Vipshop Stock

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.]

Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited's First Quarter 2026 Earnings Conference Call. At this time, I would like to turn the call to Ms. Jessie Zheng, Vipshop's Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's First 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 statements 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 reconciliations 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 first quarter 2026 earnings conference call. Our first quarter performance reflected a significant calendar-driven shift caused by the later Chinese New Year. This led to a successful holiday surge in active that effectively pulled forward demand, resulting in a softer March. What is important to highlight is the sustained health of our customer base.

Our holiday results was outstanding, driven by customers who actively sought out our seasonal collection and value promotions. This strength of that demand, especially in apparel, confirms that we remain a top priority for their spending and gives us real confidence in their long-term resilience. Our customer metrics this quarter further prove that resilience Total active customers showed positive momentum, led by our SVIP members who grew by 9% year-over-year. Their paid members accounting for 50% -- 55% of our online spending.

We remain focused on the quality of our growth as we move further into the year. We are making steadily progress in how we optimize merchandising portfolio, engaged with customers and increased AI to reshape our off-price retail model. Since realigning our team last year, we are seeing the benefits of the faster, more fluid approach to merchandising by staying focused on customer relevance and deepening category expertise, we have been able to move from market insight to product on shelf more quickly, ensure our deep discount brand inventory hits when demand peaks.

We are also driving better cross-category engagement as we create our selection around the broader needs of our customers and develop more effective analytics and marketing tools for brand partners. We are helping shoppers easily discover products across apparel, child care and home category. Following our last update, we have transitioned our Made for VIP line into the new phase of growth by raising the bar for quality, style and value. At the same time, we have tightened our planning with brand partners seasonal calendars to stay in sync with real-time fashion trends.

This approach ensure our lineup is always created and on trend. Looking ahead, we will continue to evolve their exclusive offering into the primary driver of customer mind share and brand loyalty. Building on our optimistic buying strategy, we will successfully speed up our buying cycle. Over the past few months, our teams have locked in a high value of exclusive low-priced inventory that is now flow through the platform. This has enhanced the treasure hunt experience for our customers. We are seeing strong daily habits from our high-value shoppers who are returning more frequently to discover our latest arrives.

This differentiated merchandising approach directly feed in the strength of our SVIP program by offering exclusive access to private sales and unique inventory, we are driving both member acquisitions and loyalty. A great example is our recent event with the global athletic brands where curated selection delivered a surge in new SVIP sign-ups, particularly among young male shoppers and sales value many times above the baseline.

In line with the push of high-value engagement, we have shifted towards a more targeted acquisition model using refined [ agreeing ] that identify members with the highest long-term value. By replacing generic benefits with a tiered service system, we are directly rewarding higher spending with exclusive product access, deepen discount, one-stop customer support and value-added benefits. This will further optimize conventions and individual spend. These integrated efforts ensure the SVIP program remains our primary engine for sustainable revenues and earnings growth.

As the pace of the change in retail accelerate, we were excited to embrace the broad opportunities AI offers. Our initial journey focused on putting the customer first, enhancing experience through virtual try-ons, smarter search and recommendations and automated customer support. We also leveraged AIGC to reach potential customers more effectively with automated content. Having proven this use case, we are now shifting our focus towards scaling that capabilities for greater operational impact. For example, we are using generative AI to scale personalized marketing by combining our operational expertise with real-time customer feedback.

Our AI marketing agent effectively generate tailored creative across video, photo and text forms. This has already driven a clear lift in our customer acquisition efficiency. Beyond marketing, AI is increasingly empowering our brand partners with advanced business analysts, deep customer cohort insights and optimized merchandising strategy. By anchoring our strategy in the off-price model and leveraging best-in-class technology, we have identified more effective ways to serve our customers from dynamic merchandising to the smart supply chain.

This allows us to continue earning customer loyalty through every interaction. We remain committed to investing in our people and our platform. We are confident that by continuously optimize our operational strategies, we will driven steadily profitable growth for the long term. 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. Our latest results landed within our guided range reflecting a dynamic quarter that was heavily influenced by late Chinese New Year. The holiday period triggered a concentrated surge in demand for winter and early spring apparel categories, where our merchandise strength resonate well with a broader base of consumers. By successfully capturing this peak season opportunities, we proved that the effectiveness of our coordinated efforts across merchandising, customer engagement and operations.

This operation synergy directly fed into our bottom line. Margins remain healthy and stable, underpinned by highly favorable category mix and our continued operational discipline. As Eric outlined, we maintain focused strategic investment in our key growth drivers, expanding differentiated merchandise offerings, deepening SVIP's engagement and scaling AI integration across our operations. At the same time, we continue to manage our broader resource pool with strict prudence, dynamically shifting spend to our most productive activities. This balanced approach ensure we sustain solid baseline profitability by prioritizing high-quality, profitable revenue today. Simultaneously, it allows us to systematically strengthen our foundations for the long term, even as we navigate an uncertain macroeconomic backdrop.

Turning to shareholder returns. We remain firmly on track to deliver on our 2026 commitment of returning no less than 75% of full year 2025 non-GAAP net income to shareholders. In April, we completed our annual dividend, distributing approximately USD 300 million. For the quarters ahead, we look forward to executing the remaining balance of our shareholder return program. Our free cash flow outlook is robust, and we have the full financial capacity to meet our full year allocation targets.

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 the percentage change are year-over-year changes, unless otherwise noted. Total net revenues for the first quarter of 2026 increased by 1.2% year-over-year to RMB 26.6 billion from RMB 26.3 billion in the prior year period. Gross profit increased by 6.8% year-over-year to RMB 6.5 billion from RMB 6.1 billion in the prior year period.

