Baozun Inc (NASDAQ:BZUN) Q2 2019 Results Earnings Conference Call August 21, 2019 8:30 AM ET
Wendy Sun - Investor Relations
Vincent Qiu - Chairman and CEO
Robin Lu - Chief Financial Officer
Junhua Wu - Chief Growth Officer
- Wendy Sun - 投资者关系
- Vincent Qiu - 董事长兼首席执行官
- Robin Lu - 首席财务官
- 吴俊华 - 首席发展官
Alicia Yap - Citigroup
John Choi - Diawa
Natalie Wu - CICC
Thomas Chong - Jefferies
Sally Chan - CLSA
Billy Leung - Haitong International
Tian Hou - T.H. Capital
Jiang Zhang - China Renaissance
Joyce Ju - Bank of America Merrill Lynch
- Alicia Yap - 花旗集团
- John Choi - Diawa
- 娜塔莉吴 - 中金公司
- Thomas Chong - Jefferies
- 莎莉陈 - 里昂证券
- Billy Leung - 海通国际
- 田厚 - T.H. 首都
- 江张 - 中国文艺复兴
- Joyce Ju - 美国银行美林证券
Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Second Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, today's conference call is being recorded.
I will now turn the meeting over to your host for today's call, Ms. Wendy Sun, Investor Relations Director of Baozun. Please proceed, Wendy.
女士们，先生们，早上好，谢谢你们支持宝尊2019年第二季度收益电话会议。 此时，所有参与者都处于只听模式。 [操作员说明]提醒一下，今天的电话会议正在录制中。
我现在将会议转交给您的主持人今天的电话会议，宝尊投资者关系总监Wendy Sun女士。 温迪，请继续。
Thank you, operator. Hello, everyone, and thank you for joining us today. Baozun'ssecond quarter 2019 earnings release was distributed earlier today and is available on our IR website at ir.baozun.com as well as on Global Newswire services.
On the call today from Baozun, we haveMr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Junhua Wu, Chief Growth Officer; and Mr. Robin Lu, Chief Financial Officer. Mr. Qiu will review business operations and company highlights, followed by Mr. Lu, who will discuss financial and guidance. They will all be available to answer your questions during the Q&A session that follows.
Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates, target, going forward, outlook and similar statements.
Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.
Further information regarding these and other risks, uncertainties or factors are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.
Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB.
It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.
今天在宝尊的电话中，我们有了。 Vincent Qiu，董事长兼首席执行官;吴俊华先生，首席发展官;和首席财务官Robin Lu先生。邱先生将审查业务运营和公司亮点，其次是卢先生，他将讨论财务和指导。在随后的问答环节中，他们都可以回答您的问题。
Thank you, Wendy, and thanks to everyone for joining our earnings call today. We build up on our strong start to the year with GMV gaining further growth momentum, reaching nearly 60% year-over-year during the quarter, while encouragingly total net revenue grew at its fastest pace than it had, increasing 47% year-over-year. This solid growth was partially driven by our strong performance during the June '18 fiscal end and highlights the success we are having in acquiring high quality brands and capturing new emerging e-commerce opportunities.
We continue to steadily accelerate brand acquisition, which is focused on generating high quality GMV, especially from brands in apparel and FMCG categories.
During the quarter, we added a net of 12 new brands which brings the total number of brand partners to 212 compared with 162 a year ago. In addition to penetrating deeper into existing categories we’ve also been exploring new brands in -- with tremendous potential. As I'm sure you all know, the Chinese consumer is gaining more purchasing power. This is especially true for younger generation in particular, which are spending more on global premium and factory goods and are increasingly buying through e-commerce platforms.
In addition to working directly with premium brands, we teamed up with Alibaba this quarter to fine tune customer engagement and the shopping experience for Luxury Pavilion, its dedicated channel for premium and luxury goods. We now provide services for both their premium sub-market places and a few imports on Alibaba’s first-party model for its luxury brands. While still in the early stage of this, we are very pleased with the initial results generated during the June ‘18 sales cycle.
We strongly believe the unique value proposition we offer will help us to penetrate further into the premium category, where we are seeing an increasing number of luxury brands adopting e-commerce strategy. In addition, we are in the process of upgrading our warehouses, IT infrastructure for Luxury Pavilion and expect to gradually update upward to end-to-end solutions during the second half of the year.
We began working with two top-tier highly respected video game companies during the quarter; one international and the other predominantly domestic under the new IP distribution model. Each company offers extremely popular categories in China and have authorized us to become the official distributor for their physical derivative products and handed us license to develop products of our own, such as apparel and accessories in the game’s characters.
While GMV from these products will be significant in the near-term, we are very excited about the enormous opportunities this IP distribution model will bring. Working with brand partners under this IP model requires not only deep knowledge of all operations but also omni-channel marketing, user engagement, the supply chain management, in all of which Baozun is uniquely positioned to offer with our diverse array of cutting edge solutions.
在本季度，我们增加了12个新品牌的净额，使得品牌合作伙伴的总数达到212个，而一年前为162个。除了深入了解现有类别之外，我们还一直在探索新品牌 - 具有巨大潜力。我相信大家都知道，中国消费者正在获得更多购买力。特别是年轻一代尤其如此，他们在全球高端和工厂产品上花费更多，并且越来越多地通过电子商务平台购买。
Growth of distribution model was also very robust during the quarter, leveraging our full scope of end-to-end solutions and the comprehensive branding and marketing capabilities. We successfully organized branding campaigns to increase our engagement, sort of transforming many Single’s Day to mixed style event. That drives incremental growth in the sales. We are also evaluating options in which our portfolio of brand partners with diverse new and existing brands -- exciting brands, such as leading international premium infant formula brand we signed during the quarter to drive incremental growth in product sales.
Years of operational experience on the distribution model has provided us with unique insights and really underpinning of inventory management, which we are leveraging to drive growth, while minimizing inventory risk. In addition to bringing new brands on-board, we have also been working to identify ways to optimize our existing offer mix by evaluating our brands both quantitatively and qualitatively when it comes to GMV.
