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Vipshop Holdings Limited (VIPS) Q3 2020 Earnings Call Transcript

VIPS Earnings Call - Final Transcript

Vipshop Holdings Limited  (NYSE: VIPS) Q3 2020 earnings call dated Nov. 13, 2020

Corporate Participants:

Jessie Fan — Director of Investor Relations

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

Donghao Yang — Chief Financial Officer

Analysts:

Alicia Yap — Citi — Analyst

Jerry Liu — UBS — Analyst

Thomas Chong — Jefferies — Analyst

Han Joon Kim — Macquarie — Analyst

Ronald Keung — Goldman Sachs — Analyst

Joyce Ju — Bank of America — Analyst

John Choi — Daiwa Capital — Analyst

Fei Tong Zhang — CIPCTU — Analyst

Andre Chang — JPMorgan — Analyst

Billy Leung — Haitong — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited Third Quarter 2020 Earnings Conference Call.

At this point, I would like to turn the call to Ms. Jessie Fan, Vipshop’s Director of Investor Relations. Please proceed.

Jessie Fan — Director of Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining Vipshop’s third quarter 2020 earnings conference call. Before we begin, I will read the Safe Harbor statement. During this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates and projections about Vipshop Holdings Limited and its industry. All statements, other than statements of historical fact we may make during this call, are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as anticipates, believes, continue, estimate, expect, intend, is/are likely to, may, plan, should, will, aim, potential, or other similar expressions. These forward-looking statements speak only as of the date hereof and are subject to change at any time, and we have no obligation to update these forward-looking statements.

Joining us on today’s call are Eric Shen, Co-Founder, Chairman and CEO; and Donghao Yang, our CFO.

At this time, I would like to turn the call over to Mr. Eric Shen.

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

Good morning, and good evening, everyone. Welcome and thank you for joining our third quarter 2020 earnings conference call. Before I go into business update, I would like to welcome our new CFO, David Cui, who is with us here at today’s call. David joined us last month and will officially succeed Donghao as our CFO today. After today’s call, Donghao will transition into a new role as our non-Executive Director and continue to contribute to our future growth in a different capacity.

Now, I will turn to our results for the third quarter of 2020. During the quarter, we delivered strong financial and operational results driven by the robust 36% year-over-year growth in the number of active customers, further accelerating from the growth rate in the second quarter. This was made possible because we consistently offered great products at a deep discount to our valued customers.

We are especially glad to see that both new and repeat customers demonstrate robust growth momentum, which was the result of our focus on merchandising and some reinvestment into branding, so that our specialty in discount retail can be known to a broader customer base. As a result, we recently added a lot of new customers and old customers that have not shopped with us for a long time. These customers typically spend a lot less than our existing loyal customers, which dragged down our ARPU in the short-term.

We are always tracking the shopping behaviors of different cohorts or customers. We are glad to see that ARPU for our core customers continued to increase while new customers and the existing old customers have assumed better repeat purchase and ARPU trends as compared to the same global customers in the prior year period. This means our merchandising strategy is working well and our customers recognize the value of our differentiated offering, especially in our core category.

Going forward, we will continue to focus on a few high quality and differentiated products at deep discounts and deepening our expertise in made-for-VIP products, leveraging our strong merchandizing capability and a solid supply chain network. We’ll remain focused on providing our customers with product of deep value on a daily basis while improving our operations to provide more personalized experience to meet different customer needs.

We recently hired a new Co-CTO, Pengjun Lu, who have over a decade of solid experience in big data and personalization in finance Internet space. He will focus on improving the customer experience to optimize the match between our already acute products to deepen customer personalization. This will help our suppliers monetize their inventory more efficiently and grow their sales more quickly.

We are confident we can continue to expand our customer base and the positive trend in customer acquisition. And the retention will also continue, further driving our growth and profitability and enabling us to deliver solid shareholder returns over time.

And with that, let me hand over the call to our CFO, Donghao Yang, so that he will discuss our strategy in more detail and go over our operational and the financial results.

Donghao Yang — Chief Financial Officer

Thanks, Eric. Hello, everyone. First of all, I’d like to express my deep gratitude to Eric and all of my colleagues for their help and support during my nine-year tenure as the CFO at Vipshop. I will continue to serve the company as a Director; and wish Vipshop and David, the new CFO, all the best luck in the future.