Gross margin increased to 24.4% from 23.2% in the prior year period. Total operating expenses were RMB 4.2 billion compared with RMB 4.0 billion in the prior year period. As a percentage of total net revenues, total operating expenses was 15.7% compared with 15.3% in the prior year period. Fulfillment expenses were RMB 2.0 billion compared with RMB 1.9 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 7.7% compared with 7.2% in the prior year period.

Marketing expenses decreased by 1.8% year-over-year to RMB 719.3 million from RMB 732.1 million in the prior year period. As a percentage of total net revenues, marketing expenses decreased to 2.7% from 2.8% in the prior year period. Technology and content expenses decreased by 0.2% year-over-year to RMB 448.2 million from RMB 449.1 million in the prior year period. As a percentage of total net revenues, technology and content expenses was 1.7%, which stays slight as compared with that in the prior year period.

General and administrative expenses were RMB 950.5 million compared with RMB 950.8 million in the prior year period. As a percentage of total net revenues, general and administrative expenses were 3.6%, which stayed flat as compared with that in the prior year period. Income from operations increased by 9.7% year-over-year to RMB 2.5 billion from RMB 2.3 billion in the prior year period.

Operating margin increased to 9.4% from 8.7% in the prior year period. Non-GAAP income from operations increased by 3.5% year-over-year to RMB 2.7 billion from RMB 2.6 billion in the prior year period. Non-GAAP operating margin increased to 10.2% from 10.0% in the prior year period. Net income attributable to Vipshop shareholders increased by 13.6% year-over-year to RMB 2.2 billion from RMB 1.9 billion in the prior year period. Net margin attributable to Vipshop shareholders increased to 8.3% from 7.4% in the prior year period.

Net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 4.48 from RMB 3.72 in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders was RMB 2.31 billion compared with RMB 2.31 billion in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders was 8.7% compared with 8.8% in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 4.68 from RMB 4.43 in the prior year period. As of March 31, 2026, we had cash and cash equivalents and restricted cash of RMB 28.3 billion and short-term investments of RMB 2.7 billion.

Looking forward to the second quarter of 2026, we expect our total net revenues to be between RMB 24.5 billion and RMB 25.8 billion representing a year-over-year decrease of approximately 5% to 10% 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.

[Operator Instructions] We'll now take the first question today. This is from Thomas Chong from Jefferies.

[Foreign Language] Let me translate into English. My first question is about the monthly GMV trend. Given that we have seen some softness in the industry parcel volume in the past few weeks or even last month. So how is our monthly GMV so far? And my second question is relating to June 18. How should we think about the trend this year versus last year? And on top of that, how is the consumer sentiment these days that we should think about the outlook for the second half?

[Foreign Language]

[Interpreted] Okay. So we actually started the year on a very strong note. We have seen a holiday surge during the January to February period when consumers actually concentrate their buying activities. And that effectively pulled forward demand. So following the holiday period, we saw a very apparent moderation of sales in March. And as we enter the second quarter, the April data does not turn out very well, slightly -- it's not improving from March and into May to date, still very challenging. But actually, we saw a slight pickup in consumer activity.

But as we have been through half of the quarter, it seems that we have relatively low visibility on consumer sentiment and activity. How the rest of the quarter will turn out still depends on the month-long industry promotion, which we also don't have very big expectations. So we think it's prudent -- it's more prudent for us to give a conservative guidance and reset our second quarter expectations.

Turning to our outlook for the full year. We think we still have opportunities in the second half. And we believe as consumer sentiment may be improving marginally, we should be able to capture opportunities in discretionary spending, especially apparel. And we look forward to making the best efforts to maintain a steady operational performance for the second half. So for the full year, we continue to believe that we will maintain steady outlook.

We will now take the next question. This is from Vicky Wu from CICC.

[Foreign Language] I will translate by myself. I would like to ask for some updates regarding Shan Shan Outlets. First, would you walk us through Shan Shan's first quarter performance? And second, we've noticed that the Vipshop commercial rate is about to be launched. And how should we assess its subsequent impact on the financial statements?

Well, thanks for your question. And actually, Shan Shan Outlet business is quite strong in the first quarter, and the GMV grows around 30% year-over-year. So -- and thanks for your question regarding the REIT. And I think some of the investors may be aware that Vipshop Commercial REIT obtained official approval from the CSRC and the Shanghai Stock Exchange in late April and complete the pricing process on May 19.

And there are 2 underlying assets, Shan Shan Outlets in Zhengzhou and Harbin, both mature outlets operate for around 10 years. And both outlets hold leading position in their regional markets. Zhengzhou Outlets is the highest grossing outlets in Henan province, while the Harbin Outlets ranks first in Heilongjiang province. And the commercial REITs issued feature more flexible policy regarding the fund usage and expansion mechanism. And actually, in addition to these 3 outlets already used as underlying assets for the REIT, we also hold another 18 outlets projects, demonstrating strong potential for future expansion.

We will conduct further evaluation based on our strategy and market conditions. And for the accounting treatment for this Zhengzhou and Harbin, we subscribed for 49% of the total shares in the commercial REIT. In simple terms, we will lose control and we will deconsolidate the investment from our financials and recognize the related investment gain accordingly. And more specifically, on a GAAP basis, we will book a onetime investment gain of around RMB 5.3 billion in the second quarter, an increase of RMB 1.7 billion income tax expenses. And cash flow-wise, we will see a significant increase in net cash inflow of RMB 1.7 billion in the second quarter.

We will now take the next question. This is from Alicia Yap from Citigroup.