After thorough consideration and as part of our strategy to focus on high quality GMV, we will strategically convert one of our electronics GMV brand partner into a non-GMV partner during the third quarter. Instead of handling their store operations, we will provide IT and marketing solutions to continue our support to this brand. We believe optimizing our brand portfolio towards high quality GMV will ensure the effective and efficient usage of our resources, so we can capture additional market opportunities to drive future growth.
As we shared with you in our last call, the success we have had with our international brand partners is being replicated and customized for current solutions for domestic brands. Starting earlier in this year, we began working with the leading domestic FMCG brand to help them benefit from the new era of e-commerce in China. We formed a joint venture with them at the end of April to tap into the enormous growth opportunities. We finished building the infrastructure for this JV during the second quarter which has already yielded solid success with the brand’s online GMV in the first half of 2019 more than doubling. This strong growth represents the unique value proposition we offer to domestic brands by combining our in-depth knowledge of e-commerce and technology with the brand’s comprehensive offer network and leadership position in the FMCG sector. The joint venture will soon be helping other FMCG brands.
And now turning to the technology and digital marketing. During the second quarter, we integrated our servers with our hybrid cloud model, Baozun Cloud to address growing need of storage and computing capabilities from our SaaS platforms and technologies. After smooth trial period, our core e-commerce systems were linked with Baozun Cloud to support operations during the June ‘18 sales campaign. We're extremely pleased with Baozun Cloud to have with us, which has significantly strengthened our technological capabilities, provided us with added flexibility to rapidly adjust and scale our servers within minutes and improve efficiency.
本季度分销模式的增长也非常强劲，充分利用了我们全方位的端到端解决方案以及全面的品牌和营销能力。我们成功地组织了品牌推广活动，以增加我们的参与度，将许多单日活动转变为混合风格活动。这推动了销售额的增长。我们还在评估我们的品牌合作伙伴组合中的各种新品牌和现有品牌的选择 - 令人兴奋的品牌，例如我们在本季度签署的领先的国际优质婴儿配方奶粉品牌，以推动产品销售的增量增长。
With Tmall, we’re now operating for Tmall flagship store version 2. We believe our continued investments in R&D and technology will provide us with greater flexibility and we're ideally positioned to help brands enhance their customer experience and drive higher e-commerce growth.
Digital marketing continues to be one of our most powerful tools to customer acquisition and reinforces the value add we're able to offer existing brand partners. At the recent 10th Golden Mouse Awards we were recognized as the Digital Marketing Benchmarking Company of the Year. We were also amongst seven shortlisted multi-channel network or MCN service providers certified by Alibaba in the first round.
We are very proud of the digital marketing unit, well recognized, full spectrum marketing agency specializing in not only ROI driven optimization but also the broader strategic implementation of omni-channel brand and marketing strategies, content and creativity as well as event marketing.
Our outlook for the rest of the year is very positive with China’s e-commerce sector showing increased resilience. China's e-commerce industry continues to gain growth momentum as the total addressable market expands. According to Tmall, this year’s June ‘18 sales campaign was the first time in history that over 120 brands in the sector were able to each generate over RMB100 million in GMV, a significant milestone.
As China's leading brand e-commerce service provider, we are well positioned to attack growing opportunities in this huge market, benefit from China's consumption upgrade. We believe that as the addressable market grows, more and more brands average will leverage their service partners’ expertise with their online business growth and operations.
In May, we had our Fourth Annual Global Brand E-Commerce Summit, which had the theme of Top Talking. We invited over 200 leading brands for in-depth discussion on GMV growth drivers and how technology, innovation and digitalization can improve. Brands are looking for solutions providers who can help them integrate all of their systems, digitalize procedures, optimize their supply chains, and develop innovative new business models, all of which Baozun is ideally positioned.
On that note, I will pass the call over to Robin to go over our financials. Thank you.
Thanks, Vincent. We are happy to deliver another solid quarter of growth. Our shifting focus towards high quality GMV brands is clearly paying off, highlighted by over RMB100 million in non-GAAP operating income we generated for the fourth time during a non-Single’s Day quarter, a significant milestone for us. It clearly demonstrates how we are able to drive profitable growth, while at the same time expanding investments in warehouse upgrades, technology and digital marketing.
Net income for the quarter grew 83% year-over-year but net margin expanded by 80 bps to 3.9% and the net margins remained flat at 4.9% on a non-GAAP basis. We also significantly improved operating cash flow during the quarter through enhanced management of our accounts receivables including making upgrades to our automated billing reconciliation system and closely monitoring collections.
We also further strengthen our cash provision with the issuance of a 5-year convertible bond with a net proceed of around US$270 million. All these initiatives provide us with having the financial flexibility and the confidence in our future growth prospects, while we expect GMV to grow by 40% to 45% year-on-year for the third quarter of 2019 and today we reiterate our full year GMV growth outlook of 40% to 50%.
Please note, this growth outlook hasn’t embedded the impact on GMV from the transitioning of electronics brand into potentially a non-GMV partner. Based on our profitability improving, addressable market is expanding and our strong cash position. We have decided to strategically reinvest some of our profits throughout the rest of the year to take advantage of the newly emerging opportunities so that we will strengthen our position over long-term. These opportunities improve early investments in some key new brands to support operations while they gradually ramp up technological infrastructure and warehouse upgrades in the high premium categories, and technology and digital marketing which are experiencing our unique value proposition to brand partners.
We believe these investments are critical and will significantly improve our competitive position in the market in the years to come, even if they temporarily impact our bottom-line in the short-term. We are building this business for the long-term and are ready to make investments now, and ultimately will build a platform for sustainable and highly profitable growth in the future.
