Vipshop Reports Unaudited Third Quarter 2017 Financial Results

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PR Newswire

GUANGZHOU, China, Nov. 20, 2017

GUANGZHOU, China, Nov. 20, 2017 /PRNewswire/ -- Vipshop Holdings Limited (NYSE: VIPS), a leading online discount retailer for brands in China ("Vipshop" or the "Company"), today announced its unaudited financial results for the third quarter ended September 30, 2017.

Third Quarter 2017 Highlights

Total net revenue for the third quarter of 2017 increased by 27.6% to RMB15.3 billion (US$2.3 billion) from RMB12.0 billion in the prior year period.
The number of active customers^[1] for the trailing twelve months ended September 30, 2017 increased by 22% year over year to 60.5 million from 49.6 million in the prior year period.
Total orders^[2] for the third quarter of 2017 increased by 23% year over year to 74.0 million from 60.1 million in the prior year period.
Gross profit for the third quarter of 2017 increased by 19.4% to RMB3.5 billion (US$526.0 million) from RMB2.9 billion in the prior year period.
Net income attributable to Vipshop's shareholders for the third quarter of 2017 was RMB338.1 million (US$50.8 million), as compared with RMB342.9 million in the prior year period.
Non-GAAP net income attributable to Vipshop's shareholders^{^[3]} for the third quarter of 2017 was RMB559.8 million (US$84.1 million), as compared with RMB595.5 million in the prior year period.

Mr. Eric Shen, chairman and chief executive officer of Vipshop, stated, "We saw healthy growth in our total active customers for the trailing twelve months ended September 30, 2017, which increased to over 60 million. Importantly, our core categories continue to demonstrate robust growth, adding hundreds of domestic and international fashion brands to our portfolio in the past quarter. We remain committed to enriching our offering, including opening up our marketplace business, which will continue to improve our user experience."

Mr. Donghao Yang, chief financial officer of Vipshop, further commented, "In the third quarter of 2017, our topline came in at the high-end of our guidance range, increasing by nearly 28% year over year. Our efforts to manage existing and new users are bearing fruit, as demonstrated by the improved stickiness and customer loyalty across our platform."

Recent Business Highlights

In the third quarter of 2017, Vipshop added three local warehouses in Taiyuan, Hohhot, and Hefei, China, totaling approximately 32,000 square meters and bringing the Company's total number of local warehouses to fourteen as of September 30, 2017. The Company added approximately 23,000 square meters of warehousing space for its cross-border business, including new locations in Australia, France, and the United States. For its regional logistics hubs, approximately 150,000 square meters of warehousing space were added. As of September 30, 2017, Vipshop has approximately 2.4 million square meters of total warehousing space, of which 1.5 million square meters of warehousing space is owned by the Company.
During the third quarter of 2017, Vipshop delivered 98% of its orders through its proprietary last mile network, up from 90% in the prior year period. Around 72% of customer returns were collected directly by Vipshop's last mile staff, which represents a significant increase from 50% in the prior year period.
In the third quarter of 2017, the Company's average revenue per customer increased by 11% year over year, which was primarily driven by the 4% year-over-year increase in average ticket size and 7% year-over-year increase in the number of orders per customer.
Vipshop began to roll out its Super VIP Paid Membership Program to all customers in the third quarter of 2017. The average visiting frequency of customers who enrolled in the program increased by almost 100% after such customers started paying for the membership.
Vipshop is connected to the inventory management systems of more than 500 of its suppliers. In the third quarter of 2017, the Company's daily average SKUs online was 3.2 million, representing a significant increase from 1.2 million in the prior year period.
Vipshop recently added a number of popular domestic and international brands to its platform, including Diesel, Marc Jacobs, Sergio Rossi, Shanghai Tang, and Peuterey.
In October 2017, Vipshop's Internet finance subsidiary completed its second offering of Renminbi-denominated asset-backed securities ("ABS") of RMB500 million, which is listed on the Shanghai Stock Exchange in China.
During the third quarter of 2017, Vipshop's consumer financing business had 3.8 million users, which was an 146% increase from 1.5 million users in the prior year period.

Third Quarter 2017 Financial Results

REVENUE

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Total net revenue for the third quarter of 2017 increased by 27.6% to RMB15.3 billion (US$2.3 billion) from RMB12.0 billion in the prior year period, primarily driven by the growth in the number of total active customers and average revenue per customer.

The number of active customers for the third quarter of 2017 increased by 15% to 23.8 million from 20.8 million in the prior year period. The number of total orders for the third quarter of 2017 increased by 23% to 74.0 million from 60.1 million in the prior year period.

GROSS PROFIT

Gross profit for the third quarter of 2017 increased by 19.4% to RMB3.5 billion (US$526.0 million) from RMB2.9 billion in the prior year period. Gross margin was 22.9% as compared with 24.4% in the prior year period, primarily attributable to investment in promotional activities for market share gain, which is balanced by reduced spending in the Company's broader marketing efforts.

OPERATING INCOME AND EXPENSES

Total operating expenses for the third quarter of 2017 were RMB3.2 billion (US$474.1 million), as compared with RMB2.5 billion in the prior year period. As a percentage of total net revenue, total operating expenses decreased to 20.6% from 21.2% in the prior year period.

