Vipshop Holdings Limited (NYSE: VIPS) Q4 2021 earnings call dated Feb. 23, 2022
Corporate Participants:
Jessie Zheng — Head of Investor Relations
Eric Ya Shen — Chairman and Chief Executive Officer
David Cui — Chief Financial Officer
Analysts:
Thomas Chong — Jefferies — Analyst
Alicia Yap — Citigroup — Analyst
Ronald Keung — Goldman Sachs — Analyst
Natalie Wu — Haitong International Research — Analyst
Eddy Wang — Morgan Stanley — Analyst
Andre Chang — JP Morgan — Analyst
Ashley Xu — Credit Suisse — Analyst
Presentation:
Operator
Ladies and gentlemen, good day everyone, and welcome to Vipshop Holdings Limited Fourth Quarter and Full-Year 2021 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.
Jessie Zheng — Head of Investor Relations
Thank you, operator. Hello, everyone, and thank you for joining Vipshop fourth quarter and full year 2021 Earnings Conference Call. With us today are Eric Shen, our Co-Founder, Chairman and CEO; and David Cui, 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 the 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 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.
Eric Ya Shen — Chairman and Chief Executive Officer
Good morning, and a good evening everyone. Welcome and thank you for joining our fourth quarter and the full-year 2021 earnings conference call. We are delighted with our solid business performance in 2021, despite a slow fourth quarter impact by the challenging external environment. For the full-year, total active customers increased by 12% year-over-year to 93.9 million. GMV rose by 15% to RMB191.5 billion.
Notably, Super VIP active customers grew by 50% to 6 million and contributed 36% of online net GMV. Driven by steadily growth in both customer base and average revenue per customer, our total revenue for the year increased by 15% year-over-year to RMB117.1 billion. Non-GAAP net income for the year exceeded RMB6 billion and net margin remained above 5%.
Our solid operational and the financial performance was led by continuous business upgrade based on our strategic position and as discount platform for branded products at exceptional value. To further enhance our core competitors during the second half of 2021, we focused more on core brands and the high value customers to further strengthen our value proposition with them.
Among many things, we rely and upgrade values, channels on our platform to better empower brand departments and enhanced shopping experience for customers. We are encouraged by the business synergy generated from the initiatives. For example, multiple brands recorded their highest single day GMV in recent year during the Super Brand Day and the Today’s Top Brand sales events. Many more brand came to us providing our customers with more unique and the price competitive products.
We are pleased to see that the contribution from core brand for the past year significantly improved from a year ago with their GMV growing faster than the overall GMV on our platform. Through their deepened relationship with our brand partners, we were able to better couplage with the core brands who made for Vipshop products. In addition, to address the needs of younger customer, we also consistently added new and trendy brands to our platform. As we brought in more quality brands and products, we were better positioned to leverage, integrate operations to improve customer stickiness and ARPU.
In particular, Super VIP member outperformed in most all operation metrics. They have a very high retention rate with their annual ARPU at around 8 times than the depth of non-SVIP customers. We expect this paid membership program to cover more high-value customers on our platform. Looking into 2022 and beyond, we will firmly execute on our merchandising strategy to secure and increasing share of quality products from carefully select brand partners.
To achieve this, we will keep allocation, more resource to accelerate the growing of the core brands, differentiate our offering further through made for VIP products and introduce more popular and high-end brands. In addition, we will continue to optimize our operations. We will improve the effective customer acquisition through personalized recommendation, enrich the shopping experience and effective target marketing for new and existing customers. We expect these efforts to collectively 3 drivers of quality and sustainable growth of our customer and the revenue for the long-term, while consistently delivering daily and healthy profits.
At this point, let me hand over the call to our CFO, David Cui, who will go over our financial results.
David Cui — Chief Financial Officer
Thanks, Eric. Hello everyone. 2021 was a year of challenge and uncertainty. Despite this, we achieved a solid performance thanks to our continued efforts in executing the merchandising strategy and refining operations. Our total revenue for 2021 increased by 15% year-over-year driven by steady growth in both customer base and average revenue per customer, although the fourth quarter came under some pressure.
