Vipshop Holdings (VIPS) Q2 2026 earnings call transcript

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 Security Intrigation 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 I'm not limited to, those outlined in our safe harbor statements in our early 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 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 merits to GAAP merits.

With that, I would now like to turn the call over to Mr. Eric Chen.

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-mid-year promotional landscape, shoppers will intensely focus on clear utility and real value. Prioritize, essentially meet great cautions in discretion categories like apparel, waging on our near-term top-line performance. In this climate, rather than chasing unprofitable value growth, we stayed true to our co-value proposition, delivering a highly creative select of high demand, deeply discounted band 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 customer budget tightened. Second, high intent shoppers prioritize platforms offering trust, value, quality, and service. At a strategic level, our 1P model gives us a distant edge. By leveraging deep category expertise, we build greater trust with brand partners to the point when they actively adjust their merchandise allocations for our platform. For instance, closer collaborations with key partners in Fashion Apparel has helped offer against the border market awareness. This level of brand integration strength our mode and protects our co-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 creation along the co-apparel and lifestyle essentials, matching our assortment to rare life occasions to capture immediately demand. This target approach ensures that we always deliver a clear utility, recognized brand, and compelling value. Our opportunities sourcing strategy adds another layer of inventory flexibility. As brand partners manage inventory in a softer market, we serve as reliable off-price partners, locking in unique, high-demand inventory at deep discounts. This reinforces our differentiated merchandise pipeline and forced deep-brand collaborations. At the same time, we continue to advance the repositioning of our exclusive made-for-Vipshop line to drive stronger customer mindshare and loyalty. By raising product stand and allowing the seasonal launch close with brand partners, we are seeing high-quality, hello products emerging, lifting convention rates 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 are launched an integrated campaign pair with four collections and the major upgrade to provide sales. At the core of this push, we are refreshing our signature slogan, Dress the Best for 70% Less, which has long risen deep 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 reinforced in dealing through across every market cycle. That shoppers consistently demand great high-quality fashion at unbeatable price, grounding our mindshare 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 focuses on retention and lifetime value, real 70% less, saving power our call apparel, delivering present supplies affordability that convents new shoppers, providing a tailored service model to our SVIP along us to capture greater wealth and value. We have a lot of wallet share over time, making SVIP loyalty as a primary engine of operational stability and the profitable growth.

Turning to our technology roadmap, we are deeping AI integration across our business. On the customer side, our AI product suits is driving tangible results. Virtual try-on is steadily up. Intelligent customer service with AI voice, interactions, and predictive capabilities is lifting conversion rate, and AIGC enables faster discovery. Marketing remains our most impactful app case to date. Our upgrade AI marketing agent now enables optimized from placement planning to AIGC creative matching across the right channels. We see clear room for this integrated approach to further drive acquisitions efficiency while improving customer quality. Operationally, we are scaling AI beyond individual tools into a unified, secured, intelligent layer across business. We are already seeing early win in supply chains, optimizations, and daily operational workflows.

Overall, we remain focused on this print execution today while building towards our long-term vision. While we continue to navigate near team Michael Hedwin with caution, I have full confidence in our proven model, solid foundations, and team as we sharpened our merchandising, elevate the customer experience, and scale technology. We are firmly positioned on our pace back to the sustainable growth.

Finally, I would like to brief cover Shanshan Outline, a key part of our Omni channel discount retail strategy. In our acquisitions in 2019, we have driven disciplined expansion across emerging Tier 1, Tier 2, and key cities. Today, Shanshan has scaled from 5 to 22 operational outlets more, becoming China's largest outlet chain by stock count, and maintained a top-tier position by total GMV. In the first half Shanshan Outlets continued its strong scale momentum with over 20 year growth capitalizing on the value trend and the unique in shopping experience of offline retail Looking ahead we expect its business contributions to a 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 softening in consumer sentiment Despite ongoing pressure, we maintain disciplined execution, which provides strong visibility into our operational trajectory, enabling us to preserve poor operating profitability and margin health.

As noted in our earning release, our non-GAAP net income was temporarily impacted by a one-time withholding tax adjustment. Which I will elaborate on shortly. Adjusting for this non-recurring item, our underlying non-GAAP net profit remains solid at 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 microheadwinds persist. We continue to focus on strengthening our competitive modes and strategically reinvesting to fortify our fundamentals for profitable and long-term expansion. During the first half, we distributed approximately $400 million to shareholders through a combination of cash dividends and share repurchase, reflecting the anticipated utilization of our existing The Board of Directors has approved a new $1 billion care repurchase program.

This underscores our firm commitment to returning no less than 75% of full year 2025 non-Bandlet income to shareholders, supported by solid business fundamentals and the resilient underlying cash flow. 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 two public rates backed by three material Shenzhen outlet properties. A consumer infrastructure rate and a commercial rate. This not only proves the quality of our outlet portfolio and their market evaluation, but also creates a capital recycling loop that allow us to reinvest the proceeds from material assets directly into DC-point 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人民币, and all the percentage change are year-over-year change, and less otherwise noted. Total net revenues for the second quarter of 2026 were R&B 24.7 billion compared with R&B 25.8 billion in the prior period.

Gross profit was R&B 5.8 billion compared with R&B 6.1 billion in the prior 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 period. Fulfillment expenses were R&B 2.14 billion, compared with R&B 2.11 billion in the prior period. As a percentage of total net revenues, fulfillment expenses were 8.7% compared with 8.2% in the prior period. Marking expenses were R&B 760.3 million compared with R&B 716.9 million in the prior period. As a percentage of total net revenues, market expenses were 3.1% compared with 2.8% in the prior period.

