Baozun Inc. (NASDAQ: BZUN) Q1 2020 Earnings Call Transcript

Baozun Inc. (BZUN) Q1 2020 earnings call dated Jun. 02, 2020

Corporate Participants:

Vincent Wenbin Qiu — Chairman and Chief Executive Officer

Robin Bin Lu — Chief Financial Officer

Junhua Wu — Director and Chief Operating Officer

Wendy Sun — Investor Relations Director

Analysts:

Binnie Wong — HSBC — Analyst

John Choi — Daiwa Capital — Analyst

Alicia Yap — Citigroup — Analyst

Thomas Chong — Jefferies — Analyst

Tina Long — Credit Suisse — Analyst

Joyce Ju — Bank of America Merrill Lynch — Analyst

Tian Hou — TH Capital — Analyst

Sally Chan — CLSA — Analyst

Billy Leung — Haitong International — Analyst

Feitong Zhang — CICC — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen, and thank you for standing by for First Quarter of 2020 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference call is being recorded.

I would now turn the meeting over to your host for today’s call, Ms. Wendy Sun, Investor Relations Director of Baozun. Please proceed, Wendy. Thank you, operator. Hello, everyone, and thank you for joining us today. Baozun’s first quarter 2020 earnings release was distributed earlier today and is available on our IR website at ir.baozun.com, as well as on GlobeNewswire Services. On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Junhua Wu, Chief Growth Officer; and Mr. Robin Lu, Chief Financial Officer. Mr. Qiu will review business operations and company highlights, followed by Mr. Lu, who will discuss financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the US Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management’s current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company’s control, which may cause the company’s actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company’s filings with the US SEC. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.

Vincent Wenbin Qiu — Chairman and Chief Executive Officer

Thank you, Wendy, and thank you all for joining us. The world continues to feel the impact of the COVID-19 pandemic. During this difficult time, nothing is more important than ensuring the health and safety of you and your families. Hope you’re all well and stay healthy. Like most companies in the world, we faced the challenging macroeconomic environment at the start of 2020 facing the challenge and taking proactive responses. We have shown great resilience and achieved another fruitful operating and financial results.

While COVID-19 impacted overall consumption and the growth of e-commerce during the quarter, we mitigated the impact by optimizing and innovating our operational and marketing capabilities. For the first quarter, both GMV and total net revenues grew by 18% year-over-year, exceeding our previous expectations. Although some brands temporarily delayed their e-commerce brands as a result of the pandemic, we continued to add many exciting new brands to our portfolio during the quarter. We were able to add a net total of eight new brand partners, including the leading European home furnishing retailer, a few luxury brands as well as a few domestic brands in the FMCG category, which grew particularly past during the pandemic. Meanwhile, as we deploy our high quality growth strategy, we’ve also made progress in optimizing our category mix and ramping up newly added brands, which continued to a notable improvement in our blended take rate for the quarter.

In contrast to the wider e-commerce industry suffered from serious logistics disruption, we were able to maintain our LSG operations, which was critical to ensuring business continuity for our brand partners and sustaining their e-commerce strategies throughout the COVID-19 period. Although these efforts led to incremental costs, the ability to offer uninterruptible services in the procurement capacity even during the most challenging environments have been immensely appreciated by our brand partners. As a result, we are pleased to be more integrated into our brand partners’ supply chains and transit from a traditional e-commerce logistics partner and O2O integrated partner that is supporting many of them in digesting offline inventory and in minimizing inventory risk.

As a digital strategy enabler, although it’s not only to ensure that the brand partners are able to merchandise and fulfill orders, but more critically to support them in navigating these challenging environment and driving growth opportunities. Throughout this process, we strategically enhanced our ability to revamp e-commerce and generate high-quality leads and demand for brand partners. For example, we continue to strengthen initiatives to expand consumer touchpoints. We increased our efforts in actively engaging with users through live streaming and the leading short video social platforms such as Douyin and Kuaishou, which consumers spend increasing amount of time on while staying at home.

Meanwhile, we adjusted and optimized our operations and strategy to adapt to a stay at home economy, which is characterized by increased time spent indoors and the growing consumer theme for indoor entertainment, remote working and health and wellness.