[Foreign Language] I wanted to follow up. I think management earlier mentioned that it seems like you guys saw April is a negative growth for your platform. And then maybe May, there's also so far month-to-date it also seems to be negative. But then I think last week, we have the China retail sales data is the total apparel sales is actually grew 3.6% in April. So just wanted to see where is the misconnect. Is it a lot of the spending has been shifting to offline? Or is it there are some of the the market share -- our market shares are losing to other online platform? And then related to that is also on the Shan Shan outlet.

Also, I think management mentioned the platform grew like 30-plus percent. Also wanted to know, is this because of the consumer behavior that you observed started to shift more to the offline shopping? Or is it because Shan Shan actually has certain merchandise that VIP online doesn't have?

[Foreign Language]

[Interpreted] So the NBS data, the apparel sales, the growth of 3.6% you have mentioned actually refers to both online and offline. Based on our observation, actually, online, we have noted we have seen a very notable decline, and we are actually quite in line with the industry trend. And offline, we do see very strong growth. We believe it could be the difference of consumer activity with online and offline shopping. When they do online shopping, they tend to return a lot. So that would make the sales and after revenue data more compressed.

And with offline, consumers do shift part of their spending increasingly to outlet channels. And it's actually the same with merchants, with brand partners. They have been shifting a little bit more resources to offline outlet channels as well. But we think it's still partially holiday-driven. And going forward, we have to see whether the momentum can be sustained. In addition, the offline outlet -- the outperformance is actually benefiting from a higher concentration of certain categories, especially sportswear and outdoor products. That makes their sales performance exceptionally strong because consumers tend to shop into these categories. It's just being fitting in with their lifestyle.

And it's actually the same thing with the online category performance. Even in April and May, when we do see a broader weakness in apparel categories, sportswear and outdoor products continue to outperform. I think the real weakness is actually going into discretionary -- more discretionary apparel categories like womenswear and menswear, which are pretty much fashion driven. So I think we still need some time to see whether the discretionary spending will turn out better than expected going forward.

We will now take the next question. This is from Ronald Keung from Goldman Sachs.

[Foreign Language] First I want to ask about the GMV gap with revenue. Is that due to Shan Shan or maybe the return rates have changed? Second is given that the March, April, May trends have been quite soft, should we take this or read this into the second half given the base in the third quarter last year is not a lower one, which, therefore, the base is normal. So how should we think of the recent trends and translating to our expectations into the second half?

Well, thanks for your question. And let me answer your first question. Actually, the year-over-year growth gap between revenue and GMV in the first quarter increased due to the following 2 reasons. The first one is the return exchange rate slightly increased year-over-year due to higher contribution from apparel categories and SVIP members. And secondly, just you mentioned the increased GMV contribution from Shan Shan Outlets. Given that Shan Shan operates on a commission-based model, so from accounting-wise, we recognize revenue based on that method, which result in revenue to GMV gap become wider.

[Foreign Language].

In terms of our full year outlook, even when we face near-term pressure from March to May to date, we think it's still within our control. It's just from negative 5% to 0%. That's the range we are confident to maintain. And also the recent softness is related to a number of factors, weather conditions, seasonal transition to spring and summer apparel. Of course, there is a bit of uncertainties on consumer sentiment and behavior, et cetera.

So we may need more time to see whether the trend will be improving going forward. But for the full year, we think our full year target is still achievable. And by continuously optimizing our operational strategies, we should be able to maintain at least a steady business performance.

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.

And this concludes today's conference call. Thank you for participating, and you may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, I would like to turn the call to, Ms. Jessie Zheng, Vipshop's Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's Fourth Quarter and Full Year 2025 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 reconciliations 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 fourth quarter and full year 2025 earnings conference call. This year has been defined by strategic realignment, operating resilience, and a firm commitment to high-quality growth in a dynamic market. While we entered 2025 facing a multi-consumer environment, I'm pleased to report that the agility of our off-price retail model has allowed us to stabilize our top-line performance and continue to deliver robust profitability for the full year.

Our fourth quarter results came in slightly below our expectations. This was primarily due to a deceleration in December sales as customer activity slowed. We attributed it to the weak winter apparel demand alongside delayed holiday shopping due to a later spring festival. While we saw short-term pressure this quarter, our long-term road map remains unchanged. We continue to make solid progress that reinforces our flywheels from merchandising, customer engagement, to operations.

In 2025, we implemented a strategic reorganization of our merchandising and customer engagement team to enhance agility and long-term competitiveness by enabling faster decision-making and breaking down internal silo. We have unlocked a strong foundation for long-term growth. Throughout the year, our merchandising strategy centered on 3 pillars: enhancing customer relevance, building differentiation, and deepening category expertise. Advancing these capabilities has been fundamentally allowed us to consistently and effectively align high-value brand supply with evolving customer demand. We are building a stronger, more connected portfolio of branded products.

Last year, our merchandising team further deepened our supply network. This enabled us to acquire more quality deep discount inventory, driving sales growth steadily across our most valuable brands. Leveraging data-driven insights, we are proactively shaping a resilient assortment that wins in growth categories while keeping our supply chains responsive to shifts in customer needs. We are seeing an encouraging early signal of cross-sell from apparel into related categories like mother and baby, childcare, and lifestyle. We will remain focused on refining these synergies to better serve our customers' diverse needs.

Our Made for VIP line has become a key driver of our differentiation, with sales in these exclusive categories growing by over 40% to account for 5% of online apparel sales in 2025. Having successfully built these foundations of scale, we are now in the position to evolve our approach for the next stage of growth. We are streamlining our exclusive products to build a clear identity and drive mind share when customers see an exclusive tech, which should instantly recognize a promise of high value and reliability. This is how we transfer the line into competitive differentiations, reliable courage, on-trend selection, and exceptional value.