In the first quarter of 2020, we delivered strong revenue and profit growth. Our total net revenue increased by 18% year-over-year to RMB 23.2 billion from RMB 19.6 billion in the same period last year. As a result of better operating leverage, our non-GAAP net income attributable to Vipshop shareholders increased by 15% year-over-year to RMB 1.4 billion from RMB 1.2 billion in the prior year period.

In addition, we generated robust free cash flow with free cash inflow trailing 12 months ended September 30, 2020 increasing to RMB 5.4 billion from RMB 4.8 billion in the prior year period. We are pleased to see that more customers, old and new, are coming to us more frequently for our differentiated product offering.

Our merchandisers carefully procure products and launch new deals on a daily basis, providing superior value to our customer base, while helping our suppliers clear their excess inventory more efficiently.

In the third quarter of 2020, our total GMV grew by 21% year-over-year and GMV for our core apparel-related categories grew even faster at 29% year-over-year. These successes are made possible by our strategy to focus on discount retail, especially in non-standardized categories.

Looking ahead, we remain keenly focused on balancing our top line growth and profitability. We believe a healthy growth momentum in our number of active customers will continue to drive our future growth. Importantly, we strictly follow the lifetime value model to evaluate the quality of the customers we acquire, ensuring the long-term sustainability of our growth and profitability. We aim to generate sustainable value creation for our customers, suppliers and shareholders.

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

Total net revenue for the third quarter of 2020 increased by 18.2% year-over-year to RMB 23.2 billion from RMB 19.6 billion in the prior year period, primarily driven by the growth in the number of total active customers. Gross profit for the third quarter of 2020 increased by 15.3% year-over-year to RMB 4.9 billion from RMB 4.2 billion in the prior year period.

Gross margin was 21.1% as compared with 21.6% in the prior year period. Total operating expenses for the third quarter of 2020 were RMB 3.9 billion as compared with RMB 3.4 billion in the prior year period. As a percentage of total net revenue, total operating expenses increased to 15.9% from 17.3% in the prior year period.

Fulfillment expenses for the third quarter of 2020 were RMB 1.6 billion as compared with RMB 1.6 billion in the prior year period. As a percentage of total net revenue, fulfillment expenses decreased to 7% from 8.1% in the prior year period, primarily attributable to the change in fulfillment logistics arrangement.

Marketing expenses for the third quarter of 2020 were RMB 1.1 billion as compared with RMB 721.3 million in the prior year period. As a percentage of total net revenue, marketing expenses were 4.9% as compared with 3.7% in prior year period, primarily attributable to increased investment into customer acquisition.

Technology and content expenses for the third quarter of 2020 decreased to RMB 305.1 million from RMB 400.7 million in the prior year period. As a percentage of total net revenue, technology and content expenses decreased to 1.3% from 2% in the prior year period.

General and administrative expenses for the third quarter of 2020 were RMB 848.6 million as compared to RMB 681.6 million in the prior year period. As a percentage of total net revenue, general and administrative expenses were 3.7% as compared with 3.5% in the prior year period.

Our income from operations for the third quarter of 2020 increased by 6.7% year-over-year to RMB 1.2 billion from RMB 1.2 billion in the prior year period. Operating margin was 5.4% as compared with 6% in the prior year period.

Non-GAAP income from operation, which excluded share-based compensation expenses and amortization of intangible assets resulting from the business acquisition, increased by 8% year-over-year to RMB 1.5 billion from RMB 1.4 billion in the prior year period. Non-GAAP operating income margin was 6.4% as compared with 7% in the prior year period.

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Our net income attributable to Vipshop shareholders for the third quarter of 2020 increased by 42.1% year-over-year to RMB 1.2 billion from RMB 875.5 million in the prior year period. Net margin attributable to Vipshop shareholders increased to 5.4% from 4.5% in the prior year period.

Net income attributable to Vipshop shareholders for diluted ADS increased to RMB 1.8 from RMB 1.3 in the prior year period.