Now, let's go over the second quarter 2019 financial results in details. We believe year-over-year comparison is the best way to reveal our performance. All percentage change I'm going to give will be on GAAP basis. Once again, please note that all figures mentioned in this financial review section are in RMB.
Total GMV during the quarter increased by 60% to RMB9.73 billion. Our focus remains on growing our non-distribution business which showed GMV increase by 62% this quarter to RMB8.77 billion, in which service fee model is leading the pace. Total net revenues increased by
47% to RMB1.70 billion. Product sales revenue increased by 47% to RMB849 million. This increase was primarily due to the acquisition of new brand partners, the increased popularity of their brand partners’ products and Baozun’s increasingly effective marketing and promotional campaigns.
Services revenue increased by 47% to RMB855 million during the quarter. The increase was primarily attributable to the rapid growth of the company's consignment model and service fee model, and in particular, the strong growth in digital marketing services.
Total cost and operating expenses were RMB1.6 billion compared with RMB1.10 billion in the same quarter last year. In particular, cost of products increased to RMB679 million from RMB464 million last year, primarily due to higher costs associated with the increase in product sales revenue.
Gross margin for product sales increased to 50% from 19.5% with the margin expansion mainly being generated from high margin brand added over the past 12 months.
Fulfillment expenses increased to RMB392 million from RMB278 million last year, mainly due to an increase in GMV from our distribution and consignment model and the warehouse rental expenses, which were partially offset by improvements in efficiency. As a percentage of GMV, our fulfillment expenses ratio improved to 4% from 4.6% a year ago, mainly as a result of cost control initiatives as well as efficiency improvements which were partially offset by our investments in warehouse upgrades.
Sales and marketing expenses increased to RMB413 million from RMB273 million last year, in line with GMV growth as well as expansion in digital marketing which was partially offset by efficiency improvements. As a percentage of GMV, our sales and marketing expenses ratio improved to 4.2% from 4.5% a year ago, mainly attributable to labor efficiency leverage and improved profitability for digital marketing services.
Technology and content expenses increased to RMB102 increased from RMB65 million a year ago and RMB88 million last quarter. The sequential increase in technology and content expenses was mainly due to more upfront investments in emerging opportunities, as well as a short-term overlap between our high comps in Chengdu R&D Center and Shanghai, and our continued investment in innovation and the productization. During the second quarter, our investments in technological innovation and the productization totaled RMB21 million, up from RMB18 million last year.
G&A expenses increased RMB52 million from RMB39 million last year, primarily due to an increase in administrative, corporate strategy and business planning staff. Income from operations increased to RMB86 million with operating margin of 5%, unchanged from the same quarter of last year. All-in-all, non-GAAP income from operations was RMB103 million, an increase over 30% from RMB79 million last year.
Non-GAAP operating margin was 6.1% compared with 6.8% in same quarter of last year. Offsetting interest income, net interest expense totaled [RMB3.4 million] compared with a net interest income of RMB145,000 last year and net interest expense of RMB6 million last quarter. While we’ve completed the CB financing in April with a much lower coupon interest rate, we have proactively retired some of existing short-term backlog to cut interest expense. As such, net interest expense was cut meaningfully on a sequential basis.
In second quarter, net income attributable to ordinary shareholders of Baozun increased by 83% to RMB67 million. Basic and diluted net income attributable to ordinary shareholders of Baozun per ADS were RMB1.16 respectively and RMB1.13 respectively, compared with RMB0.65 and RMB0.62, respectively during the same period of last year.
Non-GAAP net income attributable to ordinary shareholders of Baozun increased by 46% to RMB84 million. Basic and diluted non-GAAP net income attributable to ordinary shareholders of Baozun per ADS were RMB1.45 and RMB1.41, respectively, compared with RMB1.01 and RMB0.96, respectively for the same period of last year.
As of June 30, 2019, we had RMB2.55 billion in cash and cash equivalents and short-term investments compared with RMB540 million as of December 31, 2019. The significant improvement in cash position was mainly attributable to our CB issuance with net proceeds of approximately US$270 million and strong operating cash flow during the quarter, which was partly offset by the retirement of short bank loans net of RMB258 million.
Turning to guidance. Based on current macroeconomic and operating conditions, for the third quarter of 2019 we expect total net revenues to be between RMB1.5 billion and RMB1.55 billion, which represents a year-over-year growth rate of approximately 35% to 40% in which service revenue to increase in line with the growth rate of total net revenue on a year-over-year basis.
This concludes our prepared remarks. Thank you. Operator, we're now ready to begin the Q&A session. Thank you.
[Operator instructions]. Our first question comes from the line of Alicia Yap of Citigroup. Please go ahead.
[操作员说明]。 我们的第一个问题来自花旗集团的Alicia Yap。 请继续。
Good evening, Vincent, Robin and Wendy. Thanks for taking my questions. Congratulations on the strong result. I have questions on the product revenues this quarter. So could you help us understand what are some of the reasons that contribute to the strength in product revenue this quarter? Was there any benefit from the VAT adjustment? If so, will the benefit be only one quarter impact? And then if we look at on the product revenue growth, how should we think about 3Q and into second half, will the reacceleration is sustainable? And can you remind us the total numbers of brands that are currently under the distribution model? Thank you.
晚安，文森特，罗宾和温迪。 谢谢你回答我的问题。 祝贺结果强劲。 我对本季度的产品收入有疑问。 您能否帮助我们了解导致本季度产品收入增长的一些原因是什么？ 增值税调整是否有任何好处？ 如果是这样，效益只会影响四分之一吗？ 然后，如果我们看一下产品收入增长，我们应该如何看待第三季度到下半年，重新加速是否可持续？ 您能否提醒我们目前在分销模式下的品牌总数？ 谢谢。
Sure, Alicia. I think that’s my turn to answer your question. Yes, we have about 47% growth in the distribution model which is product sales. I think that’s two reasons. The first one, the existing brand is still capable of very constant high growth rate we enjoyed especially 6/18. And additionally, when we will -- call it we introduced some of key distribution model brands in last Q4 which fully ramped up in Q3 and contributed very high growth rate in our 6/18 and all Q3 quarter. So that’s the reason we enjoyed a very high growth rate in the product sales. And looking forward for the next two quarters we think the growth rate will be very in line with total growth rate of the revenue. And with better control of inventory, we take the full advantage of the experience and expertise in the product sales.
