Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited First Quarter 2024 Earnings Conference Call. At this time, I would like to turn the call to Ms. Jessie Zheng, Vipshop's Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's first quarter 2024 earnings conference call. With us today are Eric Shen, Co-Founder, Chairman and CEO; and Mark Wang, 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 US 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 statement in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this call to the extent any forward-looking statements may be made. Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income and non-GAAP net income per ADS are not presented in accordance with U.S. GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen.

Good morning and good evening, everyone. Welcome, and thank you for joining our first quarter 2024 earnings conference call. We had a slow quarter in terms of business momentum, but the profit grew much faster than sales. In the face of the shortfall of the top line, we stayed flexible to operate most effectively while focusing on priorities to enhance long-term strength. In the first quarter, sales growth moderated as the quarter progressed after strong start seasonal demand for spring coat was softer than expected in March. But for the first quarter, apparel category continued to stand out with double-digit GMV growth year-over-year. Customer spending proved resilient in the first quarter, active Super VIP members increased by 11% from a year ago and accounted for 45% of our online spending. That's a healthy indication of the trust, value and ease of the shopping we've created for them. We came into the year by responding to the change in customer behaviors and continuously refining our approach to navigate a still dynamic environment. All that we do centers upon increasing our apparel to customers beyond our existing base. We expand into what customers like and what makes us different. We provide great value that customers are looking for every day. On merchandise expansion, we continue to see plentiful supply in the industry, and we are happy with our access to quality brand inventory. We are building a wide-ranged assortment based on our broad and deep brand relationships, steadily flow of select national and global brands keep us up to date to provide more treasure hunting view for our customers. Our team's merchandising expertise really feel better brand portfolio with product mix at the range of discount levels. We remain dominant in our share of deep discount branded products even as consumers have…

Okay. Thanks, Eric, and hello, everyone. We are pleased to report another quarter of strong profit growth despite top line performance. In the first quarter, our team executed well, moving quickly in response to the dynamic operating environment to drive efficiency gains. As a result, margins all remain very healthy. More specifically, consolidated gross margin increased to 23.7% from 21.4% a year ago, primarily with help of higher-margin category mix from apparel sales. Non-GAAP net margin attributable to Vipshop's shareholders expanded to another record high of 9.3% from 7.5% a year ago, aided by our ongoing efforts to maintain operating discipline. As consumers remain body conscious and value driven, we were reinforcing our value proposition across our merchandise offering to deliver the affordability that better fits into consumer preference and we will focus on priorities to capture the growth opportunity we see with the brand partners and customers. We believe with solid fundamentals and a great financial positions, we are able to deliver quality growth, good profitability as well as consistent shareholder return for the long term. Looking to 2025, for the benefit of our shareholders, we plan to commit no less than 75% of our full year 2024 non-GAAP net income attributable to Vipshop's shareholders in discretionary share repurchase and/or dividend distributions. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers present below are in renminbi, and all the percentage terms are year-over-year terms unless otherwise noted. Total net revenues for the first quarter of 2024 increased by 0.4% year-over-year to RMB 27.6 billion from RMB 27.5 billion in the prior year period. Gross profit increased by 10.9% year-over-year to RMB 6.5 billion from RMB 5.9 billion in the prior year period. Gross margin increased to 23.7%…

Thank you. [Operator Instructions] Now we're going to take our first question and it comes from the line of Alicia Yap from Citigroup.

I have a question regarding the guidance. So just curious in terms of what the drivers and factors that you have been factored into your latest second quarter revenue guidance. Is that related to the demand has been a little bit sluggish or you actually factor-in a higher return rate. So any color you can provide in terms of how you see the second quarter trends and demand would be helpful. [Interpreted]

[Interpreted] Okay. For the Q2 guidance, we actually have factored numbers on to consideration. First, we had extended winter and also early summer, which actually shortens the window for apparel sales for spring closing. And the parallel sales, it really depends on the right timing, especially during a seasonal shift. And second, we faced a tough comp, a high base from the same quarter last year, which we really did very well that does not favor us. And third, we still have a very dynamic industry. So we focus on stabilizing our core business to maintain solid profitability. We have not invested in large-scale subsidies and marketing spend to acquire customers very aggressively. This has resulted in some loss of sales from customers for spring among different platforms. And lastly, the return rate you mentioned, yes, it's been up. It's primarily because of the higher contribution from our SVIP members, who are still growing very nicely and it also ties to our customer behavior who are used to -- who likes to reach an exchange when they shop among different e-commerce platforms.

[Operator Instructions] Now we're going to take our next question and the question comes from line of Ronald Keung from Goldman Sachs.

