Vipshop: Guidance Shock? No Worries, Buybacks to the Rescue

Before the U.S. stock market opened on May 23rd Beijing time, Vipshop released its financial report for the first quarter of 2024. In summary, the performance for the current period is actually not bad, but the guidance for the next quarter is somewhat weak or overly conservative. The detailed points are as follows:

1. Increase in Average Order Value Maintains GMV Growth: In this quarter, Vipshop's GMV increased by approximately 8% year-on-year, although it slowed down significantly compared to the previous quarters, it still slightly outperformed the industry growth rate, and slightly exceeded the already low expectations. The performance can't be considered bad.

Breaking down by price and volume, the number of orders and active users of Vipshop decreased by 3% and 1.6% respectively this quarter, showing a slight contraction. Objectively speaking, this is not ideal. However, driven by user purification and the increase in the proportion of SVIP customers, the 12% year-on-year increase in average order value still maintained the growth of GMV. Moreover, coupled with a significant reduction in marketing expenses, the decrease in users seems more like a proactive contraction by the company in unfavorable weather conditions.

2. Revenue is not ideal, but gross profit matches GMV growth: Although GMV growth is not bad, this quarter total revenue only increased by 0.4% year-on-year, while the market expectation was only 1.3%, the actual performance is still worse. Among them, revenue from product sales decreased slightly by 0.3% year-on-year, while revenue from other services increased by 13%. It can be inferred that the proportion of 3P business has increased.

Furthermore, Vipshop's gross profit this quarter was 6.5 billion, an 11% year-on-year increase. The growth in gross profit matches the GMV growth rate and also matches the situation of increased high-margin 3P business revenue. Therefore, the change in revenue structure resulted in a significantly lower revenue growth rate in the financial report, but did not affect the company's actual profit growth.

3. Savings in marketing expenses, operating profit slightly exceeds expectations: The main focus on expenses this quarter - marketing expenses were 690 million, while in the previous quarter and the same period last year, expenses were both over 800 million. The market therefore expected expenses to be 850 million, indicating that after realizing the headwinds and clothing demand, the company proactively reduced its investment. Therefore, with the decrease in marketing expenses, the decrease in monthly active users, which was a concern, no longer looks so bad. Even with reduced marketing investment, Vipshop's core user base remains stable enough to drive the company's steady growth.

In terms of other expenses, fulfillment expenses as a percentage of revenue this quarter remained relatively high at 7.2%, an increase of 0.7 percentage points compared to the same period last year, indicating a relatively high rate of returns and exchanges.

In the end, the actually not bad GMV growth translated into a decent increase in gross profit, coupled with the company's flexible savings in marketing expenses, helped the company achieve an operating profit of 2.76 billion this quarter, exceeding expectations by 260 million.

4. Major Concern: Looking ahead to the second quarter, the company's revenue guidance is in the range of negative 5% to 0% growth, while the market's expected growth rate is +5%. There is a directional difference. After a challenging first quarter, the market was expecting an improvement in growth for the second quarter, but the actual guidance points to a worse scenario If the company did not intentionally lower expectations, the difference in guidance for the second quarter is basically indisputable, and it is also the biggest negative point of this performance meeting.

Dolphin Research Viewpoint:

Due to the cold weather in the first quarter in China, the market had already lowered expectations for Vipshop's 1Q performance. In actual performance, revenue slightly fell short (about 300 million less than expected). However, the GMV growth rate actually reached 8%, still slightly outperforming industry growth, and the slower revenue growth compared to GMV should be due to the increase in 3P revenue share and the impact of return rates. This reflects that the actual growth (GMV) is not bad, and after excluding the impact of changes in revenue structure, the growth rate of gross profit actually matches GMV.

In terms of operating data, the negative year-on-year growth in active users and order volume is indeed not good, and GMV growth is mainly driven by an increase in average order value. However, in the case of user purification and an increase in the proportion of super VIP customers, it is a reasonable medium- to long-term trend for average order value to rise. Moreover, the significantly reduced marketing expenses also show that the company has proactively reduced buying volume in unfavorable external conditions, making the decline in users more acceptable.

With the not bad growth in gross profit and the saved marketing expenses, operating profit exceeded expectations by 260 million.

Therefore, looking at the 1Q performance alone, the actual performance is not bad under already low expectations. The key issue lies in the revenue guidance for 2Q, which is a year-on-year decline of -5% to 0%. This is truly bad news for the market. However, it cannot be ruled out that the company intentionally lowered market expectations, which is also beneficial for the company's buyback.

In terms of shareholder returns, the company repurchased $0.12 billion in the first quarter, which is basically insignificant. However, the company claims to repurchase at least $5 billion in 2024, corresponding to a return rate of approximately 5.5% of the current market value. Assuming the company also pays $2.5 billion in dividends in 2024, the total return rate would reach 8.3%, which is quite substantial.