Regarding VAT, basically in our model we have a very specific arrangement with brands. But in total it’s very mature impact on our product sales revenue numbers for the VAT tax. And for the total number of brands, we have some brands but it’s not very disposable in the total number. I would say they have -- about less than 20% of our brands and we have -- we use distribution model in different platforms.
关于增值税，基本上在我们的模型中，我们与品牌有非常具体的安排。但总的来说，它对我们的增值税产品销售收入数字的影响非常成熟。对于品牌总数，我们有一些品牌，但总数不是一次性的。我会说他们 - 我们拥有的品牌不到20％ - 我们在不同的平台上使用分销模式。
Thank you. Next question is from the line of John Choi from Diawa. Please go ahead.
谢谢。 接下来的问题来自Diawa的John Choi。 请继续。
I have a couple of questions. First of all, I would like to ask about the -- Robin I think you mentioned in your prepared remarks that you guys will be reinvesting into your profit into the second half of this year. Can you kind of elaborate on that initiative? And also how should we think about the operating expenses towards second half of this year and also in terms of profitability? My second question is more about your existing brands. Can you share with us the same-store sales growth and also like the contribution from the new brands and what kind of trend that you guys are seeing from the these new brand partners? Thank you.
我有一些问题。 首先，我想问一下 - 罗宾我想你在准备好的评论中提到过，你们将在今年下半年再投资你的利润。 你能详细说明这个倡议吗？ 此外，我们应该如何考虑今年下半年的运营支出以及盈利能力？ 我的第二个问题更多是关于您现有的品牌。 您能否与我们分享同店销售增长，以及新品牌的贡献以及您从这些新品牌合作伙伴那里看到的趋势？ 谢谢。
Okay. Thank you, John. Let me take the second question first. Our same-store sales growth which is existing brand is -- growth rate is about 48%. And if you do -- mathematically if you do rough calculations, use 60% minus 48% it’s around 10% to 12% GMV contributed by the newly acquired brands. And that was expanding -- has been expanding through this year because we -- virtually we accelerated the new brand acquired for this year.
And back to the first question, yes, I mean strategically, for example, we think the direct cooperation with Ali for the high premium and Luxury Pavilion category is very a good opportunity for us for the future. And we do see -- we have some -- we’ve started some new cooperation from Q2 and now we do see the brand expansion for this category. And to do the business better in this section we think we need some new investments in the warehouse and the technology side. So, that's the reason why we think we want to reinvest on profits because that will guarantee our future growth and will give a very unique position to work with the platforms.
For the operating margin, yes, we may have some impact because we do the investment. For this one, we think we have a little impact but we are very positive for the future, operating margin improvement in the next year. Thank you, John.
好的。谢谢你，约翰。让我先谈谈第二个问题。我们的同店销售增长是现有品牌 - 增长率约为48％。如果你这样做 - 数学上如果你做粗略计算，使用60％减去48％，新收购品牌贡献的GMV约为10％到12％。这种情况正在扩大 - 今年以来一直在扩大，因为我们 - 实际上我们加速了今年收购的新品牌。
回到第一个问题，是的，我的意思是战略性的，例如，我们认为与阿里直接合作的高级保费和豪华馆类别对我们来说是一个非常好的机会。我们确实看到 - 我们有一些 - 我们从第二季度开始了一些新的合作，现在我们确实看到了这一类别的品牌扩张。为了在本节中更好地开展业务，我们认为我们需要在仓库和技术方面进行一些新的投资。因此，这就是为什么我们认为我们想要对利润进行再投资的原因，因为这将保证我们未来的增长，并将为平台提供非常独特的地位。
Thank you. Next question is from Natalie Wu of CICC. Please go ahead.
谢谢。 下一个问题来自中金公司的娜塔莉吴。 请继续。
I have two questions here. First one is related with the Tmall 2.0 initiative. Just wondering how should we read through the related impact on Baozun for this initiative? Could it help your take rate or margin profile in the longer run? I just want to get a sense of that. And secondly, regarding the new brands you've added this year and to be added this year, I would appreciate if management can give us some color on the incremental operating income versus like GMV, this effect related with these new brands, just wondering if there is any difference that we should be noticing regarding that? Thank you.
我这里有两个问题。 第一个与天猫2.0计划有关。 只是想知道我们应该如何阅读宝尊对这一举措的相关影响？ 从长远来看，它能帮助您提高利率或利润率吗？ 我只是想了解一下。 其次，对于你今年增加并将于今年增加的新品牌，如果管理层可以为增量营业收入提供一些颜色，比如GMV，这种影响与这些新品牌有关，我会很感激，只是想知道是否 我们应该注意到这一点有什么不同吗？ 谢谢。
Okay, Natalie, this is Junhua. So let me address your first question related to the full version 2.0 initiatives. So, the Tmall version 2.0 is a new initiative in terms of their back end store system. So it’s part of the Tmall growth plan after they appointed their new president. So the key point on the Tmall 2.0 is about, they implement a cascade model for helping those kind of brands and merchants to implement their membership management, and how they launch their new products and how do they set up a new scenario by crossing all those kind of online, offline supply cycles by implementing Tmall iStore system.
So, their cascade models for this stage, they only launch the membership enhancements to link all those merchants and brands and us to just implement a very comprehensive membership management. So they provide a lot of back end tools, helping us to develop new membership loyalty program, and a lot of engagement and lot of new initiatives and mechanisms to engage the new memberships, to provide a deeper connection with all those consumers, to upgrade service level with all those consumers, providing a lot of new scenarios and opportunities, driving higher conversion rate by providing extra services related to membership.