Our optimistic buying proactive is another key differentiator, allowing us to select a portfolio of high-demand items from top global and domestic partners. This delivers a compelling value proposition based on quality, price, and style. Combined with dynamic fresh sales and treasure hunt experience, it drives wild customer apparel, full excitement, and encourages repeat visits. We are moving faster to lock in more exclusive low-priced inventory to attract high-value shoppers and deepen the discovery drive of our platform.

To enhance customer experience, one team now manages the entire journey from initial brand and acquisitions to value-driven growth and lifelong engagement. We have enhanced our capabilities to target and engage user efficiency, which serves as the core foundation of our full life cycle customer strategy. Early progress is promising, and we are focused on the sustainable runway ahead to build a more seamless cross-category experience that maximizes lifetime value. The Super VIP program remains the cornerstone of our growth. Active SVIP members sustained double-digit growth for the fourth quarter.

For the full year 2025, active SVIPs grew by 11% to 9.8 million, contributing 52% of our online spending. Through exclusive upgrades such as providing sales and family benefits, SVIPs consistently demonstrate significantly higher retention and repeat purchase than those of regular customers. Their sustained loyalty and spending power provide a reliable revenue stream and increase our apparel to brand partners, seeking high-quality customer access.

Turning to the operations. We have enhanced our capabilities to better think merchandise with customer intent, delivering measurable results. We implemented multi-objective optimization in our searching engine, directly improving conversion rate. We also prioritize diversity and freshness in our recommendation engine, which has enriched discovery and drive high browsing frequency and return visits.

Look ahead, we are exploring generative search and recommendations to enable more dynamic, interactive, and integrate discovery experience. Lastly, we have made great strides in deploying AI across our business to drive tangible value with advanced AI applications in searching and recommendations, customer service, and marketing. We have enhanced the customer experience and empowering our brand partners, laying a strong foundation for deeper company-wide integration.

Notably, our AI-powered customer service effectively automates routine interactions, improving the overall speed and relevance of customer support. The system now manages the majority of product inquiries and generate personalized recommendations with automated resolutions reach approaching 90%. AI-generated content is now widely used in marketing, driving efficiency and effectiveness, taking our own campaign, for example, by leveraging AIGC to automate creatives and placements. We have reduced production costs while optimize customer acquisition efficiency. Furthermore, we have used AIGC to generally summarize our customer reviews and product portfolio, helping brand partners boost their sales effectiveness. With its full-scale launch, our AI virtual try-on feature has proven to be an effective driven customer engagement. Initial data confirm its impact on loyalty, showing that engaged customer has a high rate of repeat visits.

Our next phase is fundamentally integration of AI, moving beyond stand-alone workflows to embed it within our core operations, making it primary driver of growth and business-wide efficiency. As we're looking back on 2025, we have become a more agile, customer-central and technology-driven organizations. We have enhanced our leadership in the off-price sector as an indispensable gateway for brand navigation, China shifting consumption landscape, as value shopping become a structural trend. We are uniquely positioned to capture high-value customers and expand our share of wallet through merchandising and supply chain reliability. While the macro environment remains dynamic, our focused strategy and strength execution giving us great confidence in delivering sustainable profitability growth in 2026 and beyond.

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. We concluded 2025 with resilient performance underpinned by solid profitability in a dynamic market. This financial strength stems from our disciplined approach to investing, ensuring the every dollar we deploy advance our core business and builds lasting momentum. Over the past year, we focused on enabling the business with agility, ensuring our investments in merchandising, consumer engagement, and operational upgrades, as well as AI enhancements, directly strengthen our business core. This discipline has translated into quality earnings and is building the foundation for durable competitive advantage.

As Eric emphasized, we have seen tangible progress which has repositioned us for sustained momentum. Our focus remains on stewarding our capital to support its business priorities, ensuring we have both the flexibility and the financial foundation to execute our long-term growth strategy.

Turning to capital returns. I'm pleased to confirm that we delivered on our 2025 commitment, returning a total of USD 944 million to shareholders through dividends and share repurchase. For 2026, we are maintaining this momentum. Consistent with our prior year's policy, we intend to distribute no less than 75% of our full year 2025 non-GAAP net income attributable to Vipshop's shareholders. This will be executed through an increased annual dividend of approximately USD 300 million as well as the continuation of our share repurchase program. These actions reflect our confidence in the company's cash-generating capability and our steadfast commitment to shareholder value creation.

Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented below in renminbi and all the percentage change are year-over-year change, unless otherwise noted.

Total net revenues for the fourth quarter of 2025 were RMB 32.5 billion compared with RMB 33.2 billion in the prior year period. Gross profit was RMB 7.4 billion compared with RMB 7.6 billion in the prior year period. Gross margin was 22.9% compared with 23.0% in the prior year period. Total operating expenses decreased by 3.7% year-over-year to RMB 4.9 billion from RMB 5.1 billion in the prior year period. As a percentage of total net revenues, total operating expenses decreased to 15.0% from 15.2% in the prior year period. Fulfillment expenses decreased by 1.0% year-over-year to RMB 2.4 billion from RMB 2.5 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 7.5% compared with 7.4% in the prior year period.

Marketing expenses decreased by 6.1% year-over-year to RMB 873.7 million from RMB 903.3 million in the prior year period. As a percentage of total net revenues, Marketing expenses decreased to 2.7% from 2.8% in the prior year period. Technology and content expenses decreased by 9.3% year-over-year to RMB 425.5 million from RMB 469.2 million in the prior year period. As a percentage of total net revenues, technology and content expenses decreased to 1.3% from 1.4% in the prior year period. General and administrative expenses decreased by 5.2% year-over-year to RMB 1.1 billion from RMB 1.2 billion in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 3.5% from 3.6% in the prior year period.