However, based on the experience of the past few quarters, the company's willingness to repurchase shares when the stock price is relatively high (such as above $16) is not high. Therefore, with weak performance, low guidance, and a stock price correction, the company may be more willing to intervene to support the stock price through buybacks, presenting a relatively high certainty opportunity.

Below are the detailed financial report:

I. Reduction in users, increase in average order value to maintain GMV growth

This quarter, Vipshop's GMV increased by about 8% year-on-year, although it slowed significantly compared to the previous quarters, the original market expectations were not high, and the actual growth still slightly outperformed the industry benchmark, not very poor, and higher than the market's expected growth rate of 7%.

According to the company's previous communication, the main reason for the growth slowdown this quarter was the cold weather, leading to poor sales of spring clothing. On the price-volume driving factors, Vipshop's order volume in this quarter decreased by 3% year-on-year, contrary to market expectations of a 3% positive growth.

This quarter, Vipshop's quarterly active users also decreased by 1.6% year-on-year, with a net decrease of about 700,000 people. The decrease in monthly active users explains the negative growth in order volume.

Despite the year-on-year decrease in order volume, GMV still showed a good growth, driven by a significant increase in average order value.

This quarter, the average order value reached 294 yuan, a 12% increase year-on-year. It can be seen that since the second quarter of 2023, Vipshop's average order value has been on a clear upward trend. We believe that the increase in the proportion of SVIP users and better return and refund services are driving this trend.

Secondly, while revenue seems weak, gross profit matches the growth in GMV.

Although GMV growth is decent, revenue growth is not satisfactory. This quarter, total revenue only increased by 0.4% year-on-year, lower than the market expectation of 1.3%. Among them, revenue from product sales decreased slightly by 0.3% year-on-year, while revenue from other service-related sources increased by 13% year-on-year.

In fact, there has been a persistent difference between the company's GMV and revenue growth since last year, which is likely due to the gradual increase in the proportion of 3P channels and the rise in return rates after the increase in SVIP proportion.

In terms of gross profit, this quarter the company achieved a gross profit of 6.5 billion, an 11% year-on-year increase, indicating that the growth in gross profit is broadly in line with the GMV growth. Over the past few quarters, there has been a fluctuation of around 3 percentage points up and down around the GMV growth rate. In other words, the slowdown in revenue growth on the financial report due to changes in revenue structure does not affect the company's profit growth

Three, Marketing Expenses Saved, Operating Profit Exceeds Expectations

The main highlight from a cost perspective is that marketing expenses were 690 million, while expenditures in the previous quarter and the same period last year were both over 800 million, with market expectations reaching 850 million as a result. Just in this item alone, an additional profit of 160 million was saved. Furthermore, the previously "eye-catching" monthly active users decreased, and with a significant reduction in corresponding marketing expenses, it no longer looks as bad. At least it indicates that even with reduced investment in acquiring new users, Vipshop's core user base remains stable enough to drive the company's steady growth.

In terms of other expenses, this quarter's fulfillment expenses as a percentage of revenue still remained relatively high at 7.2%, an increase of 0.7 percentage points from the same period last year, implying a high rate of returns and exchanges.

Despite the lackluster revenue growth on the financial side, the actual decent growth in GMV translated into a respectable increase in gross profit, exceeding expectations by about 200 million. Additionally, facing unfavorable weather conditions and a decrease in clothing demand, the company flexibly reduced marketing expenses, saving another 160 million.

Therefore, the company achieved an operating profit of 2.76 billion this quarter, exceeding expectations by 260 million. The net profit after deducting other non-operating income and expenses was 2.32 billion.

Dolphin Research on Vipshop in the Past:

February 29, 2024 Conference Call " Vipshop: Not Pursuing High Growth, but Gradually Increasing Dividends "

February 29, 2024 Financial Report Review " Expensive Clothes in Cold Weather, Vipshop Lives Up to "Small and Beautiful" "

November 14, 2023 Financial Report Review " Vipshop: Don't Be Misled by Thunder, There's Gold to Be Found " November 15, 2023 Conference Call "Vipshop Minutes: Double 11 Double-Digit Growth, Net Profit Margin Space Higher Than Gross Profit Margin"

August 18, 2023 Conference Call "Vipshop: Return Rate Will Continue to Be Relatively High"

August 18, 2023 Financial Report Review "Vipshop: Intense Competition Among Giants, Has the Sweet Period of Being Small and Beautiful Passed?"

May 24, 2023 Conference Call "Vipshop: Cautiously Optimistic about Repair in the Second Half of the Year, Increased Investment in New Customer Acquisition Will Lead to Growth"

May 23, 2023 Financial Report Review "Vipshop: Small and Beautiful, Better Than Large and 'Declining'?"

February 24, 2023 Conference Call "Vipshop: Not Participating in Intense Competition, Doing Well as Small and Beautiful"

February 23, 2023 Financial Report Review "Will Vipshop Have Its 'Renaissance'? Will Spring Come for Vipshop?"

Risk Disclosure and Statement of this Article: Dolphin Investment Research Disclaimer and General Disclosure