So with that kind of new tools and packages, we do have the opportunity to provide a lot of new extra services to our brand partners related to that. And in the future, while they keep releasing their new features, it’s good for us to keep increasing our stickiness with all brands, including providing add-value, extra marketing services, operational services and et cetera. So, by now, we see these initiatives from Tmall is really helping the brand partners’ growth and really helping to comprehensive our service offering. Thank you.
Okay, let me take the second question about the margin. When we talk about the margin we like to speak to the product sales and the service models differently. For the product sales, the reason to improve our margins is we carefully select the higher margin products with better indicated growth as we reiterate every time and we think we are on the right track to have the expertise to select the products, we do the backfill. That’s the main reason why you see the gross margin improvement for the product sales.
And about take rate, I think based on the number we provided you can quickly -- calculate it quickly. Even though there is some negative impact on the electronic brand we just talked about for the 2Q, they still have a slight increase in the take rate. That’s the main reason. It’s coming from the newly acquired brand with higher quality GMV, of course with higher take rate.
And that’s why I need to mention it, even for the new brands, we still -- normally we still take a short or long-term to ramp up GMV because some brands have very key and very big and we deal with many platforms and many brand stores in different areas, and different platforms. So we still take a very long time to ramp up. So till now because we acquired much more new brands, some of are still in the very -- in the ramp up stage, which contribute not too much in the take rate and in turn have some net impact on cost perspective. Thank you.
关于接受率，我认为根据我们提供的数字你可以快速 - 快速计算。尽管我们刚刚在第二季度谈到的电子品牌存在一些负面影响，但它们的拍摄率仍略有上升。这是主要原因。它来自新收购的品牌，具有更高质量的GMV，当然具有更高的接受率。
这就是为什么我需要提及它，即使对于新品牌，我们仍然 - 通常我们仍然需要短期或长期来提升GMV，因为一些品牌非常关键且非常大，我们处理许多平台和许多品牌店在不同的地区，不同的平台。所以我们还需要很长时间才能提升。因此，到目前为止，因为我们收购了更多的新品牌，其中一些仍然处于上升阶段，这对于采取率贡献不大，反过来对成本前景产生一些净影响。谢谢。
Thank you. Next, we have Thomas Chong of Jefferies.
谢谢。 接下来，我们有Jefferies的Thomas Chong。
My question is on the GMV growth momentum of our brand by different categories in the quarter, and also a modest strategy going forward to brand partners and we have social revenue growth be driven more by same-store sales growth or new brand addition? Thank you.
Sorry, the line is not very clear. Can you just repeat your question please?
Yes. Sure, the first question is just on the growth momentum of our brand in GMV by different categories? And the second question is on, what is our strategy to onboard more brand partners in the second half? And also will revenue growth be driven more by same-store sales growth or the new brand addition in the second half? Thank you.
是。 当然，第一个问题是关于我们品牌在GMV中的不同类别的增长势头？ 第二个问题是，我们在下半年加入更多品牌合作伙伴的策略是什么？ 收入增长是否会受到同店销售增长或下半年新品牌增加的推动？ 谢谢。
Sure, one is even though we don’t disclose details in the across category, I would like to give you some color about that and we think for the sport wear categories, we join by high growth rate. And also in the apparel, the men area we work is still very high growth. I would say, some of the key accounts where same-store sales growth is higher than same-store sales growth. So, we think we are in a very good track on that.
And about electronic suite, we don’t think that’s a main area for us and that’s one of the reason why we just transit one GMV partner to a non-GMV. So, that’s a first question. About the second question, I would say, we focus more -- recently, we focus more on high premium brands we occurred, and we see some traction into Q3 already, and we -- that’s a kind of new category we work with. And regarding the FMCG, we are introducing more products, more brands in this category too. Does that answer your question?
当然，即使我们没有透露相关类别的细节，我想给你一些颜色，我们认为对于运动服类别，我们加入了高增长率。 而且在服装方面，我们工作的男性领域仍然是非常高的增长。 我想说，一些关键账户的同店销售增长高于同店销售增长。 所以，我们认为我们处于非常好的轨道上。
关于电子套件，我们认为这不是我们的主要区域，这也是我们将一个GMV合作伙伴转移到非GMV的原因之一。 所以，这是第一个问题。 关于第二个问题，我想说，我们更关注 - 最近，我们更关注我们发生的高端品牌，我们已经看到了第三季度的一些牵引力，而我们 - 这是我们合作的一种新类别。 关于快速消费品，我们也在推出更多产品，更多品牌。 这是否回答你的问题？
Oh, yes. Thank you very much.
Thank you. We have Sally Chan from CLSA. Please go ahead.
谢谢。 我们有CLSA的Sally Chan。 请继续。
Actually, I have a follow-up with shift for certain brand to non-GMV model that you mentioned just now. Even taking in the consideration that shifts also GMV guidance of 40% to 50% year-on-year is actually maintained. So just trying to understand the drivers behind the bear and bull case here? For example, are we seeing a stronger brand pipeline than we previously discussed? Or are we seeing better than expected performance from existing brands so leading to us maintaining that full year guidance? Any sort of color will be useful. And the second question is actually on the GMV impact from that shift if you could provide any sort of range or color on the G&A impact will be very helpful? And other question will be slightly different is actually on our cooperation relationship with Alibaba. It seems that we are working closer with Alibaba's Luxury Pavilion in the recent months. So, if you could share some sort of cooperation opportunities that we are looking for to that also will be very helpful? Thank you.
Thank you. Let me take the first question and Vincent will take the second question. You know, when we see the outlook for the whole year, we not only consider, I mean, this possible transition of the electronics brand. More importantly consider the uncertainty of the macroeconomics as we specified early in this year. So, even though we have a very positive 6/18 numbers, we feel very cautious about the economy going to the end of this year.