Income from operations increased by 1.7% year-over-year to RMB 2.90 billion from RMB 2.85 billion in the prior year period. Operating margin increased to 8.9% from 8.6% in the prior year period. Non-GAAP income from operations was RMB 3.2 billion compared with RMB 3.4 billion in the prior year period. Non-GAAP operating margin was 10.0% compared with 10.2% in the prior year period. Net income attributable to Vipshop's shareholders increased by 5.8% year-over-year to RMB 2.6 billion from RMB 2.4 billion in the prior year period. Net margin attributable to Vipshop shareholders increased to 8.0% from 7.4% in the prior year period. Net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 5.12 from RMB 4.69 in the prior year period.

Non-GAAP net income attributable to Vipshop's shareholders was RMB 2.9 billion compared with RMB 3.0 billion in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders was 8.8% compared with 9.0% in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS was RMB 5.66 compared with RMB 5.70 in the prior year period. As of December 31, 2025, we had cash and cash equivalents and restricted cash of RMB 24.1 billion and short-term investments of RMB 5.8 billion.

Now I will briefly walk through the highlights of our full year results. Total net revenues were RMB 105.9 billion compared with RMB 108.4 billion in the prior year. Gross profit was RMB 24.5 billion compared with RMB 25.5 billion in the prior year. Gross margin was 23.1% compared with 23.5% in the prior year. Income from operations was RMB 8.1 billion compared with RMB 9.2 billion in the prior year. Operating margin was 7.7% compared with 8.5% in the prior year. Non-GAAP income from operations was RMB 9.9 billion compared with RMB 10.7 billion in the prior year. Non-GAAP operating margin was 9.3% compared with 9.9% in the prior year.

Net income attributable to Vipshop shareholders was RMB 7.2 billion compared with RMB 7.7 billion in the prior year. Net margin attributable to Vipshop's shareholders was 6.8% compared with 7.1% in the prior year. Net income attributable to Vipshop shareholders per diluted ADS was RMB 14.15 compared with RMB 14.35 in the prior year. Non-GAAP net income attributable to Vipshop's shareholders was RMB 8.7 billion compared with RMB 9.0 billion in the prior year. Non-GAAP net margin attributable to Vipshop's shareholders was 8.3%, which remained stable as compared with that in the prior year period. Non-GAAP net income attributable to Vipshop shareholders per diluted ADS increased to RMB 17.08 compared with RMB 16.75 in the prior year.

Looking forward to the first quarter of 2026, we expect our total net revenues to be between RMB 26.3 billion and RMB 27.6 billion, representing a year-over-year increase of approximately 0% to 5%. 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.

[Operator Instructions] We will now take the first question coming from the line of Ronald Keung from Goldman Sachs.

[Foreign Language]

Ronald, would you please translate your question into English please? So maybe I'll just translate the question first and then let Eric respond to the question.

[Interpreted] So, the first question is about the quarter-to-date business performance, whether the seasonality, especially late spring festival has impacted the business performance and have -- have we seen any recovery in the business? Based on the guidance, it seems like we are accelerating revenue growth a little bit. The second question is about the margin outlook for 2026 because we have seen that margins for 2025 seems to be under a little bit pressure in terms of GP margin and NP margin, whether we have new investments for 2026? And how do we think about gross margin cost and expenses and NP margin, whether we can stabilize our margin profile.

[Foreign Language]

[Interpreted] So, on the first question regarding the Q1 guidance, let's take a look at the Q4 first. I think our online sales actually took a hit in Q4, especially in December. It was way too warm in China in most regions for people to buy winter clothes. And since Chinese New Year is late this year, nobody was actually in a rush to shop for the holiday. Because of that, apparel didn't nearly as well as our other categories. But as we head into the first quarter, Q1, actually, we have seen consumer activity has clearly picked up, largely driven by New Year shopping. And if we look at January and February combined, actually, we do see a nice recovery in our core business. So, this has kept us firm on track with our guidance of 0% to 5% top line growth, and we are confident that we can deliver that growth and for Q1 and for the rest of the year.

Second on margins, I think our business philosophy has been very consistent. We remain focused on high-quality growth at sustainable profitable growth for the business, especially in a dynamic macro environment today. So, we expect margins will be stable, and we will make every effort to outperform in terms of margins for 2026 and beyond.

[Operator Instructions] Our next question comes from the line of Alicia Yap from Citigroup.

[Foreign Language] I have 2 questions. First is that related to the user growth. I think management previously commented that we are hopeful to see the user growth momentum to sustain. So just wondering if management could share with us what is your expectation for the user growth for 2026? And then regarding the demand, how are you seeing the demand for the apparel versus the non-apparel growth? And second question is related to AI. Just wondering, does management believe the overstocked business model that we have for Vipshop, would that be actually more resilient against this Agentic commerce? And with that, will VIP actually invest more resources into growing the offline business such as the Shan Shan Outlet?

[Foreign Language]

[Interpreted] So on the first question about customer growth. Customer growth is definitely our top priority. That's actually the foundation for sales growth and ultimately profitability. In Q4, we had thought we should have maintained the customer growth momentum. But due to expected slowdown in consumer activity, actually, customer growth is a little bit under pressure. We expect customer to regrow for 2026. And we ideally, we should see customer growth is actually faster than sales growth to offset the impact of a slightly rising return rate. So we are definitely going to make every effort to bring customer back to growth track in 2026.

On the second question regarding category preferences, consumers are still, generally speaking, still cautious and selective and value conscious, but they continue to shop across different categories, including discretionary categories. They just need strong reasons to do so. So that's why we focus so much on providing the best value across the shopping carts, including apparel and non-apparel categories. And we are making changes in both categories, especially in standard categories to drive repeat business for our most valuable customers, including SVIP and high-value customers to increase their cross-category purchases for family shopping.