Fulfillment expenses for the third quarter of 2017 were RMB1.7 billion (US$251.6 million), as compared with RMB1.0 billion in the prior year period, primarily reflecting an increase in sales volume and number of orders fulfilled. As a percentage of total net revenue, fulfillment expenses were 10.9% as compared with 8.5% in the prior year period, primarily attributable to the Company's expansion to support an increase in the last mile business outside of the Vipshop platform.
Marketing expenses for the third quarter of 2017 were RMB478.4 million (US$71.9 million), as compared with RMB641.5 million in the prior year period. As a percentage of total net revenue, marketing expenses decreased to 3.1% from 5.3% in the prior year period.
Technology and content expenses for the third quarter of 2017 were RMB455.0 million (US$68.4 million), as compared with RMB374.5 million in the prior year period, reflecting the Company's continuing efforts to invest in human capital, advanced technologies, and its Internet finance business. As a percentage of total net revenue, technology and content expenses decreased to 3.0% from 3.1% in the prior year period.
General and administrative expenses for the third quarter of 2017 were RMB546.6 million (US$82.2 million), as compared with RMB500.6 million in the prior year period. As a percentage of total net revenue, general and administrative expenses decreased to 3.6% from 4.2% in the prior year period, primarily attributable to the Company's improved efficiency due to its greater scale.

Income from operations for the third quarter of 2017 was RMB448.2 million (US$67.4 million), as compared with RMB528.8 million in the prior year period. Operating margin was 2.9% as compared with 4.4% in the prior year period.

Non-GAAP income from operations^[4], which excludes share-based compensation expenses and amortization of intangible assets resulting from business acquisitions, was RMB703.2 million (US$105.7 million) as compared with RMB732.0 million in the prior year period. Non-GAAP operating income margin^[5] was 4.6% as compared with 6.1% in the prior year period.

NET INCOME

Net income attributable to Vipshop's shareholders for the third quarter of 2017 was RMB338.1 million (US$50.8 million), as compared with RMB342.9 million in the prior year period. Net margin attributable to Vipshop's shareholders was 2.2% as compared with 2.9% in the prior year period, primarily attributable to decreased gross margin and increased fulfillment costs due to the Company's investment into its logistics business outside of the Vipshop platform. Net income attributable to Vipshop's shareholders per diluted ADS^[6] was RMB0.56 (US$0.08) as compared with RMB0.58 in the prior year period.

Non-GAAP net income attributable to Vipshop's shareholders, which excludes share-based compensation expenses, impairment loss of investments, and amortization of intangible assets resulting from business acquisitions and equity method investments, was RMB559.8 million (US$84.1 million) as compared with RMB595.5 million in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders[7] was 3.7% as compared with 5.0% in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS[8] was RMB0.91 (US$0.14) as compared with RMB1.00 in the prior year period.

For the quarter ended September 30, 2017, the Company's weighted average number of ADSs used in computing diluted income per ADS was 627,678,468.

BALANCE SHEET AND CASH FLOW

As of September 30, 2017, the Company had cash and cash equivalents and restricted cash of RMB3.7 billion (US$556.6 million) and held-to-maturity securities of RMB230.3 million (US$34.6 million).

For the quarter ended September 30, 2017, net cash used in operating activities was RMB0.4 billion, and free cash flow^[9], a non-GAAP measurement of liquidity, was as follows:

For the three months ended
	Sep 30, 2016 RMB'000	Sep 30, 2017 RMB'000	Sep 30, 2017 US$'000
Net cash from (used in) operating activities	649,556	(359,678)	(54,060)
Add: Impact from Internet financing activities^[9]	450,106	503,416	75,664
Less: Capital expenditures	(830,470)	(719,081)	(108,079)
Free cash flow in (out)	269,192	(575,343)	(86,475)

Free cash flow trailing twelve months ended

	Sep 30, 2016 RMB'000	Sep 30, 2017 RMB'000	Sep 30, 2017 US$'000
Net cash from operating activities	3,634,113	904,849	136,000
Add: Impact from Internet financing activities^[9]	1,603,278	2,903,516	436,402
Less: Capital expenditures	(3,844,400)	(2,690,145)	(404,332)
Free cash flow in	1,392,991	1,118,220	168,070

Business Outlook

For the fourth quarter of 2017, the Company expects its total net revenue to be between RMB22.8 billion and RMB23.8 billion, representing a year-over-year growth rate of approximately 20% to 25%. These forecasts reflect the Company's current and preliminary view on the market and operational conditions, which is subject to change.

Exchange Rate

This announcement contains currency conversions of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars are made at a rate of RMB6.6533 to US$1.00, the effective noon buying rate for September 29, 2017 as set forth in the H.10 statistical release of the Federal Reserve Board.

Conference Call Information

The Company will hold a conference call on Tuesday, November 21, 2017 at 8:00 am Eastern Time or 9:00 pm Beijing Time to discuss its financial results and operating performance for the third quarter of 2017.

United States:	+1-845-675-0438
International Toll Free:	+1-855-500-8701
China Domestic:	400-1200-654
Hong Kong:	+852-3018-6776
Conference ID:	#3299529

The replay will be accessible through November 29, 2017 by dialing the following numbers:

United States Toll Free:	+1-855-452-5696
International:	+61-2-9003-4211
Conference ID:	#3299529

A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://ir.vip.com.

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