So that's the key reason why we keep the 40% to 50% guidance unchanged. And fortunately, we just started preparation of Double 11. Based on very preliminary discussion with the brand across categories, we think we get very positive reaction from the brand for that. So, based on that, you know, as mix of all the information, we decided we don't change this guidance. If we have any update, we'll give you for the next earnings call.
And specifically for this brand, yes categories will have some impact in our growth rate based on the mathematical calculation, but we think that's a one-time issue and we have very strong pipeline and we are very positive for the future growth, especially for the next year and also to improve our both take rate and the bottom line for this decision. Thank you.
I'll take the second question about the Alibaba cooperation. We have several weeks worked with Alibaba for the luxury category. First one is that we can bring our brands directly to our platform to operate to Tmall stores. For example, some of the luxury brands we are working with now just have official site we are constantly talking to them trying to bring them on to the Alibaba platform that is number one.
Number two is that, Alibaba also have some invested brands. So, we are also working with this kind of brand to deliver our professional operational capabilities.
Third on is that, we also work with the Luxury Pavilion as some market place to impact enabled wholesale. So, that is our general working with Luxury Pavilion. We are also talking to Alibaba about some other potential you know ways of improvement. So, yes, that is our continuous effort. Thank you.
我将就阿里巴巴的合作提出第二个问题。 我们与阿里巴巴合作了几个星期的奢侈品类别。 首先，我们可以将我们的品牌直接带到我们的平台，以便在天猫商店运营。 例如，我们正在合作的一些奢侈品牌现在只有官方网站，我们一直在与他们交谈，试图将它们带到排名第一的阿里巴巴平台。
第三是，我们还与豪华馆合作，作为影响批发的一些市场。 所以，这就是我们与Luxury Pavilion的一般合作。 我们也在与阿里巴巴讨论其他一些你知道改进方法的潜力。 所以，是的，这是我们的不懈努力。 谢谢。
Yes. I just want to add something, you know, from the Q3 the most recent results, we think it already got some traction for the, to attract more high premium brands come in. We will describe more in the next earnings call.
Thank you. We now have Billy Leung of Haitong International. Please go ahead.
谢谢。 我们现在有海通国际的Billy Leung。 请继续。
Hi Vince and hi Junhua, hi Wendy and thanks for taking my question. Just a few quick questions, my first question is on the general market trend. We’re seeing more and more Chinese e-commerce platforms increasing their efforts in lower tier or undeveloped areas in China. I was wondering, if this had any impact on our products and services? and that’s my first question. The second question is, with more new brands coming in, can we just get an idea of the concentration of our key brands in terms of GMV or even just by numbers? And the last question is just on the recent funding of the debt issuance, I was wondering if we have further details of how we’re going to use that funding? Thanks.
嗨文斯和嗨君华，嗨温迪，谢谢你接受我的提问。 只是几个简单的问题，我的第一个问题是关于一般市场趋势。 我们看到越来越多的中国电子商务平台在中国的低层或欠发达地区加大力度。 我想知道，如果这对我们的产品和服务有任何影响吗？ 那是我的第一个问题。 第二个问题是，随着更多新品牌的问世，我们能否从GMV甚至数字方面了解我们关键品牌的集中度？ 最后一个问题是关于最近的债务发行资金问题，我想知道我们是否有更多关于如何使用这笔资金的细节？ 谢谢。
So I will take the first one, yes we do see some emerging channels, getting more and more active in markets. Our strategy is still unchanged, so firstly, talking about the GMV generation programs of course, we were quite focused on the existing GMV market places, like Tmall and JD.
That is about the today’s sales performance, but we keep watching the emerging channels very actively. We work with many programs, social mediums and some other shopping sites, who trying to engage with the brand, with them in different ways, majorly not a GMV purpose yet, majorly for the consumer engagement serving purposes at present.
But we do think, there are potential GMV opportunities ahead so that is above the market trend. Many new ways of doing business, no matter it’s a demand generation or demand fulfillment we’ll all pay attention to that, to first part. Secondly is about…
但我们确实认为，未来有潜在的GMV机会，因此高于市场趋势。 许多新的经营方式，无论是需求生成还是需求实现，我们都会关注这一点，第一部分。 其次是......
Yes. Thank you, Vincent. So decentralization of our brand base is well above the strategy. When you look at our numbers which as I mentioned, we have about 10% to 12% share coming from, a GMV share, coming from the new brands, which demonstrated we already, we are gradually decentralizing our purpose in the TL cost. But in other way, the TL cost is still very important for us, and we are improving the quality of the service for them continuously. And in the 6/18, we do see some of the TL cost, they just hit historical very high growth rate, and we mostly enjoy the results and we hope we can get similar result in Double 11. Thank you.
是。 谢谢你，文森特。 因此，我们的品牌基础的分散化远远超出了战略。 当你看到我们提到的数字时，我们有大约10％到12％的份额，来自新品牌的GMV份额，这表明我们已经，我们正在逐步分散我们在TL成本中的目的。 但另一方面，TL成本对我们来说仍然非常重要，我们正在不断提高服务质量。 在6月18日，我们确实看到了一些TL成本，他们只是达到了历史上非常高的增长率，我们大多享受结果，我们希望我们可以在Double 11中得到类似的结果。谢谢。
Okay, thank you and just on the…
And certainly about the, sorry, go ahead Billy.
Yes, thank you. I’ll just remind the last question, yes on the… Thank you.
Sure, yes about the usage of cash, right. Yes, I think we are in the parallel to strengthen our operating cash flow as we mentioned, and we think we’ve made some achievements in Q2 and very strong positive in both operating cash flow and free cash flow. And in the meantime, we have tons of cash to support our high growth in the operations and also another purpose of usage of the cash is for the potential M&A, but we are very careful to use this cash. And we must the purpose will be strategically effecting our business, but to now we still keep watch on that and we don’t see very specific target yet. Thank you.