Let me share with you an example. In early March, before any recovery in e-commerce traffic, we hope one leading international food and beverage chain to organize its marketing campaign built around the theme of the so-called Cherry Blossom Festival. We organized a digital Cherry Blossom Show and hosted a campaign to allow people express their best wishes. We are very proud to have partnered with this brand to promote their so-called campaign and contribute to building their digital consumer relationships. Just to quantify the results, this specific marketing campaign helped the brand partner to generate over 0.5 million viewers. It was also top-ranked by Alibaba’s most successful live streaming efforts over that time period, and enjoyed [Phonetic] an increase in conversion rates, a significant shipment that resulted in strong online sales during the pandemic.

I’m deeply proud of the great tenacity and agility of our organization it played during this pandemic, and in particular our technological aptitude during the pandemic. Due to [Phonetic] our vision, technology empowers future success. We have constantly — consistently focused on developing technology-driven systematic business, contingency plans, and innovative and tactical solutions to facilitate our brand partners’ success.

Lastly, we are very encouraged by the economic recovery we have been seeing in China since March, which has further strengthened in May. We believe that the pandemic has accelerated the adoption of online retail, and our brand partners will continue to enhance and prioritize their digital go-to-market and expansion strategies, while proven capabilities in driving innovation and the digitalization have positioned us well for a post-pandemic boom in demand. We are confident in our ability to capture this need to long-term growth opportunities and reaffirm our commitment to driving our brand partners’ e-commerce businesses to the next level.

I mean, I’ll pass the call over to Robin to go over our financials for the quarter. Thank you.

Robin Bin Lu — Chief Financial Officer

Thanks, Vincent. Despite an uneven impact on different categories caused by the COVID-19 pandemic, our balanced category mix allowed us to meaningfully navigate through this challenging environment. Though the pandemic impacted our markets in the first quarter, we ensure business continuity and reinforced our differentiation and the leading position in the market. We have strengthened our reputation by demonstrating our outstanding flexibility and the reliability to adapt to changing conditions. We are proud of late accomplishments despite such adverse market conditions and scalability in our business executions even during one of the toughest times. While China’s economy recover continues, we firmly believe that we remain on track with our high quality growth strategy and we will re-establish growth in our non-GAAP operating profit in the second quarter of 2020.

With that in mind, I will now go over the fourth quarter 2020 financial results in detail. We believe our year-over-year comparison is the best way to review our performance. All percentage change and growth to scale will be on that basis. Once again, please note all figures that I mentioned will be in RMB.

Total GMV during the quarter increased by 17.6% to RMB9.2 billion. Within that, distribution GMV grew by 10% to RMB782.9 million and our non-distribution business GMV increased by 18% to RMB8.4 million. Total net revenues increased by 18.4% to RMB1.52 billion. Breaking this down, product sales revenue increased by 13.5% to RMB701.1 million and service revenue increased by 22.9% to RMB822.5 million during the quarter. We benefited from the relatively healthy growth in categories such as sportswear, luxury, FMCG and food and health.

On the other hand, men’s and women’s clothing, which accounted for a relatively small portion of our total GMV, faced the challenges and have generated relatively slower growth. All in all, GMV of our apparel category, which includes sportswear, luxury and men’s and women’s clothing, will grow by approximately 30% year-over-year during the quarter. In contrast, the demand for personal care products in appliances category was very soft due to the COVID-19 pandemic.

Total costs and operating expenses were RMB1.5 billion compared with RMB1.2 billion in the same quarter last year. In particular, cost of products increased to RMB590 million from RMB509 million last year, primarily due to increased sales from the fulfillment model. Due to incremental contribution from new brands and a deeper discount offered to promote sales during COVID-19, our gross margin for product sales declined to 15.8% compared with 17.6% a year ago. Our blended gross margin was 61.3%, representing a increase of 80 bps from last year, which was mainly due to an increase in the proportion of service revenue.