Non-GAAP net income attributable to Vipshop shareholders, which excluded share-based compensation expenses, amortization of intangible assets resulting from business acquisitions, tax effect of amortization of intangible assets resulting from business acquisitions, investment, gain and the revaluation of investment, excluding dividend; tax effect of investment gain and revaluation in investments, excluding dividends; and share of loss in investment of limited partnerships that are accounted for as equity method investees, increased by 15.2% to RMB 1.4 billion from RMB 1.2 billion in the prior year period.

Non-GAAP net margin attributable to Vipshop shareholders was 6% as compared with 6.1% in the prior year period. Non-GAAP net income attributable to Vipshop shareholders per diluted ADS increased to RMB 2.01 from RMB 1.78 in the prior year period.

As of September 30, 2020, our company had cash and cash equivalents and restricted cash of RMB 9.6 billion and short-term investments of RMB 4.9 billion. For the third quarter of 2020, net cash from operating activities were at RMB 1.2 billion.

Looking at our business outlook for the fourth quarter of 2020, we expect our total net revenue to be between RMB 33.7 billion and RMB 35.2 billion, representing a year-over-year growth rate of approximately 15% to 20%. This forecast reflects our current and preliminary view on the market and operational conditions, which is subject to change.

With that, I would now like to open the call to Q&A.

Questions and Answers:

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question coming from the line of Alicia Yap from Citi. Please go ahead.

Alicia Yap — Citi — Analyst

Hi. Good evening, management. Thanks for taking my questions. Congratulations on the strong results. I wanted to wish Donghao, all the best, and also welcome David.

So my question is related to the active customer growth this quarter. So any way you could share with us how many of those is brand new user, who registered for the first time, versus those dormant user that you successfully regained back.

So when I look at the balance between gross margins and sales and marketing spend, could you also share with us how do you optimize and decide which ways are more effective in attracting user and also driving conversion? Is there a difference between the new user that the — the effective way of drawing new user versus the — regaining back the old user? Thank you.

Jessie Fan — Director of Investor Relations

Thank you, Alicia. [Foreign Speech]

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] And so Alicia, regarding your first question on customer mix, we actually don’t disclose new customer numbers separately. But as you mentioned, our customer base is mostly segmented into completely new customers who purchased for the first time, which — its growth rate in the third quarter was the highest in recent years. And second, the old good customers, so customers who are repeat customers have not shopped with us for a long time, we also saw a very high growth rate in the recent quarters in the third quarter of 2020. And then, of course, we have our loyal customers who consistently shop with us regardless of whether or not we’re spending actually into gross margin on marketing.

And secondly, regarding the ROI of whether we’re spending on gross margin more or marketing, in the third quarter, because it’s a quarter with very few promotional events, we actually mostly spend in terms of customer acquisition in branding and advertising rather than coupons or subsidies in each promotional event.

Donghao Yang — Chief Financial Officer

And let me add some color to that first question. Alicia, first of all, thank you very much for your good wishes. And hopefully, we’ll come across each other down the road. And David has joined us, and we believe that he’s going to be a great CFO. So we’re confident about that too.

So back to your question, as Eric just mentioned, we didn’t do a lot of couponing back in Q3. But that said, we were still able to drive our discount prices for customers down, because we just negotiated hard with the supplier to get better deals. And then we leveraged our economy of scale, that also helped a lot when we — help for us to get the best prices from the suppliers.

So even though we didn’t do much couponing, but our prices to our customers are still very attractive, among the lowest that anywhere you can find.

Operator

Thank you. We have the next question from the line of Jerry Liu from UBS. Please go ahead.

Jerry Liu — UBS — Analyst

Thank you. Yes. My question is really about — given the high user growth in the third quarter, want to know how sustainable is this trend? So what are some of the cohorts maybe we can look at in the third quarter in terms of lower tier city or some other metrics? And how sustainable is this high user growth?

When we look at, for example, 4Q revenue guidance, do we expect user growth to remain at such a high level and maybe with the average revenue per user declining year-over-year? Or could maybe both numbers revert to the mean a little bit? Thank you.