[Interpreted] My first question is I just want to ask, have we seen was the first quarter kind of softness mainly due to March. And then as we guide this 0% to minus 5%, are we basing this on April trends or are we expecting it's a base issue mostly for May and June, particularly the shopping festival on June 16 first of all into with last year. Second is on shareholder return. We've seen we've bought back around RMB 11.9 million worth of shares in the first quarter. But then the announcement as we're committed to up to RMB 500 million by the end of this year. Does that imply a significant step-up in the share buybacks in the remaining 3 quarters?

[Interpreted] On your first question, as for the quarter-to-date, sales momentum has been softer than expected, and we are doing our best to try to adjust the business and trying to execute right. And given the extended promotional season, it started this year, you start from May 20, it is going to last for 1 month, and it's quite different from the situation we faced last year. So we try to remain cautious about the sales momentum going forward, ending up and down. So we will be try to be conservative in terms of the outlook. And also, we will continue to be quite disciplined in our operations.

Okay. Thanks for your question for the second question regarding the shareholders' returns, okay? Let me answer you in this way, okay? We're committed to a long-term shareholder return policy, and we'll continue to use the combination of buyback and the dividend to provide shareholders with a relatively stable and the consistent annual returns. We have returned over USD 2.2 billion to shareholders since April 2021 in the form of buyback and dividend. For 2024, we have adopted an annual dividend policy and announced USD 250 million dividend. In addition, we are steadily buying back shares and are committed to repurchasing approximately USD 500 million by December 31, 2024. This implies that we will almost utilize the remaining amount of the existing USD 1 billion 2-year buyback powering by year-end. Furthermore, looking to 2025, for the benefit of our shareholders, we plan to commit no less than 75% of our full year 2024 non-GAAP net income attributable to Vipshop shareholders in discretionary share repurchase and our dividend distributions. All I mentioned about regarding the [indiscernible] records and the future planning shows our determination and insistence to return value to our shareholders in a long-term, stable and consistent way. I hope this answers your question.

Now we're going to take our next question. And the next question comes from the line of Eddy Wang from Morgan Stanley.

[Interpreted] So my first question is about the competition. As Shen mentioned that we have seen a more intensive competition from peers, especially in terms of the subsidy, the granted. So I understand in the short-term, we may stick to our current strategy. But if you take a relatively long-term view, will we also follow field this to be more aggressive like the subsidy strategy or we will continue to deter our current strategy. Secondly is the user side, we record a year-over decline for the user in the first quarter of this year. So just want to hear your view on your user growth, the strategy in this year and in the longer term. And the third one is about the AOV. So we see that AOV in this quarter actually increased on a year-over-year basis. So is this because of the proportion of the SVIP, the users coming up. So it will be as higher or any other reasons actually leads to a higher AOV in this quarter.

[Interpreted] So on the first question on competition. Actually, our strategy has been and will continue to be laser-focused on this branded discount retail. There are many e-commerce platforms nowadays, but each has its unique value proposition and our uniqueness lies in our capability to serve in the best interest of brand partners and to deliver better value to our customers. That's why we have so many loyal customers on our platform who have seldom leave us. And we will continue to broaden and deepen our relationships with more brand partners to bring in a steady flow of the right merchandise offerings to deliver value to our customers who are looking at brand quality and the product of entity, et cetera. And in terms of safety, we wouldn't want to follow our industry peers to blindly investing in large-scale subsidies. Of course, we will be prudently aggressive in customer acquisition, but we will continue to focus on acquiring high-quality customers. On your second question, in terms of the marketing spend, in Q1, we had a slight decline in active customers. That's because we have very strict requirements on LTV as long as it's higher than a certain level, we would stop investing in marketing spend. We realize that in the face of competition and especially in price competition, there are some customers who are more driven by subsidy or more price sensitive, they actually have want other platforms. But on the other hand, SVIP, the core customer base has been quite resilient. They're still growing at double digit in terms of customer base and their ARPU is still going up faster than the average customer. Having said that, entering into the sector of Q2, we will be a little bit more aggressive in terms of our current customers. After all, we want to bring more new customers to our platform, but only those who are high quality. So we will cautiously relax our restrictions in terms of our LTV to make sure we continue to acquire customers in an effective and an efficient way. And lastly, on the GMV per customer, the trend, actually, if you really look at the upward trend, that's more representative of the customer momentum. SVIP members are still gaining very good traction. As I mentioned earlier, their ARPU are growing faster than the average customers. And it demonstrated that as long as we serve our investor interest of our SVIP members, providing them move, the right merchandise offerings as well as best-in-class services, they will continue to shop with us and they will shop more and come more. So in the future, we will continue to drive the expansion of our SVIP customer base. We believe that our core customer cohorts are a very strong foundation for us to maintain quality growth as well as good profitability.

Excuse me, do we have any further questions?

No. Thank you.

Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Jessie Zheng for any closing remarks.

Thank you for taking the time to join us today. If you have any questions, please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]