Fulfillment expenses increased to RMB413 million from RMB288 million last year, mainly due to increased revenue contribution from the consignment model, increasing use of premium delivery services and the incremental expenses related to COVID-19, especially with many economy delivery partners suspending operations during the peak of outbreak, we switched to more premium delivery partners to maintain ample fulfillment capacity, which also led to a higher fulfillment expense ratio. As a percentage of GMV, our fulfillment expense ratio increased to 4.5% from 3.7% a year ago. Sales and marketing expenses increased to RMB366 million from RMB311 million last year. And as a percentage of GMV, our sales and marketing expenses ratio remained flat at 4%.

Technology and content expenses increased to RMB96 million from RMB88 million a year ago. We continue to invest in innovation and productization during the pandemic in a very disciplined, focused and streamlined manner. During the first quarter of 2020, our investments in future innovation and productization totaled RMB36.7 million compared with RMB23 million last year. In driving greater operating leverage against the expanding scale of our business, technology and content expenses as a percentage of GMV improved slightly to 1% from 1.1% last year.

G&A expenses increased to RMB50 million from RMB45 million last year, which reflected our increased spending in administrative, corporate strategies and business planning staff as the business scales, offset by some cost control initiatives. During the quarter, income from operations decreased to RMB30 million from RMB46 million in the same quarter of last year. On a non-GAAP basis, income from operations was RMB37 million with non-GAAP operating margin of 2.4%.

Offsetting interest income, interest expense totaled RMB7.3 million compared with RMB6.1 million a year ago. The increase in interest expense was mainly due to the issuance of convertible bonds in April 2019, which includes a debt accretion treatment, which is a non-cash item on the CB financing accounting standards. In the first quarter, net income attributable to ordinary shareholders of Baozun totaled RMB2.2 million. Basic and diluted net income attributable to ordinary shareholders of Baozun per ADS were RMB0.04 for the quarter.

Non-GAAP net income attributable to ordinary shareholders of Baozun totaled RMB36 million. Basic and diluted non-GAAP net income attributable to ordinary shareholders of Baozun per ADS were both RMB0.44 for the quarter. As of March 31st, 2020, we’ve had RMB1.7 billion in cash and cash equivalents and short-term investment compared with RMB2 billion as of December 31st, 2019. The decrease in cash and cash equivalents and short-term investments was mainly due to some delays in payments from a few brand partners during the pandemic, but we are seeing accelerated collection so far in the second quarter.

Turning to guidance. Provided the macroeconomic environment does not deteriorate further, we anticipate that GMV will grow during the second quarter of 2020 by at least 25% compared with the same period last year. We expect total net revenues during the second quarter of 2020 to be between RMB2.05 billion and RMB2.10 billion, which represents a growth rate of 20% to 23% compared with the same period last year. We expect service revenue to grow at a faster rate than total net revenue during the second quarter of 2020.

This concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session. Thanks.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Binnie Wong of HSBC. Please go ahead.

Binnie Wong — HSBC — Analyst

Thank you. Good evening, management. Thank you for taking my question. I think it’s very understandable of the pandemic situations on the 1Q results, and congratulation on the 2Q stronger than expected outlook on your 2Q top line. My first question is — is that if you look at the pandemic actually hitting a lot more of the MNC brand international brands, given that they are from key parts of — majority part of our customer base, how would that impact their advertising or the online marketing budget? How would that impact us as well?

And then second question is that with regards to the upcoming June 18 promotions, how will you see the sales compared to last year? Do you see actually like a pent up demand is stronger than expected recovery in customer demand? And also this year, how will our brands so far positioning differently? Thank you so much.

Junhua Wu — Director and Chief Operating Officer

Okay. So, Binnie, so this is Junhua from Baozun. Thank you for the question. So, the first one you asked me, so let me clarify. The question was about Q1. You said, how do those international brands spending their marketing budget for online, is that right?

Binnie Wong — HSBC — Analyst

Thank you, Junhua. Actually I’m more looking — more curious on the outlook. I think 1Q is very understandable, the impact there, but I think I’m more concerned with regards to the rest of the year, given the pandemic might hurt on some of the international brands, their sales performance overseas. And then, would they — the allocation to the online marketing budget in China. So I’m more curious on the outlook. Thank you.

Junhua Wu — Director and Chief Operating Officer

Okay. I got it. So, we all know that we had a very tough February, and so basically every platform, they canceled all their online campaign and the traffic dramatically engage a very negative downtrend. And — but starting from this March, and especially after the campaign called the Queen’s Day and new arrivals for Spring/Summer campaign. So we had a relatively very nice March and all those kind of traffic in terms of the volume and the quality has back to normal.

