Vipshop Reports Unaudited Third Quarter 2017 Financial Results

GUANGZHOU, China, Nov. 21, 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

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:

Free cash flow trailing twelve months ended

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.

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

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.

About Vipshop Holdings Limited

Vipshop Holdings Limited is a leading online discount retailer for brands in China. Vipshop offers high quality and popular branded products to consumers throughout China at a significant discount to retail prices. Since it was founded in August 2008, the Company has rapidly built a sizeable and growing base of customers and brand partners. For more information, please visit www.vip.com.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as Vipshop's strategic and operational plans, contain forward-looking statements. Vipshop may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Vipshop's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Vipshop's goals and strategies; Vipshop's future business development, results of operations and financial condition; the expected growth of the online discount retail market in China; Vipshop's ability to attract customers and brand partners and further enhance its brand recognition; Vipshop's expectations regarding demand for and market acceptance of flash sales products and services; competition in the discount retail industry; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in Vipshop's filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Vipshop does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Use of Non-GAAP Financial Measures

The unaudited condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), except that the consolidated statement of shareholders' equity, consolidated statements of cash flows, and the detailed notes required by Accounting Standards Codification 270 Interim Reporting ("ASC270"), have not been presented. Vipshop uses non-GAAP net income attributable to Vipshop's shareholders, non-GAAP net income attributable to Vipshop's shareholders per diluted ADS, non-GAAP income from operations, non-GAAP operating income margin, non-GAAP net margin attributable to Vipshop's shareholders, and free cash flow, each of which is a non-GAAP financial measure. Non-GAAP net income attributable to Vipshop's shareholders is net income attributable to Vipshop's shareholders excluding share-based compensation expenses, impairment loss of investments, and amortization of intangible assets resulting from business acquisitions and equity method investments. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS is computed using non-GAAP net income attributable to Vipshop's shareholders divided by weighted average number of diluted ADS outstanding for computing diluted earnings per ADS. Non-GAAP income from operations is income from operations excluding share-based compensation expenses and amortization of intangible assets resulting from business acquisitions. Non-GAAP operating income margin is non-GAAP income from operations as a percentage of total net revenue. Non-GAAP net margin attributable to Vipshop's shareholders is non-GAAP net income attributable to Vipshop's shareholders as a percentage of total net revenue. Free cash flow is the operating cash flow adding back the impact from Internet financing activities and less capital expenditures, which include purchase of property and equipment, purchase and deposits of land use rights, and purchase of other assets. The Company believes that separate analysis and exclusion of the non-cash impact of share-based compensation, impairment loss of investments and amortization of intangible assets adds clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses these non-GAAP financial measures for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measures are useful supplemental information for investors and analysts to assess its operating performance without the effect of non-cash share-based compensation expenses, impairment loss of investments, and amortization of intangible assets. Free cash flow enables the Company to assess liquidity and cash flow, taking into account the impact from Internet financing activities and the financial resources needed for the expansion of fulfillment infrastructure and technology platform. Share-based compensation expenses and amortization of intangible assets have been and will continue to be significant recurring expenses in its business. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company's net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. One of the key limitations of free cash flow is that it does not represent the residual cash flow available for discretionary expenditures. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Vipshop Holdings Limited Reconciliations of GAAP and Non-GAAP Results" at the end of this release.

Investor Relations Contact

Vipshop Holdings Limited
Millicent Tu
Tel: +86 (20) 2233-0732
Email: IR@vipshop.com   

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