Jessie Fan — Director of Investor Relations

Thank you, Jerry. [Foreign Speech]

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Jerry, our customer growth trend in the fourth quarter continues to be very solid. And the trend we’re seeing right now is even better than the third quarter. So we believe that the trend you mentioned can continue. Right now, we’re acquiring a lot of high quality customers as we also mentioned in the prepared remarks. And the good news is 60% of these new customers are actually from post-2000s and post-1990s. So they’re quite young. We can make sure that we can continue to gain optimism from all age groups and a lot of these young customers will continue to grow with our platform over time.

And secondly, as compared to the new customers who joined us in the third quarter of 2019, the next-month retention for new customers who joined this year third quarter actually increased by 5% to 10% year-over-year. And what that means is they are higher quality and in terms of both retention and the ARPU.

In the fourth quarter, what we noticed is that the ARPU trend is already narrowing. It’s declining as compared to the third quarter. So we do believe that with time a lot of these newer customers will be spending more with our platform, therefore narrowing the gap in terms of the ARPU.

Operator

Thank you. We have our next question from the line of Thomas Chong from Jefferies. Please go ahead.

Thomas Chong — Jefferies — Analyst

Hi. Good evening. Thanks, management, for taking my questions. I have a question relating to the competitive landscape. Remember, a quarter ago, during the earnings call, we talked about there are different competitors competing in the sector. Just want to see how we should think about it in coming quarters or in 2021? And then my last question is about the user trend for next year. Should we expect the user growth momentum would continue going into next year or we should expect there may be some gradual slowdown? Thank you.

Jessie Fan — Director of Investor Relations

Thank you, Thomas. [Foreign Speech]

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Thomas, regarding your two questions, on the first question, in e-commerce, we’re always quite competitive and there are a lot of players in this space and also some players specifically the apparel or discount retail segment. Well, we have been a player in this field for quite a number of years. We have a lot of experience and a lot of surprising relationships as well.

Most importantly, we focus on our merchandising strategy. So our apparel related products are all those on a first party model and that are very different from the marketplace platform. Our products are prepared by our merchandisers and we provide differentiated products at a deep discount on a daily basis.

So we do believe that customers recognize the differentiated value of the Vipshop and that’s why we were able to achieve accelerated customer growth in the recent quarters as well.

And regarding your second question, customer growth, we have been refocusing on good merchandising. And it’s been quite effective enjoying that customers who potentially didn’t like us or liked the platform because we didn’t offer them exactly the type of value that they were looking for. And as we refocus on to the good merchandising and the prices, we also increased our branding budget in order to promote our brand image and let more customers know how we’re different and what we have to offer.

So we do believe that the trends that we’re seeing in 2020 can continue in the future.

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Operator

Thank you. We have the next question from the line of Han Joon Kim from Macquarie. Please go ahead.

Han Joon Kim — Macquarie — Analyst

Great, Thank you. Welcome, David; and thanks for everything, Donghao, and hope to stay in touch and best wishes in your next endeavors. In terms of the business, I just wanted to follow-up. We’ve been kind of prepared for user acquisition for a little while now. We fixed a lot of our cost structure, improved our merchandiser and we were planning to go after this acquisition. And it seems to — the strategy seems to have been working quite nicely.

So as you guys kind of accommodate towards this point of acquiring users better, what are some of the incremental challenges that you’re seeing now relative to some of the fixes that you’ve been doing forward? And so, how do we kind of plan to address some of these new challenges that are coming as you — as you start to grow much stronger again?

Jessie Fan — Director of Investor Relations

Thank you, Han Joon. [Foreign Speech]

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Han Joon, regarding your question on challenges, we didn’t see anything that is particularly challenging or new in terms of the development of our business. But there are a few things that we will be focusing on to further deepen our expertise and improve our assistance.

The first one is ensuring that we have enough good merchandising to offer our customers, and that includes the assets we’ve made and the potential opportunities we made for Vipshop products. And the second one is to acquire customers, and acquire customers from the lighter customer group, of course while ensuring the quality of the customers and they would be high spending customers with high retention.

And lastly, personalization. So as we mentioned, we have been always trying to personalize the experience on the platform, matching the products we’ve already procured and carefully selected by the merchandisers to the individual consumers and their individual taste and style. So these things are the areas where we’ll be focusing on going forward, and we will continue to deepen our expertise in specialty in the discount retail area by focusing on each area.

