Vipshop Holdings Limited (VIPS) Q2 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Ms. Jessie Zheng, Vipshop's Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's Second Quarter 2026 Earnings Conference Call. With us today are Eric Shen, our 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 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 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 attributable to Vipshop's shareholders 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 second quarter 2026 earnings conference call. The second quarter presents a challenging retail environment defined by a customer who is not just value conscious, but highly selective across the [ multi midyear ] promotional landscape. Shoppers will intensely focus on clear utility and real value, prioritize essentials, meeting great cautions in discretionary categories like apparel, weighing on our near-term top line performance in this climate rather than chasing unprofitable value growth, we stayed true to our core value proposition, delivering a highly curated selection of high demand, deeply discounted brand products to our loyal customer base. While overall traffic was muted, our SVIP cohort served as a resilient anchor for our business. During the quarter, active SVIP grew by 8% year-over-year, driving 54% of our online spending, showing that as customers' budgets tightened, high-intent shoppers prioritized platform, offering trust, value, quality and service. At a strategic level, our 1P model gives us a differentiated edge by leveraging deep category expertise, we built greater trust with brand partners to the point where they actively adjust their merchandise allocation for our platform. For instance, closer collaborations with key partners in fashion apparel has helped buffer against the broad market [ weakness ]. This level of brand integration strength our moat and protect our core business. On top of this, our merchandising team has been moving quickly to align our product mix with more selective customers. We have sharpened our [indiscernible] along the core apparel and lifestyle essentials, matching our assortment to real life occasions to capture immediate demand. This targeted approach ensures that we always deliver a clear utility, recognized brand and compelling value. Our opportunistic sourcing strategy adds another layer of inventory flexibility as brand partners manage inventory in a softer market, we serve as a reliable off-price partner, locking in unique high-demand inventory at deep discounts. This reinforced our differentiated merchandise pipeline and fosters deep brand collaboration. At the same time, we continue to advance the repositioning of our exclusive Made for Vipshop line to drive stronger customer mind share and loyalty by raising product standard and aligning the seasonal launch closely with brand partners, we are seeing high quality halo products emerging [ likely ] conversion rate and support overall portfolio stability. As we kick off the upcoming season, we are pleased to see that our SVIP membership has hit the 10 million milestone. To continue the momentum, we have launched an integrated campaign paired with full collection and major upgrades to provide sales. At the core of this push, we have refreshed our signature slogan, dress the best for 70% less, which has long resonated deeply with our loyal base. To ensure we keep evolving alongside the modern Chinese shopper, we are refreshing our campaign reach to both younger and mature demographic while reinforcing enduring truth across every market cycle that shoppers consistently demand great high-quality fashion at unbeatable prices, grounding our mind share in smart value allowing us to double down on our off-price advantage, attract high-value shoppers and drive high-quality growth. Alongside our branding refresh, our customer engagement strategy focused on retention and lifetime value. The 70% less saving power our core apparel, delivering [ unprecedented ] price affordability that convince new shoppers, providing a tailored tiered service model to our SVIP allowing us to capture greater wallet share over time, making SVIP loyalty as a primary engine of operational stability and profitable growth. Turning to our technology road map. We are deepening AI integration across our business. On the customer side, our AI product suite is driving tangible results. [indiscernible] is steadily up. Integrate intelligent customer service with AI voice interactions and predictive capabilities is lifting conversion rate and AIGC has enabled faster discovery. Marketing remains our most impactful [ upgrade ] to date. Our upgrade AI marketing agent now enable optimized from placement planning to AIGC creative matching across the right channels. We see clear room for this integrated approach to further drive acquisition efficiency while improving customer quality. Operationally, we are scaling AI beyond individual tools into a unified secured intelligence layer across the business. We are already seeing early wins in supply chains, optimizations and daily operational workflows. Overall, we remain focused on disciplined execution today while building towards our long-term vision. While we continue to navigate near-term macro headwinds with caution, I have full confidence in our proven model, solid foundations and team. As we sharpen our merchandising, elevate the customer experience and scale technology, we are firmly positioned on our path back to sustainable growth. Finally, I would like to briefly cover Shan Shan Outlets, a key part of our omnichannel discount retail strategy. Since our acquisitions in 2019, we have driven disciplined expansion across emerging Tier 1, Tier 2 and the key cities. Today, Shan Shan has scaled from 5 to 22 operational outlets mall, becoming China's largest outlet chain by store count and maintain a top-tier position by total GMV. In the first half, Shan Shan Outlets continued its strong scale momentum with over 20% year-over-year growth, capitalizing on the value-seeking trend and the unique in-person shopping experience of online -- off-line retail. Looking ahead, we expect its business contributions to the group to increase steadily. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Thanks, Eric, and hello, everyone. In the second quarter, our top line came in at the lower end of our guided range, reflecting broad-based softening in consumer sentiment. Despite ongoing pressure, we maintained disciplined execution, which provides strong visibility into our operational trajectory, enabling us to preserve core operating profitability and margin health. As noted in our earnings release, our non-GAAP net income was temporarily impacted by a onetime withholding tax adjustment, which I will elaborate on shortly. Adjusting for this nonrecurring item, our underlying non-GAAP net profit remains solid with RMB 2.0 billion with a net margin of 7.9%, demonstrating our underlying profitability and the core cash generation remains fully intact. As Eric mentioned, quality, sustainable growth remains our core priority. While macro headwinds persist, we continue to focus on strengthening our competitive moat and strategically reinvesting to fortify our fundamentals for profitable and long-term expansion. During the first half, we distributed approximately USD 400 million to shareholders through a combination of cash dividends and share repurchases, reflecting the anticipated utilization of our existing authorization. The Board of Directors has approved a new USD 1 billion share repurchase program. This underscores our firm commitment to returning no less than 75% of our full year 2025 non-GAAP net income to shareholders, supported by solid business fundamentals and a resilient underlying cash generation. We remain fully confident in our capacity to achieve this capital return target. In addition, to unlock the value of our high-quality assets and optimize capital efficiency, we successfully launched 2 public REITs backed by 3 mature Shan Shan outlet properties, a consumer infrastructure REIT and a commercial REIT. This not only improves the quality of our outlet portfolio and the market valuation, but also creates a capital recycling loop that allows us to reinvest the proceeds from mature assets directly into disciplined expansion. We believe this model maintains our financial flexibility, while supporting the sustainable growth of our outlet business, driving asset revaluation and creating sustainable value for 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 renminbi and all percentage change a year-over-year change unless otherwise noted. Total net revenues for the second quarter of 2026 were RMB 24.7 billion compared with RMB 25.8 billion in the prior year period. Gross profit was RMB 5.8 billion compared with RMB 6.1 billion in the prior year period. Gross margin was 23.3% compared with 23.5% in the prior year period. Total operating expenses decreased by 2.4% year-over-year to RMB 4.5 billion from RMB 4.6 billion in the prior year period. As a percentage of total net revenues, total operating expenses were 18.0% compared with 17.7% in the prior year period. Fulfillment expenses were RMB 2.14 billion compared with RMB 2.11 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 8.7% compared with 8.2% in the prior year period. Marketing expenses were RMB 760.3 million compared with RMB 715.9 million in the prior year period. As a percentage of total net revenues, marketing expenses were 3.1% compared with 2.8% in the prior year period. Technology and content expenses were RMB 486.2 million compared with RMB 442.0 million in the prior year period. As a percentage of total net revenues, technology and content expenses were 2.0% compared with 1.7% in the prior year period. General and administrative expenses decreased by 17.5% year-over-year to RMB 1.1 billion compared with RMB 1.3 billion in the prior year period, primarily due to higher share-based compensation expenses for Shan Shan Outlets recorded in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 4.3% from 5.0% in the prior year period. Income from operations was RMB 1.5 billion compared with RMB 1.7 billion in the prior year period. Operating margin was 6.2% compared with 6.6% in the prior year period. Non-GAAP income from operations was RMB 2.0 billion compared with RMB 2.4 billion in the prior year period. Non-GAAP operating margin was 8.1% compared with 9.3% in the prior year period. Income tax expenses were RMB 3.3 billion compared with RMB 407.2 million in the prior year period. The increase was primarily driven by 2 items: The first one is the income tax expense of RMB 1.63 billion relating to the one-off investment gain recognized by Shan Shan Commercial Group, the original holder of the underlying assets, upon the issuance of commercial REIT, and the second one is accrued withholding tax expense of RMB 1.56 billion reflecting the withholding tax treatments of historical dividend distributions from Mainland China to Hong Kong regarding applicable policies on tax treaty benefits. Excluding the tax impact of this [indiscernible] and nonoperating items, the company's normalized the effective tax rate for the second quarter of 2026 remained stable year-over-year. Here, I would like to emphasize that our company has always operated and continues to operate in full compliance with applicable tax laws and regulatory guidelines. The withholding tax adjustment reflects adjustments of historical dividend distributions and expected to be settled in the third quarter. Going forward, the company will continue to accrue dividend withholding tax at the [indiscernible] for any onshore earnings allocated for offshore repatriation. This will increase the cost of direct onshore to offshore equity remittance. With this cash repatriation [indiscernible] in our broader capital structure [ toolkit ]. Net income attributable to Vipshop's shareholders increased by 189.1% year-over-year to RMB 4.3 billion from RMB 1.5 billion in the prior year period, primarily due to a one-off investment gain of RMB 5.79 billion from the listing of a commercial REIT. Net margin attributable to Vipshop's shareholders increased to 17.4% from 5.8% in the prior year period. Net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 8.82 from RMB 2.91 in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders was RMB 392.2 million compared with RMB 2.1 billion in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders was 1.6% compared with 8.0% in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS was RMB 0.80 compared with RMB 4.06 in the prior year period. As of June 30, 2026, the company has cash and the cash equivalents and restricted cash of RMB 29.9 billion and short-term investments of RMB 3.6 billion. Looking forward to the third quarter of 2026, we expect our total net revenues to be between RMB 20.3 billion and RMB 21.4 billion, representing a year-over-year decrease of approximately 5% to 0%. Please note that these forecasts reflect our current and preliminary view of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A.