当然，是的关于现金的使用，对吧。 是的，我认为我们正如我们所提到的那样加强我们的经营现金流，我们认为我们在第二季度取得了一些成就，并且在经营现金流和自由现金流方面都非常积极。 与此同时，我们有大量现金来支持我们的业务高增长，另一个使用现金的目的是为了潜在的并购，但我们非常谨慎地使用这笔现金。 我们的目的必须是战略性地影响我们的业务，但到现在我们仍然密切关注这一点，我们还没有看到非常具体的目标。 谢谢。
Thank you. We now have the Tian Hou of T.H. Capital. Please go ahead.
谢谢。 我们现在有了T.H.的Tian Hou。 首都。 请继续。
I have two questions, one is regarding something related to Tmall, so the new CEO of Tmall, Zhang Yong, he said in the next three years including 2019 GMV Tmall is going to be double from 2 trillion to 4 trillion. So the CAGR will be 26%. So I just wonder as a partner on Tmall how are you guys going to benefit from that or how are you going to be part of that growth and the quantitatively, so how many new brands are you planning to added to platform or maybe also from other measurement if the management is going to give us some clarification, that’s number one question. Number two is the stock forward partnership with Alibaba which is exclusive. So in the past about when we understand is also one of the leading guys in those kind of SaaS programs. So its sounds like a quite negative for you guys. So can you give us some insight about their partnership impact to you? Thank you.
我有两个问题，一个是与天猫有关的事情，所以天猫的新任首席执行官张勇在接下来的三年里表示，包括2019年GMV天猫将从2万亿增加到4万亿。 因此复合年增长率为26％。 所以我只是想知道作为天猫的合作伙伴你们是如何从中受益的呢？或者你将如何成为这种增长的一部分而且是数量上的，所以你计划将多少新品牌添加到平台或者也可能来自其他品牌 衡量管理层是否会给我们一些澄清，这是第一个问题。 排名第二的是与阿里巴巴的股权合作伙伴关系。 所以在过去我们理解的时候也是这类SaaS计划中的领先者之一。 所以对你们来说这听起来很消极。 那么您能否向我们介绍一下他们对您的合作伙伴关系的影响？ 谢谢。
Hi Tian, this is Junhua, so let me answer your first question in terms of the GMV double of the year. So we did have a workshop as a strategic partner with Alibaba earlier so talking about this a bit. So I can share you some color on that, but don't treat my experience and my answer as official from Alibaba. So they have very comprehensive breakdown the GMV double including by three new set, one is the new customer, a new product and new scenarios.
In terms of new customers it's all about acquisition of the basic traffic from the outside Tmall into the inside Tmall. So right now the monthly active dynamic consumer is about like a 100 million every month dynamically. So they have very strategic KPI about being as per 20 million new customers every quarter to Tmall in the future one two years that’s one thing.
By expanding on Tmall service offering to strategically that’s one thing, by enrolling more brands on the Tmall by competing with the other ecosystem in there, under their radar that’s a new thing for new customers. The new product is like to about to open a lot of backend schools and extrapolate data driven tools is helping all those brands and merchant and partners to just create a design, create a new product by the consumer behavior, consumer need and global trend something like that.
They are going to succeeding although brands merchants and partners is leveraging the Tmall Big Data to drive more active rate and new products to create new things for consumers. That's creating the demand and fulfill demand .The third is creating new scenario it's more like to Tmall version 2.0. So as far as I said last time, they're about to launch a new implementation regarding their membership up gradation.
So this is their first approach. So, we are, we have a lot of capabilities to just create a new zone in each brand flagship store to create a membership launching program based on the brand policy and based on the brand existing CRM programs to deeply engage with your existing customer and enrolling new customers to drive a higher growth.
So, they are providing a lot of tools and policy to empower us as eco player suggesting our growth. We do benefit a lot from this kind of things from the three new, from Tmall. So we can just leveraging their resources to create our own growth. Besides that, may be you don't know that before, so, according to Tmall's announcement its over 50% of the Tmall GMV actually came from a non-brand market and non-brand entities, which means that the branded GMV has a lot of major brands including international brands and domestic brands is below 50% of total Tmall GMV.
So, this rest a little bit over 50% GMV came from the non-brand entity like that, factory, manufacturing and some kind of the retailer and some kind of the local brand holder something like that. So, Tmall is about to serve a very strategic partnership with all those brands and especially by providing and operating TP services to those non-branded kind of entities. This is also increasing and extending Baozun's addressable market not by only serving international and domestic brands but also by having opportunities of serving all those non-brand entities, by selling their products and goods online.
So, we can see that based on the roughly in an explanation on the growth strategy, we have a lot of potential. Thank you.
This is Vincent. I will take the second one about Salesforce. Yes, we did notice that, there is some strategic announcement between Salesforce and Ali Cloud. It is actually Ali Cloud. So, Ali Cloud is user structure service provider so it is easy to understand that the SaaS software provider to work with cloud service provider is very natural. And you may also notice that, there is some strategic payment from Ali Cloud. They said, we don't use SaaS, but we just want to be integrated so that's the translation of the Chinese statement.
Let me add, we in future can work much closer also with our cloud you know to bring our services to a broader base of customers. And also, we think the China market there is a need for some solutions and services which is very applicable and suitable for the local market. Actually, we are enabling the brands to directly facing their consumers that is our very important mandate so our SaaS solutions based on that to resolve the local business requirements to deliver a very efficient one in the market. Thank you.
这是文森特。我将采取第二个关于Salesforce的方法。是的，我们注意到，Salesforce和Ali Cloud之间存在一些战略性公告。它实际上是阿里云。因此，Ali Cloud是用户结构服务提供商，因此很容易理解与云服务提供商合作的SaaS软件提供商是非常自然的。您可能还注意到，Ali Cloud提供了一些战略性支付。他们说，我们不使用SaaS，但我们只想集成，这就是中文声明的翻译。
Thank you. We now have Jiang Zhang of China Renaissance. Please go ahead.