So we do believe that as long as we can successfully execute on these three areas, we should be continuing to see very positive future results as well.

Operator

Thank you. We have the next one coming from the line of Ronald Keung from Goldman Sachs. Please go ahead.

Ronald Keung — Goldman Sachs — Analyst

Sure. Thank you, Shen and Donghao. Welcome, David and Jessie. Maybe a question on the revenue growth that we’ve seen, the very kind of strong beat versus your guidance, so kind of the 5% to 10% came at 18%. Was that a very big surprise in the September month? And can you share just how the quarter to-date has been, maybe particular over the November shopping festivals, any trends that you could share, besides you talked about that the higher user trends versus third quarter so far? Thank you.

Donghao Yang — Chief Financial Officer

Sure. Let me take your question. Thanks, Ronald. Well, the third quarter of every year tends to be most difficult quarter for which we provide guidance, because the three months of that quarter — two months are kind of one that — the September is kind of the autumn, much cooler month. So we are a retailer for apparel mostly, so our sales may be affected by — sometimes by the change in the seasonality.

So when we provide guidance, it’s usually mid-August — August. There’s no way we can foresee how the autumn will look like in September. So that’s why in the third quarter of every year, it’s kind of the most difficult for me, as CFO’s perspective, to provide guidance to the investor.

So that’s — I think that’s the main reason why our guidance looked kind of conservative for Q3, but the actual result turned out to be guided by a pretty big margin. For other quarters. I think we have kind of a better sense in terms of what guidance should be or compared to the actual results.

Well, okay your second question was about the Double 11. I think our performance for Double 11 was quite good, actually quite strong, both in terms of customer growth and GMV growth.

Jessie Fan — Director of Investor Relations

Next question please, operator.

Operator

Thank you. We have the next question coming from the line of Joyce Ju from Bank of America. Please go ahead.

Joyce Ju — Bank of America — Analyst

Good evening, Shen-san, Donghao, David and Jessie. Congrats on the very solid results this quarter and thanks for taking my question.

I actually have a follow-up question to — Shen-san previously mentioned the supply chain side. Because I believe a couple of quarters before you guys mentioned like you actually upgraded the relationship with the key suppliers and talking about like giving a rebate or some incentives to the like top suppliers and tried to secure a more attractive like overstocks. Just want to know what’s the progress on that front.

And also, if Shen-san could elaborate a little bit to let us know like what’s the latest trends in terms of our cooperation with like suppliers, because we know only this year, the first half or like even though early summer, are probably like most of the brands have a lot of like overstocks and after a year of letting the destocking on different online channels. What’s the situation of the brands now? And we foresee like next year we could see the same level of like attractive like products similar to this year?

?

And the last question is actually related to the customization Shen-san previously mentioned. Just could you elaborate more in terms of like how this was actually the corporation was like in shape and what percentage of like our current GMV products like in this corporation format? Thanks a lot.

Jessie Fan — Director of Investor Relations

Thanks, Joyce. [Foreign Speech]

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] So we actually rank our brands by their brand equity and the quality of the brands, both internationally and domestically. And we, as we mentioned, we have been subsidizing some of the top-top brands in order to secure the best inventory that they have to be sold on our platform.

On top of that, this year, we also have been acquiring more international brands and also the top international brands to work with us. So we will continue to add more high quality brands and direct more traffic to our top partners with high brand quality and that the customers like and that we can continue to deepen our relationships with these top brands as well.

And Joyce, regarding your second question, whether or not we will continue to see a lot of credit merchandising into the next year and beyond, the answer would be that — yes, we have seen plenty of inventory so far. And if you look at the financial statements of — a lot of apparel brands in China, they published in June this year, there is actually over RMB 70 billion of inventory from listed brands. and there are more brands that are not listed.

So we believe that there is lots of potential in the discount retail market. And what we need to do right now is actually acquire more customers, so that we can help more brand partners save more inventory, more efficiently. So again, on the supply side, we have very strong relationships, and we don’t worry about the supply running out next year or beyond at all. It’s just a matter of time.

Operator

Thank you. We have the next question from the line of John Choi from Daiwa Capital. Please go ahead.