So, right after the first quarter, so all those international brands they’ve been reallocating all their marketing spending, especially from their offline resources, their trade marketing to online. So actually we had a relatively bigger range of online marketing services budget to serve in the future, especially when a lot of international brands realized that the current phenomena kind of the trend like live stream and rich content marketing is being very efficient, driving a lot of traffic and consumer engagement for online and making transactions. So, all in all, we are looking forward to see the recovery is getting better, and we’re very confident in allocating more online marketing budget and especially provided by Baozun services. And that’s your question number one.

So, your second question is related to the 6/18 performance overall compared to last year. So, actually this is the second day of the 6/18 campaign. So I can only give you some color based on the two days’ performance. Yesterday was the Children’s Day, also the first day of the year, the first wave of 6/18 campaign, one of the three waves around the whole campaign. So we had a very good performance by the pre-warm season and pre-sales period. So basically in terms of the volume and the volume of traffic and quality of the traffic, so we can definitely see a higher conversion rates compared to last year.

So, the mechanism of the 6/18 campaign was very different from last year’s. Last year, they had a very — kind of a big interactive engagement with consumers. But this year, they strengthened all their mindset into a different category by organizing them very well one after another, just focus on the right accurate consumer group to target a higher conversion rate. So if you look into the traffic volume, so compared to last year, we might not see a huge increase. But if you consider the conversion rate and consider the quality of the traffic, it’s definitely better than last year. So we can see that based on, as you know, better investments, consider the pricing strategy and the assortment strategy from a lot of international brands and our brand served for this campaign, so we are foreseeing a better 6/18 for this year.

Binnie Wong — HSBC — Analyst

Thank you, Junhua. That’s very helpful, and congrats again on the strong outlook on 2Q. Thank you.

Junhua Wu — Director and Chief Operating Officer

Thank you.

Operator

Thank you. Next question is from the line of John Choi of Daiwa Capital. Please go ahead.

John Choi — Daiwa Capital — Analyst

Hey. Thanks for taking my question. Question is on your 2Q guidance. I think, on the prepared remarks, it says that the service revenue is likely going to grow faster this coming quarter. Could management elaborate on more detail on this? Given that I guess it’s likely to come from advertising, etc, and how would that impact our profitability, I think also, I think you said the non-GAAP operating profit will likely continue to improve. And just quickly on top of that, I think since the recovery since March was also mentioned, can you kind of show the latest trends, I think you’ve just mentioned earlier as June 18, but what are some of the categories that you see more obviously improving versus 1Q? Thank you.

Robin Bin Lu — Chief Financial Officer

Hi, John. It’s Robin. We provide outlook for Q2, actually from our guidance and our description, we see — back in Q1 we see a very fast demand from our distribution models, which is mainly in the personal care product for the appliances. And after today, I think we do see a very slow recovery about this category, which may have some impact on our product sales in Q2.

On the other hand, for the men’s and women’s clothing category, I think, we’ll a faster recovery right now. And so, the other category like the sportswear, like luxury, we see a very strong demand. We get started in 6/18 now and it is a strong growth for this product. So that’s overall picture of our category goals. Hello, John.

John Choi — Daiwa Capital — Analyst

Yes, thank you. Just on the service revenue, is that on back of those — apart from that, any color on the advertising or other services that are going to be ramping up on 2Q?

Robin Bin Lu — Chief Financial Officer

Yeah. For the other services in Q2, we see a recovery, some very strong from the brand about as digital marketing services and some other services, especially with — right now it’s very hot, the live streaming, the digital marketing channels and this is a strong rebound from Q1 to Q2.

John Choi — Daiwa Capital — Analyst

Okay, great. Thank you very much.

Robin Bin Lu — Chief Financial Officer

Thank you.

Operator

Thank you. Next question is from the line of Alicia Yap of Citigroup. Please go ahead.