Lastly, on AI. definitely, AI is fundamentally transforming many industries, including the e-commerce industry. And for an off-price retailer like Vipshop, we are definitely adapting to this trend to remain competitive. We believe fundamentally, our business model relies on merchandising on how well we can secure quality deep discount inventory, how well we can provide a best value for customers. We think as long as we make a difference in merchandising and supply chain reliability, we will not be left behind.

Of course, the online business is a hypercompetitive business. That's why we look for -- we are constantly looking for opportunities offline, especially with the outlet business, which proves to be a very good business model in terms of stable revenue streams and profitability. So we are actually expanding our presence for Shan Shan outlets which are doing great in terms of sales and profit contribution. And we expect a mirrored pace of expansion into more cities and regions and geographies. We expect to see continued strong growth in terms of sales, revenue and profit from Shan Shan business. And we expect with a strong offline presence, we will be we will be able to offset any potential challenges from AI.

There are no further questions at this time. At this time, I would like to turn the conference back to Jessie for any closing remarks.

Thank you for taking 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.

This concludes today's conference call. Thank you for participating. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Third Quarter 202 Earnings Conference Call. At this time, I would like to turn the call over to Ms. Jessie Zheng, Vipshop Holdings Head of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining Vipshop's Third Quarter 2025 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 reconciliations 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 third quarter 2025 earnings conference call. Our third quarter results demonstrate tangible progress on our path back to growth. We are pleased with the clear top line expansion, lead primarily by notable improvement in customer trends and across our core categories. Total active customers regained year-over-year growth.

Super VIP membership continued to deliver double-digit growth. In the third quarter, active Super VIP customers grew by 11% year-over-year, contributing 51% of our online spending. This sustained growth was primarily driven by continuous upgrade to SVIP exclusive product and service benefits, coupled with more target engagement initiative, which effectively convert regular customers. In terms of category performance, we saw accelerated momentum in apparel-related category through the quarter.

Our team successfully delivered a powerful brand of quality, value and style. This was achieved through the merchandising strategy that highlights high-value brands, trending categories and popular selling points, all of which are deeply aligned with customer priorities. against a dynamic industry backdrop, we were navigating this operational environment with agility and efficiency.

We are strategically realigned the organization for long-term success, implementing changes to strengthen our unique position as off-price retailer for brands. We focused on reinforce the flywheel from merchandising customer engagement to operation. At our core, we are a merchandising lead company. We compete through offering affordable and differentiated assortment. We continue to enhance our leadership in the deep discount product offering. and we are deepening our category specialization to curate product offering that deliver great relevance and distinct value.

We start to see new momentum in customer and sales by acting upon engaging bright spots and customer performance. As an example, we are rebuilding our medal and child care division to better integrate relevant apparel and non-apparel categories. This reshaped assortment designed to foster cross-category growth and create lasting value for customers as they journey through different life stages. We are bringing this level of specialization across each category in our business. In addition, we have opportunities to scale through our differentiated product portfolio.

One is Made for Vipshop, which again delivered strong sales growth in the quarter. We are deepening our collaboration with more high-value brand partners. The team has capitalization on our category insights to motivate brand to allocate and create more in-season and on-trend supplier and at competitive price. A compelling case in point is a leading running shoe brand, which drove 50% of its September sales on our platform from Made for VIP after making select popular items exclusive to us.

Another case is a leading women's apparel brand, which built sales momentum by customized more deep discount, high-demand offering from its inventory fabrics. The other line of differentiate is a carefully curated portfolio of popular items, which we proactive source from both domestic and global brand partners. We've seen strong momentum when we offer the right brand of the quality, value and style and given the fashion relevance, it generates wide apparel to young and middle-class customers who increasingly come back to enjoy the fun of fresh sale and the treasure hunt.

Beyond the merchandising is how we do better to apparel to customers. In addition to sustaining strong mind share with our core customer cohorts, we are actively experimenting with new marketing formats such as influence content and short-form dramas by adopting an integrated strategy across marketing, growth and engagement. We are seeing early win. This approach this approach enables a disciplined balance of cost efficiency and strategic reinvestment, improving our performance in acquiring actively and retaining customers.

To further engage our customers along their journey, we focus on facilitating the broadening and discovering of the broad range of new and existing offerings. Our notable area of improvement is searching and recommendations. Our systemic upgrade of relevant models, algorithm and product operations have translated into the measurable gains. In the third quarter, enhancements in our search and recommendation systems lead to a tangible increase in commissions directly contribution to sales growth.

We also continue to elevate the experience for our SVIP customers. We want them to feel special, valued and delighted with every visit, and we are delivering on this promise more consistently. In the third quarter, we launched a series of by invitation private sales. SVIP customer was granted exclusive access to the curated selection of mere brands at deep discount, which delivered a powerful sense of value and successful boosted membership loyalty. Lastly, we expect technology to play a strong role to tap into the potential of growth and efficiency. We are clear on the path to accelerate AI application across our business.

Our immediate focus is on deploying AI agent to enhance key areas, including search and recommendations, customer service, external marketing and business analytics. We expect these innovations to create more engaging customer experience, empower brands with advanced tools, improve marketing efficiency and generate actionable business insights. As an example, we are seeing good adoption of our try it own AI feature. Customers really enjoy using it to virtual try to close, save looks and share with brands before buying.

We have also gained traction with AI ads as a growing share of campaign new leverage AI to upgrade marketing creatives and media placements, boosting customers' acquisition efficiency. We are encouraged by the momentum in our business. Our operations are better aligned and our teams are collaborating at new level to unlock synergies. and we continue to adapt to stay ahead of market trends and customer experience expansions. The entire organization is leaning into the opportunities ahead of us. We have great confidence in our long-term road map for sustainable profitable growth.

