China Stock Research

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Several years experience as an analyst in the hedge fund world. Investment knowledge includes long/short equities, credit, macro, arbitrage, distressed debt, and special situations. Previous research publication experience includes Japanese small cap research distributed to institutional investors. Education credentials include BS in Computer Science, MBA in Finance, and CFA Charter. Follow on Twitter @ChinaStockRsrch Follow on StockTwits @ChinaStockResearch

Vipshop Q4 FY2014 Results


Vipshop Holdings (NYSE:VIPS) has announced its Q4 FY2014 results, which included revenue of 1.3 billion USD (exceeding management’s guidance of 1.2 billion USD) and net income of 52.8 million USD, reflecting the highest net margin for the year. Fourth-quarter results beat consensus expectations for revenue (1.3 vs. 1.2 billion USD) and earnings (0.12 vs. 0.09 USD per share est.). Results in the quarter were driven by continued strength in the number of orders, which nearly doubled YoY, as well as customers, extending the triple-digit pace reported earlier in the year, up +114% YoY.

Other operating metrics were also broadly positive: the average order size increased, and the number of orders per customer was also higher during Q4. The company managed to achieve some scale gains in fulfillment, while controlling other fixed costs, resulting in operating margin expansion versus earlier quarters.

Management’s outlook for Q1 FY2015 was strong, exceeding the consensus revenue estimate (about 1.3 billion USD vs. a 1.2 billion USD estimate).

Recent Quarterly Performance FY2014
(000) USD Q4 Q1 Q2 Q3 Q4
Revenue 651,016 701,928 829,445 882,629 1,359,656
Gross profit 159,426 174,811 205,777 219,525 338,233
Operating profit 29,561 30,241 23,708 21,260 60,811
Net income 25,399 24,674 22,619 22,727 52,769
Earnings per share (GAAP, fully diluted) 0.43 0.45 0.44 0.46 2.36
Comparison YoY
Revenue 117% 126% 136% 130% 109%
Gross profit 132% 140% 149% 136% 112%
Operating profit 445% 452% 251% 77% 106%
Net income 300% 322% 150% 89% 108%
Earnings per share 257% 317% 184% 126% 447%
Comparison QoQ
Revenue 70% 8% 18% 6% 54%
Gross profit 71% 10% 18% 7% 54%
Operating profit 146% 2% -22% -10% 186%
Net income 111% -3% -8% 0% 132%
Earnings per share 110% 3% -1% 5% 409%
Margin analysis
GPM 24% 25% 25% 25% 25%
OPM 5% 4% 3% 2% 4%
NPM 4% 4% 3% 3% 4%

Vipshop generated about 311 million USD of operating cash flow, up from about 30 million USD last quarter and 256 million USD in Q4 FY2013.

Based on our estimates, Vipshop generated approximately 224 million USD of free cash flow (assuming capex during the quarter of about 88 million USD).

The company reported approximately 1.4 billion USD of highly liquid assets on its balance sheet (including cash and cash equivalents, marketable securities), up versus 1.2 billion USD last quarter and 0.7 billion USD in Q4 FY2013. The sizeable cash position is due in part to a convertible bond offering earlier in FY2014, which accounts for the bulk of the YoY change.

Outlook

The company’s Q1 FY2015 outlook included the following:

  • Revenue: Between 1.25 and 1.30 billion USD (+82% YoY, -6% QoQ)

Operating Metrics

The increase in active customers during Q4 suggests that the increase in marketing spend has delivered the desired results.Vipshop’s earlier advertising strategy was to rely mainly on word of mouth to attract new customers, but has been spending on ads and other marketing recently, helping to build the customer base.

The number of orders rebounded versus last quarter, when management made the decision to de-emphasize its group buying activity and focus more on its core customers.Data for Q4 suggests that the earlier move was a strong driver for the top line, and could continue to be so if the customer acquisition continues to be successful.

Improvement in the Average Order Size (AOS) was helped by the company’s earlier shift in focus away from group buying and more to its core operations.The fourth quarter is strong seasonally, and the shift in focus away from group buying emphasized this effect, with the AOS rising nearly 15% vs. the Q1-Q3 average (vs. about 12% in FY2012 and FY2013).

Financial Performance

Income Statement FY2014
(000) USD Q4 Q1 Q2 Q3 Q4
Revenue
Product revenues 641,801 691,380 816,700 859,884 1,333,220
Other revenues 9,215 10,548 12,745 22,745 26,435
Total revenue, net 651,016 701,928 829,445 882,629 1,359,656
YoY 117% 126% 136% 130% 109%
Cost of goods sold -491,590 -527,117 -623,668 -663,103 -1,021,423
Gross profit 159,426 174,811 205,777 219,525 338,233
YoY 132% 140% 149% 136% 112%
Gross profit margin 24% 25% 25% 25% 25%
Fulfillment -73,203 -74,586 -83,846 -84,427 -127,331
Marketing expense -28,903 -30,054 -44,773 -47,052 -68,057
Technology and content -14,167 -18,661 -21,398 -31,326 -38,092
General and administrative -17,467 -24,132 -36,887 -42,825 -54,002
Other income 3,874 2,862 4,834 7,366 10,060
Operating profit 29,561 30,241 23,708 21,260 60,811
YoY 445% 452% 251% 77% 106%
Operating profit margin 5% 4% 3% 2% 4%
Impairment loss on investment 0 0 0 0 -1,006
Interest expense 0 -1,628 -4,681 -3,939 -2,029
Interest income 5,871 8,198 13,438 11,796 13,659
Exchange gain/loss 252 -1,058 713 3,518 -3,312
Other non-operating income 0 0 740 2,572 0
Pretax income 35,684 35,753 33,917 35,208 68,122
Income tax expense -10,285 -10,323 -9,473 -10,401 -9,781
Share of loss of an affiliate 0 -755 -1,826 -2,080 -5,572
Net income 25,399 24,674 22,619 22,727 52,769
YoY 300% 322% 150% 89% 108%
Net profit margin 3.9% 3.5% 2.7% 2.6% 3.9%
Net loss attributable to noncontrolling interests 0 1,920 3,768 4,969 3,814
Net income due common shareholders 25,399 26,594 26,387 27,696 56,584

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