Alicia Yap — Citigroup — Analyst

Hi. Good evening, management. Thanks for taking my questions. Congrats on the solid results. I have qualitative questions on your brand relationship. So during your communications with your global brands in the last three to four months, are there any noticeable changes of their commitment or the strategy in terms of how they view of the production changes they need or the marketing initiatives towards the China market with issues in home markets more foreign brands treating China as the must win battle this year. So if — what kind of operation changes that you anticipate you need to support them? And then, on the other hand, are there any brands that actually become more cautious in light of the recent US-China tension? Thank you.

Junhua Wu — Director and Chief Operating Officer

Okay. So this is Junhua. So let me ask the first question related to the brand strategy might change during the post-COVID-19 stuff. And Robin can give you some color in terms of the relationship between the US market and the China market.

So, yes, for the first quarter, a lot of the national brands especially, when they have a lot of offline D2C business, direct-to-consumer business, they realize that online becomes very efficient for their overall business proportion. And they have been allocating offline resources to online in terms of their marketing budget, in terms of offline inventory and in terms of a lot of their internal talents. So, right after the first quarter when we realized that China might already pass-through all the COVID-19 stuff and globally, we had another outbreak from — with a lot of — affecting a lot of our international brand partners.

So, their global headquarters and the headquarters in their country have been shutting down a lot of their offline stores, which increased their attention to the Chinese market. So, they’ve been paying more attention about how can we do more business and rely on a strong partnership with us to do more online business, especially when their global has been facing the same kind of issues for the second half of the quarter. So, I think, in the long run and especially in the fashion, sports and luxury category. So we’re seeing a lot of attention, shipping from their headquarters to China and we feel very comfortable and confident about can engage a better business results in the future.

Robin Bin Lu — Chief Financial Officer

Okay. Alicia, let me answer the second part of your question. In general, if you see any change of impact from US-China relationship issues, I think the reason is the most of the brand in China has been famous brands, they has been localized in China for many years, whether it’s their supply chain or their branding have been in China people for many years, and we didn’t see any interaction about this right now.

Regarding the supply chain in some of the cross border products has been interrupted a little bit because of the shortage of supply chain and now we see the recovery now, but fortunately, the cross border business is only very immaterial part of our business in our whole picture. So we think that everything is normal, and more importantly, China is recovering very fast right now and the offline store opens, the brands, they pay more attention to the online sales so that effectively we can integrate offline into online category where actually we can benefit that in the long run. Thank you.

Alicia Yap — Citigroup — Analyst

Thank you so much.

Operator

Thank you. Next question is from Thomas Chong of Jefferies. Please go ahead.

Thomas Chong — Jefferies — Analyst

Hi. Good evening. Thanks, management, for taking my questions, and congratulations on a solid set of results. I have two questions. My first question is more about the second half outlook. After June 18, how should we think about our performance in Q3 and Q4 in terms of the GMV side? And secondly, can management also comment about our GMV by different categories like apparel, consumer electronics and FMCG in Q1 and Q2 respectively? Thank you.

Robin Bin Lu — Chief Financial Officer

Okay. Hi, Thomas. This is Robin again. You may notice we don’t provide the whole year outlook this early because we think there is still uncertainty in the macro issues. So we don’t provide for the second half of the year. However, based on our judgment right now, since we are pretty positively improving performance and with our strength, our high quality growth, we can keep that currently in Q2, Q3, and Q4. But based on various uncertainties in the macro, we cannot provide Q2 numbers as yet [Phonetic].

However, I want to say is, just as I specified in the prepared remarks, our non-GAAP operating profit will be recovered in Q2 and also include our non-GAAP operating margin will be improved versus last year.

Junhua Wu — Director and Chief Operating Officer

Thank you. So, for the second question, I think, I can keep going to answer second question. In Q2, we see — just now I said, we see the very good continued growth in luxury, in sportswear, and the men’s and women’s clothing getting recovered faster, but personal care product sales of specific models, they are very strong. Thank you.

Thomas Chong — Jefferies — Analyst

Thank you.

Operator

Thank you. Next question is from the line of Tina Long of Credit Suisse.

Tina Long — Credit Suisse — Analyst

Hi. Thank you, management, for taking my questions. I have a quick question on the portfolio refinement project because management has mentioned in the past that we want to phase out from under-earned brands. So how is any progress on that front in the first quarter? And also, what will be the roughly net number of brands we have in the pipeline to add for the full year or for the first half? Also, what business model we were actually — for those new brands we actually adopt? Thank you.