John Choi — Daiwa Capital — Analyst

Good evening and thank you for taking my question. And Donghao, best of luck and best wishes, and welcome on board, David. I have a question related to your merchant strategy or your supply strategy, because I could see that your gross profit margin has been consistently around like low-20s. But at the same time, management kept on saying that we are doing very well when it comes to getting quality and better merchandise.

So I was wondering, in terms of our strategy, what have we done over the past, I would say, a year or so to further enhance our merchandising capability? Is it because we’re consistently paying a bit higher in terms of the take rate is a bit lower? So that’s my first question.

The second question is just quickly on the user cohort. Can you kind of share with us the user — the new user or the existing — previous dormant users, how much are they from coming from the lower tier cities or either through the Tencent mini program channels? Thank you.

Jessie Fan — Director of Investor Relations

Thank you John. [Foreign Speech]

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] So John, when we say we lower take rates in some cases for suppliers, we’re only mentioning doing this for our top-top supplier. So most — for the predominant suppliers on the platform, their take rates hasn’t changed.

When we talk about merchandising, it’s about choosing products, choosing brands, choosing — and thus getting lower prices and becoming more efficient on our platform in terms of the traffic and the match between the merchandising and the end consumer.

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So it’s not exactly just about lowering take rates and lowering prices. But we do want to mention that when we do better in merchandising, it doesn’t necessarily mean we increased the take rate. It just means that we have better products that are more attractive to the consumers.

John, regarding the new customer contribution, so the new customer contribution from Tencent and JD in the third quarter is around 22% and they don’t come from a specific tier of city, but rather from Tier 1 to Tier 6 cities, so across the board. The highest customer contribution comes from Tier 2, Tier 3 and Tier 4 cities.

Donghao Yang — Chief Financial Officer

Let me add a bit more color to this question. It seems that a lot of our investors are looking closely at our gross margin and gross margin only. That’s not exactly what the management has been focusing on. For the last many, many quarters, we’ve been telling the capital market that our goal is to drive top line growth as fast as possible while maintaining a stable profitability. So, by stable profitability, we mainly look at the bottom line.

So it’s a balance between growth and profitability. So gross margin, it’s just only part of the equation. So as long as we can maintain a stable — let me repeat, a stable bottom line profitability, then our goal is to drive top line as fast as possible, including all the things that we can do to acquire new customers, for example, day trade, marketing and all that.

So I would encourage our investors to look at our financials or profitability as a whole, not in particular any line item.

Jessie Fan — Director of Investor Relations

Next question?

Operator

Thank you. Yes, the next question comes from the line of Fei Tong Zhang from CIPCTU [Phonetic]. Please go ahead.

Fei Tong Zhang — CIPCTU — Analyst

Hi. Thanks, management, for taking my question. Congrats on the strong results. I wish Donghao all the best luck in the future, and welcome David, and thanks, Jessie and thanks Shen-san.

My question is regarding to the impact from the pandemic and the cold winter. The pandemic resulted increased inventory levels in many industries and we are benefiting from it. And cold winter versus warm winter last year, we also benefited from more sales in apparel category. And is it one-time benefit or structural benefit for Vipshop? Is the top line growth sustainable? Are we going to spend more marketing dollar next quarter and next year? This is my first question.

And my second question is regarding to the margin. Our fourth quarter in 2019 was relatively high base. How should we look at the profitability for the fourth quarter of this year and moving to next year? Are we going to continue our strategy to spend marketing dollar as much as we can and margin will be around mid-digit for the following quarters? How are we going to balance top line growth and profitability for next year? Thanks.

Jessie Fan — Director of Investor Relations

[Foreign Speech]

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] So Fei Tong, on your question on the cold winter, yes this year’s winter is a bit colder than last year’s winter, but our growth in the fourth quarter is mainly going to be driven, as we mentioned previously, by customer growth. So it’s doesn’t have too much to do with cold winter, but of course, it’s definitely a tailwind to our business — headwind.

Donghao Yang — Chief Financial Officer

Yes. You know what — the cold winter, I think, is temporary and may not have as much as impact on our business as some of the investors think. Because last winter, it was mentioned, we had a record quarter in terms of net margin, right? Our net margin was like close to more than 9%, excluding the impact from the continuation of our logistics business. Last winter — last Q4 was a very warm winter. And this winter is a bit colder, but I think the impact would be very limited and temporary, if any.