[Operator Instructions] The first question will come from the line of Thomas Chong of Jefferies.

My question is about the consumer sentiment. Can management comment about how we are seeing the sentiment so far? And on that front, can you comment about the monthly revenue trend that we are seeing since April till now. Given that we are already like 2 months in the quarter, are we actually seeing our revenue hitting the low end or the high end of the guidance? And finally, can management comment about the second half outlook?

[Foreign Language]

[Interpreted] Okay. In terms of the general consumer sentiment, we find consumers are not particularly enthusiastic. They are actually not buying into everything. They are very value seeking, and they're very budget-conscious, and they're very selective. So as we enter into Q3, across our sector, we continue to observe pressure quarter-to-date from July to August. So we do see some recovery in terms of sales momentum, but it's only slightly better. It's far from being good. So that's why we think that for the second half and for the full year, we may see a similar consumer sentiment as we have seen in the first half. That will bring our total revenue for the full year to be slightly negative from last year.

Our next question will come from the line of Alicia Yap of Citigroup.

[Foreign Language] I have a question on the operating income. We noticed that it seems that there is -- the operating margin seems to be declining on a year-over-year trend. How should we be thinking about the gross margins, operating expenses and also operating margin trends for the third quarter and the fourth quarter?

[Foreign Language]

[Interpreted] In terms of operating margin, we do see a slight decline year-over-year for Q2 that's primarily because we see certain level of deleverage from fulfillment expenses, which is increasing proportionately as return rates are still going up. Actually, when we look at our GP margin, it's flattish and it's even growing, which implies that we have a strong management on managing the gross margin and the gross profit. In addition, we do see certain operating [ leverage ] from fixed cost and expenses as the revenue scale become smaller due to macro pressure. But overall, we expect operating margin will continue to be quite resilient given our structural cost and expense discipline. So for the second half for Q3 and Q4, we are pretty confident in managing the structural health of our business. And as you look externally, you see a lot of the industry players actually investing in unprofitable subsidies. That's not what we are going to do. Our focus remains steadfastly on maintaining a healthy level of profitability and margin. So we do expect our margins, especially the NP margins will remain relatively stable for the second half

The next question will come from the line of Vicky Wu of CICC.