Robin Bin Lu — Chief Financial Officer

Sure. It’s Robin. I think high solid growth is one of core strategies. Under that strategy the refinement of the portfolio is one of the paths to achieve the high quality growth. And then normally — by weekly, we have the in and out meeting to evaluate our pipeline and evaluate the price we are serving with profitability and some other factors.

And we think that’s kind of our valuable team wants to do and the fact we have a very strong pipeline to product, so we can do that. But we don’t provide the numbers for the whole year because the same reason [Phonetic] and certainly for that. But I can tell you that — but now we are discussing with very strong pipeline partners to partner just like exactly in Q1 given this outbreak of the COVID-19, we might adding in this — in our new stores and new brands. Thank you.

Tina Long — Credit Suisse — Analyst

Okay. Thank you, Robin.

Operator

Thank you. Our next question is from Joyce Ju of Bank of America Merrill Lynch.

Joyce Ju — Bank of America Merrill Lynch — Analyst

Good evening, Vincent, Junhua and Robin. Thanks for taking my questions. I have a question actually regarding the platform development. We know like this year we actually see in the brand actually performing very well on the Tmall like we operate it. But I think last year we also mentioned a lot we try to kind of exploring new platforms such as WeChat, such as like Red — Little Red Book and this year we also know a lot of other platforms also introducing new function of like live streaming shopping. Just wondering from Baozun perspective have we actually seen a lot of like activities in terms of launching new platforms for brands, like, say, in like TikTok or like Kuaishou or like other live streaming platforms or if we see any new channels evolving during this like post-pandemic situation? Thanks.

Robin Bin Lu — Chief Financial Officer

Hi, Joyce. It’s Robin again. My answer is yes. There are more platforms coming up and as our standpoint we — as you know we are well capital business with our Mini program with WeChat and they made a great progress. For example, we — I think we are in the trend of forming up business model. For example, we integrated live streaming to operations, online versus offline and the group management together and they are — we think the pandemic really helped the [Indecipherable] a lot and the new program innovation, and also we are testing the Douyin and Kuaishou, as mentioned in Vincent’s remarks.

I think also [Indecipherable] and even for the numbers is not mature for us. But I think that is a different [Indecipherable] we are making greater progress with others. Our activity is to integrate all those platforms and test other platforms and from the Baozun specified its model to work with that — with our brand [Phonetic].

Joyce Ju — Bank of America Merrill Lynch — Analyst

Yes. Thank you, Robin. I just wanted to have a small follow-up on this question, like as we are doing different like new projects with integrating with those new platforms, are we actually will see a expansion — further expansion in our IT headcounts in order to launching these kind of technology — new technology or new platform integration?

Robin Bin Lu — Chief Financial Officer

My answer is no. I don’t think we have a much expansion in the IT headcount and as we cited last quarter of our growth rates for the IT product are under 15%. In our numbers in Q1, you have seen where our growth is under 10%. So as we look this kind of like growth rate very minimal and almost flat for the whole year.

Joyce Ju — Bank of America Merrill Lynch — Analyst

Got it. Thanks.

Operator

Thank you. [Operator Instructions] Our next question is from the line of Tian Hou of TH Capital. Please go ahead.

Tian Hou — TH Capital — Analyst

Thank you. Thank you, management. Congratulations on the first quarter in this kind of really hard time. So, my question is regarding the brand. So, I — we already have a lot of international brands. I believe there are lots of domestic brands are also having strong needs or demand for online e-commerce operation and services. So, I believe you guys inevitably will get into domestic market. So regarding domestic brands, is there economic stickiness and core value different than the international brands? And also, what do you think about domestic brand development in 2020? Is that going to be one of your primary targets? So that’s the first question.

A very quick second question is, can you give us some updates regarding the Mini app development for the brands you are developing — you are helping? So that’s two questions. Thank you.