Technology and content expenses were R&B 486.2 million compared with R&B 442.0 million in the prior year period. As a percentage of total net revenues, technology and content expenses were 2.0%. The general administrative expenses degrades 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 a higher share-based compensation expenses for Shanshan Outlets recorded in the prior period. As a percentage of total net revenues, general and administrative expenses decreased to 4.3% from 5.0% in the prior period. Income from operations was R&B 1.5 billion compared with R&B 1.7 billion in the prior year period. Operating margin was 6.2% compared with 6.6% in the prior period. Non-GAAP income from operations was R&B 2.0 billion compared with R&B 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 R&B 3.3 billion, compared with R&B 407.2 million in the prior period. The increase was primarily given by two items. The first one is an income tax increase of R&B 1.63 billion, relating to the one-off investment gain, recognized by Shanshan Commercial Group, the original holder of the underlying assets on the insurance of commercial rates. And the second one is an accrued withholding tax expenses of RMB 1.56 billion, reflecting the withholding tax students of historical dividend distributions from mainland China to Hong Kong. The report is in Hong Kong regarding ethical policies on tax treaty benefits. Excluding the tax impact of this discredited and non-operating items, the companies 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 assessment reflects adjustment of historical dividends, distributions, and And expect it to be titled in third quarter. Going forward, the company will continue to accrue dividend withholding tax at the statutory rate for any onshore earnings allocated for offshore repatriation. While this will increase the cost of direct unshowered to offshore equity remittance we will be past repatriation of 1 in our broader capital structure toolkit Net income attributable to Vipshop shareholders increased by 189 year The R&B 4.3 billion from R&B 1.5 billion in the prior period, primarily due to a one-out investment gain of R&B 5.79 billion from the listing of a commercial rate.

Net margin attributable to Vipshop shareholders increased to 17.4% from 5.8% in the prior period. Net income attributable to Vipshop shareholders per diluted ADS increased to R&B 8.82 from R&B 2.91 in the prior period. Non-GapNet income attributable to VIP shop shareholders was R&B 392.2 million, compared with R&B 2.1 billion in the prior year period. Non-GapNet margin attributable to Vipshop shareholders was 1.6%, compared with 8.0% in the prior period. Non-GapNet income attributable to Vipshop 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 had cash and 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 this forecast reflects 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. Thank you.

Well, I will answer the first question. The entire time of the economy is that the entire economy of the economy is not high. So we think that the consumer is not worth it. So we actually see that in the 7, 8 months, we think that the overall consumption of the past will be a little bit different. So we think that the whole year, the overall overall year, we think that the overall year will be a little bit lower. Okay, in terms of the general consumer sentiment, we find consumers are not particularly in the field DST. They are actually not buying into everything. They are very value seeking, and they are very They are very budget conscious, and they are very selective.

So as we enter into Q3, across our sector, we continue to observe pressure. According to date, from July to August, 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.

Thank you.

Thank you. The other thing is that we can't do it. We have a lot of information about the Q3 and Q4. We have a lot of information about the Q3 and Q4. We have a lot of information about the health and health. So we think that in Q3 and Q4, we think that the average year of the year of the year will be the same. There will be no big change.

On margins, in terms of operating margin, we do see a slight decline year over year for Q2. That's primarily because we see a certain level of deleverage from fulfillment expenses, which is increasing proportionally as return rates are still going up. Actually, when we look at our GP margin, it's flat-ish 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 opportunity leverage from fixed costs and expenses as the revenue scale becomes smaller due to macro pressure But overall we expect the 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 industry players actually investing in unprofitable subsidies. That's not what we are going to do. Our focus remains We will steadily maintain 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.

Thank you.

Okay, thanks for your question. And then 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 ethical tax laws and regulatory guidelines. And this adjustment represents a prudent step in the company's continuous enhancement. Office 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 funding or penalty. And withholding tax on dividend is a transaction cost associated with capital mobility, not an operational expense. Our cooperating margin and pre-tax cash flows remain fully intact. The company maintains multiple avenues to optimize offshore liquidity, and cash repatriation is just one of them.

Accordingly, we anticipate any impact on our future net margin to be minimal. The company remains fully committed to our long-term shareholder return promise. Thank you. Thank you for the questions.

We are quite optimistic about Shanshan's outlet growth momentum. In the first half, Shanshan's outlet grew by over 20 percent in terms of G&E. 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 percent GMM growth is completely achievable, and actually we have higher standards for comparable same-store sales For the existing Shanshan 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 rate status in the planning. Well, on June 18, 2026, we successfully released our commercial rate on the Shanghai Stock Exchange. And the listing makes a significant strategic milestone for Vipshop, expanding our presence from consumer infrastructure rates into the broader commercial rate arena. And the rate rates a total of R&B 7.7 billion, making it the largest commercial rate in terms of the fund scaling, fund briefing, scale among the first batch of commercial rates listed on China's capital market. There are two underlying assets, Shanshan outlets in Zhengzhou and Harbin in the commercial rate. Both are material outlets operate for around 10 years.

Both outlets hold leading position in their regional markets. The Zhengzhou outlets is the highest grossing outlets in Henan province, while the Harming outlets ranked first in Heilongjiang province. In addition to the three outlets already used as underlying assets for the rate issuance, we also hold another 18 outlets 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 3.7 billion US dollars to shareholders. Our long term returns to shareholders is built on our strong business model and held cash flow.

External factors may cause short-term volatility in our business. Our corporations are managed to deliver stable and robust profitability across economic cycles.

This chance 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-GAP debt income. And in the first half, we have distributed approximately $400 million U. S. dollars through dividend and buyback. Reflecting the anticipated utilization of our existing authorization, the Board of Directors has approved a new $1 billion share repurchase program. We will continue the back-back optimistically in the quarters ahead.

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. You may now disconnect your lines.