Discount Retailer Vipshop Revenue Declines as Consumer Confidence in China Drops

Backed by JD.com and Tencent, the clothing discount retailer didn’t see its stock fall despite flat revenue guidance.

Author: Belinda Zhou   

Online discount retailer Vipshop Holdings Ltd. (NYSE: VIPS) reported declines in quarterly results on Wednesday due to soft demand in the consumer discretionary sector.

The Guangzhou-based company, Vip.com, said in a statement that for the three months through March, revenue decreased to $2.7 billion, down 12% year-over-year. Net income dropped 22% from the same period of the preceding year to $96.16 million, or 20 cents per ADS.

Vipshop said in the statement that soft demand, delayed logistic services, and inefficient supply chain amid the COVID-19 pandemic should explain the company's growth slowdown in the first quarter. 

Vipshop's key operation factor Gross Merchandise Volume, which indicates a total sales dollar value for merchandise sold in the platform, decreased to 28.9 billion yuan($4.1 billion), down 14% from one year ago.

The company relies on its apparel-related categories, which contributed to over 70% of its total GMV in the fourth quarter, despite the absence of its apparel-related sector portion for this quarter.  

The consumer discretionary sector was hurt by the low consumer confidence in China. China Consumer Confidence dropped to 118.9 points in February from 126.4 in January and then rebounded to 122.2 in March, according to data from Trading Economics.

The company saw an increase in its total order of 4% in the first quarter, from 116.5 million one year ago to 121.7 million, and reported a 69 million active user base in its annual report on April 28.

 "We have seen solid customer retention trends in the first quarter of 2020, despite reduced investment in marketing," Donghao Yang, the chief financial officer of Vipshop, said in the statement.

As of March, China's e-commerce giant JD.com Inc. (Nasdaq: JD) has increased its investment in Vipshop to 7.5% with an additional $55.8 million on August 21 in 2019. The company's other strategic cooperation partner Tencent Holdings Ltd. (HKEX: 0700)  raised the holding to 9.6% through its wholly-owned Tencent Mobility Ltd.

"We are glad to see that daily life in China has returned to normal, and as a result, our business has seen healthy recovery since March," Eric Shen, the chief executive officer of Vipshop, said.

For the revenue guidance in the second quarter, the company said it expects revenue to be between 22.7 billion yuan and 23.8 billion yuan ($3.24 billion and $3.4 billion), representing 5% year-over-year growth.

Shares in Vipshop were trading at $16.69 per share, up 4% midday Wednesday.


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