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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