Net margin attributable to Vipshop shareholders for the year remained resilient with sequential improvement in the fourth quarter due to disciplined operations evidenced by more prudent marketing strategy through integrated customer acquisition. Going forward, we remain committed to delivering steady profitability with quality top-line growth and creating long-term value to 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 the percentage changes are year-over-year changes unless otherwise noted.
Total net revenue for the fourth quarter of 2021 was RMB34.1 billion as compared with RMB35.8 billion in the prior year period, primarily attributable to soft consumer demand for discretionary categories impacted by the macro economy and COVID-19 pandemic. Gross profit was RMB6.7 billion as compared with RMB7.8 billion in the prior year period. Gross margin was 19.7% as compared with 21.9% in the prior year period.
Total operating expenses decreased to RMB5.0 billion from RMB5.4 billion in the prior year period. As a percentage of total net revenue, total operating expenses decreased to 14.6% from 15.2% in the prior year period. Fulfillment expenses was RMB2.2 billion, which largely stayed flat as compared with the corresponding period in 2020. As a percentage of the total net revenue, fulfillment expenses was 6.4% as compared with 6.1% in the prior year period.
Marketing expenses decreased to RMB1.1 billion from RMB1.7 billion in the prior year period. As a percentage of total net revenue, marketing expenses decreased to 3.4% from 4.8% in the prior year period, primarily attributable to more prudent marketing strategy. Technology and content expenses increased to RMB443.0 million from RMB272.4 million in the prior year period. As a percentage of the total net revenue, technology and content expenses was 1.3% as compared with 0.8% in the prior year period. General and administrative expenses were RMB1.2 billion as compared with RMB1.3 billion in the prior year period. As a percentage of total net revenue, general and administrative expenses was 3.5% which stayed flat as compared with the corresponding period in year 2020.
Income from operations was RMB1.8 billion as compared with RMB2.6 billion in the prior year period. Operating margin was 5.4% as compared with 7.2% in the prior year period. Non-GAAP income from operations was RMB2.1 billion as compared with RMB2.8 billion in the prior year period. Non-GAAP operating income margin was 6.1% as compared with 7.9% in the prior year period. Net income attributable to Vipshop’s shareholders was RMB1.4 billion as compared with RMB2.4 billion in the prior year period.
Net margin attributable to Vipshop shareholders was 4.1% as compared with 6.8% in the prior year period. Net income attributable to Vipshop’s shareholders per diluted ADS was RMB2.07 as compared with RMB3.51 in the prior year period. Non-GAAP net income attributable to Vipshop’s shareholders was RMB1.8 billion as compared with RMB2.6 billion in the prior year period.
Non-GAAP net margin attributable to Vipshop’s shareholders was 5.3% as compared with 7.2% in the prior year period. Non-GAAP net income attributable to Vipshop’s shareholders per diluted ADS was RMB2.64 as compared with RMB3.70 in the prior year period. As as of December, 31, 2021 the company had cash and cash equivalents and restricted cash of RMB17.2 billion and short-term investments of RMB5.4 billion.
Now, I will briefly walk through the highlights of our full-year results. Total net revenue for the full year of 2021 increased by 14.9% year-over-year to RMB117.1 billion from RMB101.9 billion in the prior year, primarily driven by the growth in the number of total active customers. Gross margin increased by 8.6% year-over-year to RMB23.1 billion from RMB21.3 billion in the prior year. Gross margin was 19.7% as compared with 20.9% in the prior year.
Income from operations for the full-year of 2021 was RMB5.6 billion as compared with RMB5.9 billion in the prior year. Operating margin was 4.8% as compared with 5.8% in the prior year. Non-GAAP income from operations was RMB6.6 billion as compared with RMB6.8 billion in the prior year. Non-GAAP operating income margin was 5.6% as compared with 6.7% in the prior year.