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. I'm pleased to report a set of healthy financial results for the third quarter. Total net revenues turned to growth and exceeded expectations, along with solid earnings expansion. This performance validates our disciplined model that balance growth investment with value creation, upholding our long-stated goal of achieving high-quality growth.

Our strategic yet prudent growth investment focused on value-driven opportunities in merchandising expansion, especially into the differentiated portfolio, consumer-facing marketing, better engagement with customers as well as AI-centered technology advancements throughout our operations, all aligned with our long-term road map for success. We make sure everything we do should be powering our virtual flywheel within the business that translate into sustainable and profitable growth.

As Eric stated, we are seeing the benefits of recent strategic change. We are engaged by the progress made so far and expect to see the impact of our initiatives built into the rest of the year and beyond. We have great confidence in our long-term outlook and our capabilities to delivering value for our stakeholders. Again, I would like to reaffirm our commitment to shareholder returns in 2025. which is no less than 75% of the RMB 9 billion full year 2024 non-GAAP net income.

So far this year, we are firmly on track with the path have returned a total of over USD 730 million to shareholders through a combination of dividend payments and share buybacks. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers present below are in renminbi, and all the percentage change are year-over-year change unless otherwise noted.

Total net revenues for the third quarter of 2025 increased by 3.4% year-over-year to RMB 21.4 billion from RMB 20.7 billion in the prior year period. Gross profit was RMB 4.9 billion compared with RMB 5.0 billion in the prior year period. Gross margin was 23.0% compared with 24.0% in the prior year period. Total operating expenses were RMB 3.9 billion compared with RMB 3.8 billion in the prior year period. As a percentage of total net revenues, total operating expenses were 18.5% compared with 18.2% in the prior year period.

Fulfillment expenses were RMB 1.9 billion compared with RMB 1.7 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 8.7% compared with 8.4% in the prior year period. Marketing expenses were RMB 667.2 million compared with RMB 617.8 million in the prior year period. As a percentage of total net revenues, marketing expenses were 3.1% compared with 3.0% in the prior year period.

Technology and content expenses were RMB 438.6 million compared with RMB 454.2 million in the prior year period. As a percentage of total net revenues, technology and accounting expenses were 2.1% compared with 2.2% in the prior year period. General and administrative expenses were RMB 984.6 million compared with RMB 957.8 million in the prior year period. As a percentage of total net revenues, general and administrative expenses were 4.6%, which remained stable as compared with that in the prior year period. Income from operations was RMB 1.26 billion compared with RMB 1.33 billion in the prior year period.

Operating margin was 5.9% compared with 6.4% in the prior year period. Non-GAAP income from operations was RMB 1.6 billion compared with RMB 1.7 billion in the prior year period. Non-GAAP operating margin was 7.5% compared with 8.2% in the prior year period. Net income attributable to Vipshop shareholders increased by 16.8% year-over-year to RMB 1.2 billion from RMB 1.0 billion in the prior year period. Net margin attributable to Vipshop shareholders increased to 5.7% from 5.1% in the prior year period. Net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 2.42 from RMB 1.97 in the prior year period.

Non-GAAP net income attributable to Vipshop's shareholders increased by 14.6% year-over-year to RMB 1.5 billion from RMB 1.3 billion in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders increased to 7.0% from 6.3% in the prior year period. Non-GAAP net income attributable to Vipshop's shareholders per diluted ADS increased to RMB 2.98 from RMB 2.47 in the prior year period. As of September 30, 2025, the company had cash and cash equivalents and restricted cash of RMB 25.1 billion and short-term investments of RMB 5.9 billion.

Looking forward to the fourth quarter of 2025, we expect our total net revenues to be between RMB 33.2 billion and RMB 34.9 billion, representing a year-over-year increase of approximately 0% to 5%. 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.

[Operator Instructions] And our first question will come from Thomas Chong with Jefferies.

[Foreign Language] My first question is about the online shopping competitive landscape. Can management comment about the latest trend as well as the potential impact coming from quick commerce? And my second question is about the monthly GMV momentum quarter-to-date. How is the performance we are seeing in October and November? And how we should think about the 2026 outlook?

[Foreign Language].

Okay. So first, in response to your question on quick e-commerce, I think we are definitely not going into quick e-commerce, but we are looking at what appeals to customers that are attracted to quickly e-commerce and convenience is something that matters, but that matters more in grocery shopping, food delivery and some household essentials that are not spending advance, et cetera, not in apparel-related categories, which consumers typically do not care so much about fast delivery.

But anyway, we've made progress with that convenience as part of our worry-free value proposition to customers. I think, for example, there are a few notable things. One is the delivery metrics. Next delivery has been rolled out for certain standardized categories -- products in some cities. Second is accelerating the delivery of apparel products in some key cities. And lastly, the logistics trajectories are actually optimized for customer returns to our warehouses, et cetera. So these efforts are still focused on driving refined supply chain management to support business growth as well as operating efficiency.

Secondly, in terms of the recent GMV sales trend, if we look at October and November to date, actually, we are seeing a decent growth momentum.

The entire Double 11 promotional period, we actually recorded a decent year-over-year growth. So we are reasonably positive on the business performance of the fourth quarter, which we guided 0% to 5% revenue growth. And for 2026, we do see there are opportunities in off-price retail brands.

And we are -- on the other hand, we do expect consumer sentiment tend to normalize a bit more. So we will still have reasonable expectations for growth and -- but we are pursuing a road map for a balanced growth and profitability. So that's the road map for long-term success. That is simply high-quality development.

And our next question is going to come from Alicia Yap with Citigroup.

Management, can you hear me okay?

Yes.

Okay. Yes. [Foreign Language] The first question is, can management elaborate the details changes and the restructuring of your merchandising team? And do these changes help the latest quarter performance? And are these mainly on improving your predictions of the customer preference?