Robin Bin Lu — Chief Financial Officer

Okay. So it’s Robin. Back to last year, we talked about domestic brand. That’s right. It was one of our strategies to achieve our performance. And in Q1, basically new brand addition, almost half coming from domestic brands. I think with the testing for the last year, we knew there was different arena in the domestic brand. For example, they need more integration between the online and offline and they need more system support than the international brands and also they need more like dynamic digital marketing services from us.

And I think we accommodate this kind of capabilities to the domestic brands. These trends regarding the — our take rate, they don’t think there is very much difference as a group, much different from the international brands, it’s different by brand-by-brand as there is no much difference between the international and domestic. Occasionally, the ones that turn out like the service or customized service we can provide to the different group. So we are very confident in the — on the domestic front and more kind of in the last year about these kind of achievements.

So, Tian, what’s your second question please? The Mini app progress?

Tian Hou — TH Capital — Analyst

Regarding the Mini app, yeah, yeah.

Robin Bin Lu — Chief Financial Officer

Yeah.

Tian Hou — TH Capital — Analyst

Yeah. Progress, yeah?

Robin Bin Lu — Chief Financial Officer

Just now, I think, in the last question, I mentioned about that, we are integrating with other four-in-one, which means we integrated live streaming to operation because online versus offline are the one inventory and also our group operations together. And also we cover four-in-one service and they are processing out how this can work with the brand partners for that. And we definitely talk with our management with the Mini app in our group and we are very confident with our progress.

And also, with COVID-19, more and more offline stores, Junhua had mentioned, through the Mini app and they want to you know exactly better and which will give us great opportunities in the future. Thank you.

Tian Hou — TH Capital — Analyst

Thank you. Thank you for the answer. That’s all my question.

Operator

Thank you. Next question is from Sally Chan of CLSA. Please go ahead.

Sally Chan — CLSA — Analyst

Hi. Good evening, management. Thank you for taking my question. I just have two questions. One is on the 2Q guidance that we gave. We gave the GMV guidance of at least 25% year-on-year and revenue of 20% to 22% year-on-year. Since our guidance is quite conservative, if we consider the pent-up demand and then if we try to reconcile that with the broader GMV growth further to-date. I’m just wondering if management could give some color on the drivers that we should be considering here, is that we just seem more conservative given we had a great Q2 last year and some of our key categories like more appliances did really well or is that because of — more of like a category mix, like, maybe fashion is still not fully back to normal. And on that, do you have any comments on the apparel inventory levels, how it is functioning for that?

And then the second question is actually on the margin guidance, because you gave guidance of 7% to 8% just give a margin I think midpoint of that as the conference call last quarter for this year. So just wondering if we have some update on the guidance given 1Q margin were actually much more resilient than what we expected? Thank you.

Robin Bin Lu — Chief Financial Officer

Yeah. It’s Robin. Back to — let’s answer your second question first. We don’t have change in our last quarter’s explanation about the midpoint between 7% and 8% of our non-GAAP operating margin. We are very confident to achieve that so far. And just now I said, in Q2, we will get a fully recover of our non-GAAP operating profit and operating margin.

So, the first question is not very clear in your — over the phone. If I answered right, I would say, we have a difference categories is some getting recovered faster, some get slower and some pretty soft as I said just now. And also, we see the capital needs we can achieve what we announced in the half and especially, for example, in the luxury, if we really get a luxury much faster growth rate than the average. And also, for the new brands, we have been in the last year we see it has a much expanding market share on the percentage-wise over the total GMV and also contribute to the — because of the ramp-up contribute to the take rate. So that’s like very positive for us. And in our role, we are very confident in our progress right now.

Sally Chan — CLSA — Analyst

And sir…

Robin Bin Lu — Chief Financial Officer

So you may have — what was your question for the first one?

Sally Chan — CLSA — Analyst

Yes. Yes. So it maybe some — do you have like some comments on the apparel inventory levels. I think some platforms are sort of indicating they see higher excess inventories in industry. I am just wondering how are we positioning for that to help our brands as well?

Robin Bin Lu — Chief Financial Officer

Yeah. For the inventory, we are aware — we took off the apparels inventory, we are in the transforming model. However, we are — we help the brands to integrate offline and online [Technical Issues] the Mini app to sell inventory to better create more opportunities from our distance apart and how we can somehow — plus inventory we outstanding industry issues. But what I can say is, we get a faster recovery than we expect.