[Foreign Language] We've noticed an adjustment regarding the withholding part this quarter. Could management elaborate more on the reasons for this? And is this a result of a penalty imposed by the tax authority? Looking ahead, will this affect your plans for share buybacks and dividend payouts?

Okay. Thanks for your question. I am Mark. First of all, this is absolutely not. It's not a penalty. And the company is and has always been in full compliance with applicable tax laws and regulatory guidelines. And this adjustment represents a prudent step in the company's continuous enhancement of its compliance framework. Through a proactive reassessment aligned with prevailing best practice, we are mitigating compliance risk and providing greater tax certainty. This is not a compliance finding or penalty. And withholding tax on dividend is a transaction cost associated with capital mobility, not an operational expense. Our core operating margin and pretax cash flows remain fully intact. The company maintains multiple avenues to optimize offshore liquidity and the cash repatriation is just one of them. Accordingly, we anticipate an impact on our future net margin to be minimal. The company remains fully committed to our long-term shareholder return promise. Thank you.

The next questions will come from the line of Sardonna Fong from UBS.

[Foreign Language] I will translate myself. So congrats on the strong Shan Shan 2Q GMV growth performance of over 20%. What's management's outlook for the second half? And now that the 2 REITs have already completed their listing, what would be the pace of progress on the securitization of the remaining outlet projects that management can share? And lastly, on shareholder return, I noted that the company resumed buybacks in the second quarter and management also announced a new buyback program in August of USD 1 billion. How should we think about the level and pace of shareholder returns for the second half?

[Foreign Language]

[Interpreted] We are quite optimistic about Shan Shan Outlets' growth momentum. In the first half, Shan Shan Outlets grew by over 20% in terms of GMV. Actually, the first quarter turned out to be much better and followed by a very decent second quarter given the general soft consumer sentiment today. We continue to expect a similar growth momentum for the second half. And we do believe that over 20% GMV growth is completely achievable. And actually, we have higher standards for comparable same-store sales for the existing Shan Shan Outlets, which we believe will grow at least double digits.

Okay, Mark. And let me answer your second and third questions. Your second question is regarding the REIT status [indiscernible]. Well, on June 18, 2026, we successfully listed our commercial REIT on the Shanghai Stock Exchange. And the listing makes a significant strategic milestone for Vipshop, expanding our presence from customer -- from consumer infrastructure REIT into the broader commercial REIT arena. And the REIT with a total of RMB 7.7 billion, making the largest commercial REIT in terms of the fundraising scale among the first batch of commercial REIT listed on China's capital markets. There are 2 underlying assets, Shan Shan Outlets in Zhengzhou and Harbin in the commercial REIT, both mature outlets operating for around 10 years. Both outlets hold leading positions in their regional markets. The Zhengzhou outlet is the highest gross profit outlets in Henan province, while the Harbin outlet ranks first in Heilongjiang province. In addition to the 3 outlets already used as underlying assets for the REIT issuance, we also hold another 18 outlet projects, demonstrating strong potential for future expansion. We will conduct future evaluation based on our strategy and the market conditions. And your third question is regarding the buyback. Well, during the 2021 to 2025, we have already returned USD 3.7 billion to shareholders. Our long-term returns to shareholders is built on our strong business model and healthy cash flow. External factors may cause short-term volatility in our business. Our core operations manage to deliver stable and robust profitability across economic cycles. This [indiscernible] lets us keep providing sustainable returns to our shareholders over time. For 2026, we remain fully committed to our full year shareholder return policy, which targets total payout ratio of no less than 75% of our 2025 non-GAAP net income. And in first half, we have distributed approximately USD 400 million through dividend and buyback. Reflecting the anticipated utilization of our existing authorization, the Board of Directors have approved a new USD 1 billion share repurchase program. We will continue the buyback opportunistically in the quarters ahead.

Due to time constraints, that concludes today's Q&A 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, please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.

That concludes today's conference call. Thank you for your participation, and you may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]