Net income attributable to Vipshop’s shareholders was RMB4.7 billion as compared with RMB5.9 billion in the prior year. Net margin attributable to Vipshop’s shareholders was 4.0% as compared with 5.8% in the prior year. Net income attributable to Vipshop’s shareholders per diluted ADS was RMB6.75 RMB as compared with RMB8.56 in the prior year. Non-GAAP net income attributable to Vipshop’s shareholders was RMB6.0 billion as compared with RMB6.3 billion in the prior year. Non-GAAP net margin attributable to Vipshop’s shareholders was 5.1% as compared with 6.2% in the prior year. Non-GAAP net income attributable to Vipshop’s shareholders per diluted ADS was RMB8.67 as compared with RMB9.08 in the prior year.
Looking forward to the first quarter of 2022, we expect our total net revenue to be between RMB27.0 billion and RMB28.4 billion, representing a year-over-year decrease rate of approximately 5% with 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.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question.
Thomas Chong — Jefferies — Analyst
Hi, good evening. Thanks management for taking up my questions. My first question is relating to the consumer sentiment that we are seeing right now. Can we comment about how it is different in Q4 and so far right now in Q1, because when I look at the guidance, it seems that it is a negative 5% to 0% which is similar to the guidance in Q4, so just want to see if any changes in terms of our focus on net core headwinds. And secondly, I also want to get a sense about how we should think about the quarterly momentum in Q2, and coming quarters? And then finally, it is more relating to competition. Can management comments about live streaming, online shopping competition in China and how it affects our business? Any thoughts on how whether we can separate out or quantify the impact on the competition and the macro headwinds to infinity? Thank you.
Eric Ya Shen — Chairman and Chief Executive Officer
[Foreign Speech] In terms of your first question on consumer sentiment, actually we have seen that it’s really weak in the fourth quarter because of the warmer weather, as well as sporadic COVID 19 cases, and in the first quarter it’s getting slightly better because of the weather is getting colder, but still we are naturally impacted by the COVID-19 cases here and there. So seasonality still plays some role in our business performance because we are a pretty much apparel category focused platform.
[Foreign Speech] In terms of the recovery trend in the coming quarters, it’s really hard to predict for now given the many uncertainties going on, especially, we see that there are few cases of COVID-19 and it’s still too early to tell whether the consumer trend is going, when the consumption is coming back. But overall, we should see a relatively stable growth for 2022. We don’t expect too much swings in our business performance. It’s going to be quite stable.
[Foreign Speech] In terms of competition, we haven’t seen too much change recently. We believe it’s getting relatively stable. We think that live streaming platforms they take what they can take in the past from shelf-based to e-commerce platforms. We didn’t see competition is getting worse. So we are actually not worried because as long as we get the right merchandises for our customers, they will always come to us. In terms of the impact of the macro and the competition, it’s really hard to quantify because that you cannot predict reliably whether macro is going to play-out, but on the competition side, we are pretty sure that the impact is already there.
Thomas Chong — Jefferies — Analyst
Thank you, Eric.
Operator
Thank you. Our next question comes from Alicia Yap from Citigroup. Please ask your question.
Alicia Yap — Citigroup — Analyst
Hi, good evening, management. Thanks for taking my questions. I have a couple of questions here. The first one is a question related to the inventory status for Winter Olympics merchandising. So have you been discussing with your brand partners or maybe your merchandising partners regarding the demand and the inventory situation? Do you see any opportunity that Vipshop can get some of these product that is kind of leftover? And given the timing, do you think you will be benefit more for the fall and winter season later in late 2022 or do you think there could be some winter clearance activity that you can leverage later in March or the April promotion period?
Eric Ya Shen — Chairman and Chief Executive Officer
[Foreign Speech] In terms of the inventory related to Winter Olympics, we haven’t seen a very strong buildup in such inventory. But we do see that sports companies have been growing their business on our platform very fast in recent years, but they do not provide any dedicated inventory in terms of such as skiing sportswear, etc. We think that they have a normal level of inventory for sportswear. So there is no anticipation that we are going to benefit from any excess inventories related to Winter Olympics.