Sally Chan — CLSA — Analyst

Got it. Thank you. Thank you so much, Robin.

Robin Bin Lu — Chief Financial Officer

Thank you.

Operator

Thank you. Next question is from Billy Leung of Haitong International. Please go ahead.

Billy Leung — Haitong International — Analyst

Hi. Hi, management. Congrats on the results and thanks for taking my question. Just a question on our Q2 guidance again. The GMV expectation is slightly faster than our revenue guidance, does that implies probably a sequential declining take rate. I know it’s a little bit but could we just — could management just run through our assumptions behind these two numbers, the GMV guidance and the revenue guidance for quarter two? And just a follow-up on that. We mentioned about live streaming services. Can we just try to understand, in addition to these live streaming services, is that going to be take rate enhancing or take rate dilutive? Thank you.

Robin Bin Lu — Chief Financial Officer

Okay. So, once we can repatriate, we use our service revenue and service GMV. I think, the question you raised about the revenue guidance, I mean mainly because of our personal care products, the inclusive model, basically [Indecipherable] still much lower than we expect. So, I don’t think there is an impact on our take rate overall. And you can see with our numbers why we have an improvement in the take rates in Q1 that kind of like the case. And about — what’s the second question?

Billy Leung — Haitong International — Analyst

The second question is on live streaming services, whether or not that’s going to be positive or negative on our take rates in the longer run? Thank you.

Vincent Wenbin Qiu — Chairman and Chief Executive Officer

Thank you. We got the question. This is Vincent. Yeah, live streaming is an emerging service way for the brand to touch point with the consumers of course. We all can see this trend. It is happening very fast. So, as a company, we are very actively participating in this kind of marketing activities with brands. So, we help the brand to organize the whole thing and run all the supply to be general marketing service [Indecipherable] and we just delivered a service to get the revenue.

So, but I think the market, live streaming market is changing very fast. We are really seeing some trend from the KOL down to the KOCs, so this for example. So we are closely follow this trend and trying to develop a better business model when we engage with the brand clients, no matter KOL or KOC kind of activities. Of course, targeting getting more service revenues and giving more balance to the brand in a short- to mid-term time period.

Billy Leung — Haitong International — Analyst

Okay. Thank you. That was helpful. Thank you.

Operator

Thank you. And our last question is from the line of Natalie Wu of CICC. Please go ahead.

Feitong Zhang — CICC — Analyst

Hi. It’s Feitong Zhang on behalf of Natalie Wu. Thanks for taking my question and congrats on the solid result. My question is regarding to the margin trends. You’ve explained the drop in the gross profit margin in Q2 a newly required brand partner. How should we expect the gross profit margin going forward in the second quarter and for the full year? And also, my second question is regarding to your cash flow, even the pandemic how was your — how was our free cash flow in the first quarter and how should we expect our cash flow and cash position going forward post the pandemic under our high quality strategy? Two questions. Thanks.

Robin Bin Lu — Chief Financial Officer

Okay. It’s Robin. About the gross profit margin, I would say, in Q2, we do see the drop in margin from the personal care product, which will track down a little bit of our gross margin comparably to Q1. Obviously there is some recovery about gross profit, but it’s not back to the normal level which we always saw in the past at 18% to 20%, which gives you some time to get back to this normal level.

About the cash flow, I think, the key reason in Q1 was, there is some delay on the payment from the key partners because these are like shutdown of office or some other reasons. And in Q2 so far, we see a very accelerated payment in terms of brand and back to the normal size even faster than last payment [Phonetic] in fact. So, I think we are pretty positive on the cash flow in the later quarters if there is no further deterioration of the macro issues. Thank you.

Feitong Zhang — CICC — Analyst

Thanks. Very helpful.

Operator

Thank you. Ladies and gentlemen, that ends our Q&A session. And I would like to hand the conference back to Ms. Wendy Sun.

Wendy Sun — Investor Relations Director

Thank you, operator. In closing, on behalf of the Baozun management team, we would like to thank you all for your participation in today’s call. If you have any further questions, feel free to reach out to us. Thank you for joining us today and we wish everyone to stay healthy. This concludes the call.

Operator

[Operator Closing Remarks]