But I think the COVID-19 pandemic might have brought some structural change in the retail industry, because during the COVID-19 pandemic period, a lot of the stores, offline stores were closed. So many, many customers who used to only shop at offline stores had to change the behavior, started shopping online.

And so, we believe that split between online and offline retail, now, I think, moves more favorably to online. I think that’s a bit changed due to the structural change.

Well, and in terms of profitability going forward, and as I first mentioned, our goal is to drive our top line as fast as possible, while maintaining a stable profitability level. So I think for Q4 and the foreseeable next couple of years, I think that will remain our strategy. We will try to keep our bottom line as stable as possible, while reinvest into our top line growth. I think that strategy has worked really well and has paid off handsomely, if you look at our financial results in the most recent quarters.

Operator

Thank you. We have the next question coming from Andre Chang — please go ahead — from JPMorgan.

Andre Chang — JPMorgan — Analyst

[Foreign Speech] So I have a follow-up question on the margin and also a very quick note, simple question. So on the margin, Donghao, you mentioned you try to keep the profitability at the bottom line stable. But we know the reinvestment driving the top line growth, naturally we will have more operating leverage.

So how we should we think about this effect of operating leverage? Should we still see a bottom line margin gradually going up even if we continue to reinvest for top line growth? Say — we usually say that probably 5%-ish net margin is healthy, too high is not ideal. But probably, we will probably still see the margin gradually approaching above 6% or 7%. Is that the possible scenario? So that’s one thing.

And secondly, it’s a very quick question on the latest graph on the guidelines of the antitrust issues on the Internet space. I wonder if Donghao or management can provide any color and interpretation on that? Thanks.

Donghao Yang — Chief Financial Officer

Thanks for the question. Let me take your first one. Yes, well, I would have to agree that as our top line continues to grow fast, there will definitely be operating leverage here and there, which will help us increase our bottom line. If that’s the case, most likely our bottom line will go up gradually even if we want to reinvest the profit back to the business to drive faster top line growth. Yes, I would agree with that.

So that’s why we have been telling the capital market, we’re not trying to keep a stable profitability level at any specific number, right? We have been always saying it’s going to be a stable level, not a specific number. That’s your first question. Second question?

Jessie Fan — Director of Investor Relations

[Foreign Speech]

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Regarding your second question, Andre, we believe that these antitrust guidelines that’s been implemented, could help with China’s Internet long-term healthy growth. And we as a participant in China’s Internet space would of course also benefit from it.

Operator

Thank you. We have the next question from the line of Billy Leung from Haitong. Please go ahead.

Billy Leung — Haitong — Analyst

Hi, management. Thanks for taking my questions and congrats on David’s welcoming — coming to the team.

My question is in terms of our user growth. I think you’ve explained a little about merchandising etc. I was just wondering in terms of our strategy of user growth, was this an opportunity right now or why didn’t we take this opportunity to expand into the younger generation early or like a few quarters ahead? I was just wondering if this is the opportunity that’s happening recently or otherwise? I just want to understand the user growth. Thank you.

Jessie Fan — Director of Investor Relations

Thank you, Billy. [Foreign Speech]

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] So Billy, around customers increased and what we have been doing, and it’s all because we are focusing on differentiated product offerings, specifically on good merchandising. What that means is, discount apparel advance, deep discount and good merchandising on a consistent basis is why customers come to us, both new customers who’ve never shopped with us as well as existing shop customers, who can continue to shop with us and find more with us in the future.

So the basis of this is merchandising, and of course on top of that, as we’ve shifted more towards discount retail and have some merchandising on the platforms, we’ve also appropriately increased our branding in digital advertising budget.

Operator

Thank you. Ladies and gentlemen, we do not have any further questions at this moment. I would like to hand the conference back to our speaker. Please take over.

Eric Ya Shen — Chairman of the Board of Directors and Chief Executive Officer

Thank you all for taking the time to join us today, and we look forward to speaking with you next quarter. Basically, we, here means, Eric, David and Jessie. Thank you very much.

Operator

[Operator Closing Remarks]

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