Alicia Yap — Citigroup — Analyst
Yeah. Thank you. Can I follow up one question on user growth strategy. So can you elaborate what are the current plans that you are thinking in terms of to help to boost your new user acquisitions later this year? Thank you.
Eric Ya Shen — Chairman and Chief Executive Officer
[Foreign Speech] In terms of our user growth strategy. I think from the fourth quarter of last year we have been focused on acquiring quality users in a more efficient and effective way. We don’t want to blindly spend money in order channels to acquire low quality customers, instead, we are trying to do it in a balanced and a prudent way through integrated customer acquisition. This year we’re going to continue to invest a lot of efforts in acquiring new customers. But at the same time, we’re going to improve the retention of our existing customers. We will maintain a decent level of marketing spend in new user acquisition.
Alicia Yap — Citigroup — Analyst
Okay. Thank you, Jessie.
David Cui — Chief Financial Officer
Alicia, I have a couple of more things. Number one is, we’ve seen a number of our Super VIP increase year-over-year. So that’s the one of the key indicators that the quality of our customer base is getting better, and then we have also seen that our ARPU stabilized and have a slight increase, actually starting last quarter. So we’ve seen that trend.
Alicia Yap — Citigroup — Analyst
I see. Thanks. Thank you, David, for the additional color. [Foreign Speech]
Operator
Thank you. [Operator Instructions] Our next question comes from Ronald Keung from Goldman Sachs. Please ask your question.
Ronald Keung — Goldman Sachs — Analyst
Thank you. [Foreign Speech] David. Thank you taking my question. My first question is on gross margins. Fourth quarter is traditionally a high margin quarter with higher apparel mix. So given this year is not the highest kind of margin quarter just want to hear how are we thinking about the gross margin trends and the implications for 2022? My second question is, as our business reaches a more mature stage and we have a very strong net cash balance sheet and a sizable earnings per share, we’d love to hear management’s thoughts on whether there could be any potential plans even for rewarding shareholders like paying dividends? Thank you.
Eric Ya Shen — Chairman and Chief Executive Officer
[Foreign Speech] In terms of the gross margins, although Q4 is roughly lower level as compared to the full year, in the same quarter of last year, it’s really because of the promotions and the subsidies we did during the quarter. But however, because you know, during the quarter the weather was relatively warmer, and it didn’t effectively motivates consumers to you know spent more on winter clothing, so the return on this marketing spend is not desirable. But the current level of gross margin is not something that we want for the long term, we will gradually bring our gross margins to more normal level in the coming quarters. You don’t have to worry about the gross margins going ahead.
David Cui — Chief Financial Officer
In terms of the cash used, as you know our Board has approved a share buyback plan last year. So we have executed it partially in the last year. And given that we may get good profit in the year, and then we still see a healthy profitability in the coming year, in this year 2022. So the Board and the management is considering alternatives among the share payback and distribution of the dividends, So, it is within the process, and we are considering and evaluating the options right now.
Ronald Keung — Goldman Sachs — Analyst
Thank you. Thank you, Shen and David.
Operator
Thank you. Our next question comes from the line of Natalie Wu from Haitong International. Please ask your question.
Natalie Wu — Haitong International Research — Analyst
Hi, good evening. Thanks for taking my question. I have 2 here. First one is following up with Alicia’s last question about user acquisition. Can management elaborate more on your latest user acquisition strategy? For last quarter, we can see that your self marketing is quite controlled especially considering seasonal pattern. Just wondering any particular spending channel has been typically trimmed branding performance and performance-based or whatever? And all the kind of the sales and marketing budget you’re preparing for this year, should it be more of an absolute number or fixed revenue rate ratio depending on the timing of the improvement of the economy or the consumer confidence. Just curious, how should we see the change?