Or is it true for improving your relationship on securing better merchandise that fits to your Super VIP members? And how do you anticipate the change? The changes could further help the financial performance? And second question is, can you also elaborate how AI has been helping VIP in terms of your financial growth? Can AI help to target the churn user and also attract them back to VIP platform?

[Foreign Language]. .

Okay. So first, on the recent organizational changes, it's simply that we we've realigned the entire organization for long-term environment. Actually, it's not one department change. It's across the entire organization between -- among different teams, including merchandising, customer operations and technology, et cetera. I think the major purpose of this organization change is to infuse more agility and efficiency into our business model, especially our founders, 2 founders actually are much more hands-on on daily operations.

So the teams can make quick decisions and turn these decisions into actions. And also, we've replaced some of the senior leaders of the major merchandising teams with new talent. And so basically, we've refreshed the entire organization, and we make consistent upgrades so that teams can collaborate at new levels to unlock synergies.

For example, on the merchandising side, as we mentioned on the call, for some of the divisions, we are trying to build a reshaped assortment, including apparel and nonapparel categories to focus -- to foster cross-category purchases. And on customer engagement, we've actually adopt an integrated approach from marketing growth and engagement so that we can become more efficient to attract and activate and retain customers through a series of adjustments. And also on the technology side, we focus on building the teams into the next phase of technology advancement, et cetera.

So we are making -- we are implementing all these changes so that we can always stay ahead of market trends and customer expectations. On the second question about AI, definitely, we are trying to accelerate AI application across our business. Just a simple AI application can be very vital to driving business growth and efficiency. For example, we've added a lot of visualized model background to facilitate customer experience and try and -- virtually try on clothes and making better choices, et cetera.

So actually, AI has had brought benefits to conversion directly contributing to sales growth. Also, we've made a lot of efforts on AI advertising. A growing share of our marketing campaigns actually leverage AI-generated content to upgrade marketing creators and media placement. This has actually boosted customer acquisition efficiency. Of course, we are also experimenting with AI agents to be used in solving problems like customer churn out or how to keep customers on our platform, how to improve their customer experience with our platform. We do believe AI has a lot of potential in driving efficiency as well as supporting our long-term growth.

Thank you. And our next question will come from Andre Chang with JPMorgan.

[Foreign Language] I have 2 questions. The first question is about the operation. We noticed the company delivered decent net profit growth in the third quarter. However, the operating profit and operating margin still delivered some decline year-on-year. Now management mentioned before that the increasing GMV and the revenue should help economy scale and the margin recovery.

So we want to know when and through whatever the management expects that the operating margin and the operating profit can return to positive year-on-year growth. The second question is about the recent news talking about the management -- the company's thinking about Hong Kong listing. We wonder anything the management can share on this front.

I'm Mark. Thanks for your question. Your first question is regarding our gross margin. And actually, our gross profit margin declined in the third quarter and reflect our efforts to provide more customer incentive and especially for SVIP and other high-value customers and standardized products to maximize sales and revenue growth. And for the longer term, we expect the gross profit margin to be comparable to the level in 2024 and largely stable around 23%, depending on the change of product mix from quarter-to-quarter.

So except that, regarding the marketing expenses, we also increased a little bit the marketing expenses to attract more customers. And we think that in the future, those merchandising capabilities and also the AI technology application and also the marketing expenses will also the main trigger for our GMV growth. And for your second question, actually, we have been closely followed the change for the market -- for the capital markets. And if there is any progress, we will update the market.

And our next question will come from Wei Xiong with UBS.

[Operator Instructions] Firstly, we've seen the active customer number and revenue growth have turned positive this quarter. Should we expect continued sequential improvement in the fourth quarter? What are our investment plan and the operational focus for users and for customers at the moment? And how should we think about the user growth and the revenue growth for next year? And secondly, just wondering, are we having any -- do we have -- what are our latest thoughts on the shareholder return program for next year?

[Foreign Language].

So let me first translate our response to your question on customer and revenue growth. for 2026 and beyond. I think for the longer term, we always stay focused on achieving steady growth in customer revenue and earnings. We believe the sustainable and profitable growth model -- revenue growth model should be driven by high-quality growth in customers as well as ARPU.

So for the near term, we do expect customer growth will accelerate, for example, in Q4 as compared to Q3 in terms of year-over-year growth. And for 2026, we continue to believe that the revenue growth should be driven by growth in customer number and in addition to ARPU. We've made a lot of efforts in driving customer growth, and we are experimenting with a lot of new ways, whether it's marketing format or channel investment, et cetera. All these efforts are oriented to acquire new customers, high-quality new customers, activate dormant or inactive customers as well as continue to expand our SVIP high-value customer base.

So we do have confidence that for the long term, we can drive the top line growth on the basis of both customer growth and ARPU expansion.

Okay. For the second question regarding the total return to shareholders. Our return to growth demonstrate our disciplined capabilities to manage the business to achieve balanced growth. And we are more confident that we can achieve relatively stable and healthy profit and cash flow levels. And for the past, we have returned over USD 3.4 billion to shareholders since April 2021 in the form of buyback and dividend.

And for 2025, we are on track with our commitment to returning no less than 75% of the full year 2024 non-GAAP net income to shareholders. And as of the date we published the third quarter results, we have returned a total of over USD 730 million through dividends and buyback. And for the next year, actually, we will continue to invest in our business to grow and improving profit and generate cash to support our dividend payment and buyback. We will evaluate appropriate level next year. Thank you.

And I show no further questions in the queue at this time. I would now like to turn the call back to Jessie for 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.

This concludes today's conference call. Thank you for participating, and you may now disconnect.