.

Thank you. Our next question comes from the line of Natalie Wu from Haitong International. Please ask your question.

Hi, good evening. Thanks for taking my question. I have two here. First one is following up with Alicia's last question about the user acquisition. Can management elaborate more on your latest user acquisition strategy? For last quarter we can see that your sales and marketing is quite controlled especially considering the seasonal pattern. Just wondering any particular spending channel has been typically change branding performance and performance based that or whatever. And all kind of the sales and marketing budget you're preparing for this year to be more of an absolute number or fix the revenue ratio depending on the timing of the improvement of the economy or the consumer confidence. Just curious how shall we see the change? And the second one is related with your Super VIP. Just wondering what's the current percentage of your Super VIP and also the related growth profit margin profile contributed by them, because they have obviously have a higher pool, which is I think favorable to the gross profit margin maybe. But in the meanwhile they are enjoying a deeper discount show. Just it'd be great if management can share some color on that. [Foreign Language]

[Foreign Language] In terms of the latest update on user acquisition strategy, I think what we do differently from the fourth quarter is that we strictly follow the LTV model to evaluate the marketing efficiency of our spending and as well as days to how many days to recover in terms of new customers as well as existing customers. In the past, we tend to see it takes longer time for us to recover the spend on new customers. So we did less and for the rest in ecommerce, we tended to send out many coupons and did a lot of advertising, but it turns out not to be very effective. So we also did less on that front. In general, we apply this LTV model in all the channels including branding, as well as TV drama sponsorships as well as advertising on show videos et cetera. So, we actually did see some positive results from the fourth quarter. This year we are continue -- we will continue to use the LTV model to manage all our marketing spend in across different channels. We do not look at a certain absolute number of marketing spend as well as a certain percentage of the total net revenues. As long as the LTV model shows this is a healthy way to do to acquire customers we will keep doing so. So we are going to take this balance in the prudent approach to our marketing strategy. [Foreign Language] In terms of the margin profile for SVIP members. We've just mentioned the SVIP already accounted for roughly 36% of our online net GMV last year. In the future, we're going to continue to convert more high value customers into SVIP members. In terms of the gross margin SVIP members have a slightly lower gross margins than the overall level of our gross margin for the company and a slightly higher return rate. But SVIP proved to be spent much more than a non-SVIP member. So it is definitely a very profitable model for the company. And we expect as long as more high value customers are successfully becoming SVIP members, they tend to come to shop more and spend more.

That's very helpful. Thanks to Shen, David and Jessie.

Thank you. Our next question comes from Eddy Wang from Morgan Stanley. Please ask your question.

[Foreign Language] Thank you for taking my question. My first question is also about the inventory destocking. So you mentioned that for the men sports apparel, there is no inventory issue, but just want to ask if there's any inventories for the women's apparel or branded apparel, given the weak sentiments of the apparel in China since the second half of last year? And if that's the case, do we have any opportunity for destocking in the coming quarters? The second question is about if there's any plan for the category expansion on top of the apparel, given that apparel sentiments is quite weak and if we have more SVIP on our platform, so, we can meet their demands of a different category not just about apparel, if that is the case, what impact on the margin profile as a whole? Thank you.

Our sales -- first question, sales our business model is the sales of a consignment inventory. So majority of our business was done through consignment. So on our balance sheet, the inventory balance is quite small as compared to our total annual GMV. And you can also see the inventory balance is decreasing, thanks to our effort to clear some of our inventory. And to add some color to this, and amount the inventory balance quite a big portion of that is coming from of our shops and offline stores. So they have to carry some human trades. So pick up that and then the real inventory we carry for our online business is quite immaterial, I would say, yes.

[Foreign Language] Adding to David's point in terms of the inventory from non-footwear apparel, we do see some build-up in inventory from the fourth quarter because of the weather conditions as well as COVID-19 cases. It's going to be a good thing for us. But on top of clearing excess inventories for brands, we also customer product offerings with some of those core brands. So we're trying to secure the best supply from our brand partners. [Foreign Language] In terms of the category extension, or in the past way to really well in apparel related categories, but it's not enough to meet the diversified needs of strange of consumers. So we are really investing additional efforts in bringing more standardized products to our platform, such as for example, we've already viewed SVIP special store, we have a dedicated channel for standardized products, we have a very good cosmetic channel, we have the phone channel to attract a lot of consumers to come to us to look for unique offerings with competitive pricing to look for blockbuster standardized products, so we definitely going to increase our efforts on this front in terms of the gross margin for our products. Probably some of them may have a relatively lower gross margin but it is really helping expand our brand portfolio and especially improve customer stickiness and the repeat orders. So the increase in the proportion of standard products if any will have limited impact on the overall level of gross margin. And adding to that actually the conversion for standard products is actually higher than that of apparel related categories for the same amount of traffic. So that's something we'll look at this year.

Thanks.

Thank you. Our next question comes from Andre Chang from JPMorgan. Please ask your question.

[Foreign Language] I will ask the first question. So in this year of 2021, our capital expenditure is about RMB3.5 billion. So a little bit already half of that actually for Shan Shan. And then we also have some payments for completion for existing warehouses, which is in the work-in progress. And then also some upgrades of our technology in servers and the like. So that's pretty much the ballpark there's no additional other expenditures?

[Foreign Language] In terms of our expansion for Shan Shan outlets, actually the Shan Shan business is really doing very well. Although last year, same-store performance was relatively weaker because of the COVID-19 pandemic. But excluding that impact, the same-store performance is actually trending very healthy. We believe that offline outlets is going to present a large addressable market and is going to grow very fast in the next couple of years. So we're going to continue our expansion plan trying to add two to three offline outlets each year to capture the increasing consumer demand offline. We think this offline outlets business model is very solid, sustainable and very healthy for the long-term.

Thanks.

Thank you. Our next question comes from the line of Ashley Xu from Credit Suisse. Please ask your question.

[Foreign Language] Thanks management for taking my questions. The first question is about our strategy shift to focus on the core brands. Is there any impact on some user stickiness and purchasing frequency and my second question is related to the shipping and handling that we are seeing that per order expense is increasing both Q-on-Q and beyond, yes. Should we take this new level as a future reference? Is it to invite a structural trend in the industry? Thank you.

[Foreign Language] In terms of the customer behavior since actually the second half of last year especially from the fourth quarter, we began to focus more on core brands, we provide this the core brands with certain support in a time of a lot of uncertainties. So we do see many positive developments. For example, customers who attended the sales event in our Super Brand Day sales or today's top brand sales, they tend to have much higher retention rate than those customers who didn't have the opportunity to join this event. So that actually gave us very strong confidence to continue to focus on the core brand to provide our customers with good high quality merchandises with competitive pricing as long as we have the right brand supply for our customers, they will come more and spend more.

Yes, so we have been trying to improve our efficiencies over our fulfillment expenses, expenses over years. So, the more volume we can achieve and then the more efficiencies we can get. So, as you can see, the number of orders in 2021 has increased as compared to year 2020. So, also we try that includes, we try to find ways to improve our efficiency in the warehouses and then try to reduce the number of returns and exchanges as those will always affect the efficiencies. Having said out this, we have been trying this for years, and then we believe that we pretty much achieved, optimized efficiency and we should be able to find ways, but it is going to be limited in future, yes.

Great, thank you. 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-up, please don't hesitate to contact me. We look forward to speaking with you next quarter.

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