And second one is related with your Super VIP. Just wondering, what’s the current percentage of your Super VIP, and also the related gross margin profile kind of built up by them, because they have obviously have a higher ARPU, which is I think favorable to the cost of the margin maybe, but in the meanwhile they are enjoying a deeper discount. So yes, it would be great if management can share some color on that. [Foreign Speech]
Eric Ya Shen — Chairman and Chief Executive Officer
[Foreign Speech] In terms of the latest update on user acquisition strategy, I think what we do differently from the fourth quarter is that we strictly follow the LTV model to evaluate the marketing efficiency of our spending and as well as how many days to recover in terms of new customers as we are with existing customers. In the past, we tend to see it takes longer time for us to recover the spend on new customers, so we do less, and for the existing customers we tended to send out many coupons and did a lot of advertising but it turns out not to be very effective. So we also do less on that front.
In general, we apply this LTV model in all the channels, including our branding as well as TV drama sponsorships, as well as advertising on short video etc. So we actually did see some positive results from the fourth quarter. This year we continue to use the LTV model to manage all of our marketing spend in across different channels. We do not look at a certain absolute number of marketing spend as well as a certain percentage of total net revenues as long as LTV model shows, this is a healthy way to acquire customers, we will keep doing so. So we are going to take this balanced and prudent approach through our marketing strategy.
[Foreign Speech] In terms of the margin profile for SVIP members, we’ve just mentioned the SVIP already accounted for roughly 36% of our online net GMV last year. In the future, we’re going to continue to convert more high-value customers into SVIP members. In terms of the gross margin, SVIP members have a slightly lower gross margins than the overall level of our gross margin for the company, and slightly higher return rate, but SVIP proves to be much more than a non-SVIP member. So, it is definitely a very profitable model for the company, and we expect as long as more high-value customers successfully are becoming SVIP members, they tend to come to shop more and spend more.
Natalie Wu — Haitong International Research — Analyst
That’s very helpful. Thanks a lot, and Jessie.
Operator
Thank you. Our next question comes from Eddy Wang from Morgan Stanley. Please ask your question.
Eddy Wang — Morgan Stanley — Analyst
[Foreign Speech] Thank you for taking my question. My first question is also about the inventory destocking, so I know you mentioned that for the non-sports apparel there is no inventory issue, but I just want to ask if there is any report on women’s apparel or branded apparel, given the weak sentiment of the apparel in China since the second half of last year? And if that’s the case, do you have any opportunity for destocking in the coming quarters? The second question is about, if there is any plan for the category expansion on top of the apparel, given that apparel sentiments is quite weak, and if we have more SVIP on our platform, so we can leave the demands of different categories, not just about apparel. If that is the case, what the impact on the margin profile as a whole? Thank you.
David Cui — Chief Financial Officer
So the first question, among our sales and you know our business model is the sales of the consignment inventories. So majority of our business was done through consignment. So on our balance sheet, the inventory balance is quite small as compared to our total annual GMV, and you can also see the inventory balance is decreasing thanks to our effort to clear some of our aged inventory. And to add some color to this and among the inventory balance, quite big portion of that is coming from of our shops and offline stores. So they have to carry some inventories. So, take up in that and then the new inventory we carry for our online business is quite immaterial, I would say, yeah, okay.
Eric Ya Shen — Chairman and Chief Executive Officer
[Foreign Speech] Adding to David’s point, in terms of the inventory from non-sportswear apparel, we do see some buildup in inventory from the fourth quarter because of the weather conditions as well as COVID-19 cases, so it’s going to be interesting for us, but on top of clearing excess inventories for brands but also customer product offerings with some of the core brands. So we are trying to secure the best supply from our brand partners.
[Foreign Speech] In terms of the category expansion, in the past winter really in the power-related categories, but it’s not enough to meet the diversified needs of our consumers. So, we are really investing additional efforts in bringing more standardized products to our platform such as, for example, we’ve already build-up SVIP special store, we have a dedicated channel for standardized products, so we have very good cosmetic channel, we have the Fengqiang channel to attract a lot of the consumers to come to us to look for unique offerings with competitive pricing, to look for factor standardized products. So we are definitely going to increase our efforts on this front.
