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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 PerformanceFY2014
(000) USDQ4Q1Q2Q3Q4
Revenue651,016701,928829,445882,6291,359,656
Gross profit159,426174,811205,777219,525338,233
Operating profit29,56130,24123,70821,26060,811
Net income25,39924,67422,61922,72752,769
Earnings per share (GAAP, fully diluted)0.430.450.440.462.36
Comparison YoY
Revenue117%126%136%130%109%
Gross profit132%140%149%136%112%
Operating profit445%452%251%77%106%
Net income300%322%150%89%108%
Earnings per share257%317%184%126%447%
Comparison QoQ
Revenue70%8%18%6%54%
Gross profit71%10%18%7%54%
Operating profit146%2%-22%-10%186%
Net income111%-3%-8%0%132%
Earnings per share110%3%-1%5%409%
Margin analysis
GPM24%25%25%25%25%
OPM5%4%3%2%4%
NPM4%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 StatementFY2014
(000) USDQ4Q1Q2Q3Q4
Revenue
Product revenues641,801691,380816,700859,8841,333,220
Other revenues9,21510,54812,74522,74526,435
Total revenue, net651,016701,928829,445882,6291,359,656
YoY117%126%136%130%109%
Cost of goods sold-491,590-527,117-623,668-663,103-1,021,423
Gross profit159,426174,811205,777219,525338,233
YoY132%140%149%136%112%
Gross profit margin24%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 income3,8742,8624,8347,36610,060
Operating profit29,56130,24123,70821,26060,811
YoY445%452%251%77%106%
Operating profit margin5%4%3%2%4%
Impairment loss on investment0000-1,006
Interest expense0-1,628-4,681-3,939-2,029
Interest income5,8718,19813,43811,79613,659
Exchange gain/loss252-1,0587133,518-3,312
Other non-operating income007402,5720
Pretax income35,68435,75333,91735,20868,122
Income tax expense-10,285-10,323-9,473-10,401-9,781
Share of loss of an affiliate0-755-1,826-2,080-5,572
Net income25,39924,67422,61922,72752,769
YoY300%322%150%89%108%
Net profit margin3.9%3.5%2.7%2.6%3.9%
Net loss attributable to noncontrolling interests01,9203,7684,9693,814
Net income due common shareholders25,39926,59426,38727,69656,584

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