In terms of gross margin for standardized products, probably some of them may have a largely lower gross margin, but is really helping expand our brand portfolio, and especially, improve customer thickness and repeat orders. So, the increase in the proportion of standardized products, if any, will have limited impact on the overall level of gross margins. And adding to that actually, the conversion for standardized products is actually higher than a lot of apparel categories for the same on traffic. So that’s something we’ll look at this year.
Eddy Wang — Morgan Stanley — Analyst
[Foreign Speech]
Operator
Thank you. Our next question comes from Andre Chang from JP Morgan. Please ask your question.
Andre Chang — JP Morgan — Analyst
[Foreign Speech]
David Cui — Chief Financial Officer
I will answer your first question. So, in this year 2021, our capital expenditure is about RMB3.5 billion. So a little bit over half of that are actually for Shan Shan. And then we also have some payments before completion of our existing warehouses, which is in the work-in-progress. And then also, some upgrades of our technology and servers and the like. So, that’s pretty much the ballpark, there is no additional other expenditures.
Eric Ya Shen — Chairman and Chief Executive Officer
[Foreign Speech] In terms of our expansion for Shan Shan outlets, actually the Shan Shan business is really doing very well. Although, last year same-store performance was relatively weaker because of the COVID-19 pandemic, but excluding that impact, the same-store performance is actually trending very healthy. We believe that offline outlets is going to present a large addressable market, and it’s going to grow very fast in the next couple of years. So, we’re going to continue our expansion plan trying to add 2 to 3 offline outlets each year to capture the increasing consumer demand offline. We think this offline outlet business model is very solid, sustainable and very healthy for the long term.
Andre Chang — JP Morgan — Analyst
[Foreign Speech]
Operator
Thank you. Our next question comes from the line of Ashley Xu from Credit Suisse. Please ask your question.
Ashley Xu — Credit Suisse — Analyst
[Foreign Speech] Thanks management for taking my question. The first question is about our strategy shift to focus on the core brands. Is there any impact on some users stickiness and purchasing frequency? And my second question is related to the shipping and handling expense, we are seeing that per order expense is increasing both Q-on-Q and year-on-year. Should we take this new level as a future reference? Is it driven by the structural trend in the industry? Thank you.
Eric Ya Shen — Chairman and Chief Executive Officer
[Foreign Speech] In terms of the customer behavior things, actually the second half of last year, especially from the fourth quarter, we began to focus more on core brands, we provided the core brands with certain path forward in the time of a lot of uncertainties. So, we do see many positive developments, for example, customers who attended the sales event in our Super Brand Day sales or Today’s Top Brand sales, they tend to have much higher retention rate than those customers who didn’t have the opportunity to join these events. So, that actually gave us very strong confidence to continue to focus on the core brands to provide our customers with good, high-quality merchandises with competitive pricing, as long as we have the right brand supply for our customers as they will come more and spend more.
David Cui — Chief Financial Officer
Yeah. So we have been trying to improve our efficiencies over our fulfillment expenses over years. So, the more volume we can achieve, and then the more efficiencies we can get. So, as you can see, the number of orders in 2021 has increased as compared to year 2020. So, also we tried — that includes we tried to find ways to improve our efficiency in warehouses and then try to reduce the number of returns and exchanges, and those all will factor the efficiencies. I will set out this, we have been trying this for years and then we believe that we pretty much achieved the optimized efficiency and we should be able to find ways, but it’s going to be limited in future. Yeah.
Operator
All right. Thank you. Now that hat concludes today’s question-and-answer session. At this time, I will turn the conference back to Jessie for any closing remarks.
Jessie Zheng — Head of Investor Relations
Thank you for taking the time to join us today. If you have any questions or follow-up, please don’t hesitate to contact me. We look forward to speaking with you next quarter.
Operator
[Operator Closing Remarks]