谢谢。 我们现在有中国文艺复兴时期的蒋章。 请继续。
Hey, guys. Good evening. Thanks for taking my question. So I just had a question on, regarding to the brand shifting from GMV to non-GMV. Can you just give me, like just let me know, what the reason is behind it? And is this more of a -- do you think this is more of a structural trend of brands wanting to let’s say, bring things, bring all the operations in-house? Or is it like one-off event? Any additional color would be greatly appreciated? Thanks.
大家好。 晚上好。 谢谢你提出我的问题。 所以我对从GMV到非GMV的品牌转移提出了一个问题。 你可以给我，就像让我知道，背后的原因是什么？ 这更像是一个 - 你认为这更像是一个结构趋势的品牌想要说，带来的东西，把所有的操作带到内部？ 还是像一次性活动？ 任何额外的颜色将不胜感激？ 谢谢。
Okay, thanks Robin, and let me answer this question. I think that not relate to the in-house or outsource ad hoc. That’s our decision to suspend the service. The reason for that is very simple because of very, very low take rates which impact our, I would say two factors. One is the very impact on our P&L; and the second one, really ways the sum of our limited sources. We want to better utilize limited resources to the product and based on the strong pipeline we have, we made this decision. So, I will say that there is some temporarily impact on the GMV, but there is not much impact on the revenue and no impact on our bottom line. Thank you.
好的，谢谢罗宾，让我回答这个问题。 我认为这与内部或外包特设无关。 这是我们暂停服务的决定。 原因很简单，因为非常非常低的采用率会影响我们，我想说两个因素。 一个是对我们的损益的影响; 第二个，实际上是我们有限来源的总和。 我们希望更好地利用有限的资源来生产产品，并且基于我们拥有的强大管道，我们做出了这个决定。 因此，我会说对GMV有一些暂时的影响，但对收入影响不大，对我们的盈利没有影响。 谢谢。
Sorry, just to clarify, so you said there is a slight impact on the GMV and yet I understand this…
Very, very slight impact on the GMV, but no impact on our most bottom line…
Got it. Okay, great.
Sorry, there is impact in GMV, detailed impact in, very, very detailed impact in the revenue and no impact on the bottom line.
Thank you. Next question is from the line of Joyce Ju of Bank of America Merrill Lynch. Please go ahead.
谢谢。 下一个问题来自美国银行美林的Joyce Ju。 请继续。
Hi, thanks management for taking my question, my first question is about take rates. Can you give us more color on the take rate trend specifically your Q3 guidance? So, there is the revenue being slower than the GMV growth does it mean a decrease seen for take rates and the real the collaboration with Alibaba to add luxury or premier brand, can help us to improve our take rates? And my second question is about, your brand catalogue can you give us more color on the new brand to be added in the second half? And also, give us an update on your relationship with your existing keen brands. Thank you.
嗨，感谢管理层提出我的问题，我的第一个问题是关于采取率。 您能否根据您的Q3指导为我们提供更多关于采取率趋势的颜色？ 因此，收入比GMV增长慢，这是否意味着采取率下降和真正与阿里巴巴合作增加奢侈品或顶级品牌，可以帮助我们提高我们的采购率？ 我的第二个问题是，您的品牌目录可以为我们提供更多关于下半年新品牌的颜色吗？ 另外，请告诉我们您与现有敏锐品牌的关系。 谢谢。
Sure, let me answer your question about the take rates. When we do simple take rate, you will see around 9.4% in Q1 and 9.7% in Q2. And for the GMV, I would say there are similar amount coming from the electricity brand we just mentioned, and we are going to transfer. And if you look at by the time Q1, Q2 I would say excluding that we have great improvement in our take rates, in the price excluding that one.
I think that's very good results when we focus on the high quality genre and expect more new spreads come in. So, based on this trend, we have the reason to believe we will have a gradual improvement in our take rates overall. So what’s your second question please?
当然，让我回答你关于采取率的问题。 当我们做简单的收益率时，你会看到第一季度约为9.4％，第二季度为9.7％。 而对于GMV，我会说我们刚刚提到的电力品牌有类似的数量，我们将转移。 如果你看看第一季度，第二季度我会说排除我们的采取率有很大提高，不包括那个。
It's about your brand pipeline, any color to share with us of new brands we added, like what kind of category domestic brands. Also can you give us update on your relationship with your key brands let's say like Nike? Or, yes thank you.
这是关于你的品牌管道，与我们分享我们添加的新品牌的任何颜色，比如什么类别的国内品牌。 您也可以告诉我们您与关键品牌的关系，让我们说像Nike一样吗？ 或者，是的，谢谢你。
Okay, this is Vincent. I will take this question. This year the whole year to now I think we have a very strong pipeline with very good potential from several of the key sectors including federal luxury FMCG and even some of the home products, so very strong pipeline, so there is one thing. The new brand is quite exciting to us, not only about the size of GMV, but also the comprehensiveness of different services.
About the key brands, yes, we always keep a very close attention to the key brands, including those very famous ones, we're looking with them very closely and we think the key brand is very fine with our sources. We are also, have the willingness to work for long-term with them as well, so in this case both side potential to work closely and for now. Thank you.
好的，这是文森特。 我会接受这个问题。 今年全年到现在我觉得我们有一个非常强大的管道，具有很好的潜力来自几个关键领域，包括联邦豪华快速消费品甚至一些家用产品，所以非常强大的管道，所以有一件事。 这个新品牌对我们来说非常令人兴奋，不仅仅是关于GMV的规模，还有不同服务的全面性。
关于主要品牌，是的，我们始终密切关注关键品牌，包括那些非常着名的品牌，我们非常密切地关注它们，我们认为关键品牌对我们的来源非常好。 我们也愿意长期与他们一起工作，因此在这种情况下，双方都有潜在的紧密合作。 谢谢。
Thank you. Ladies and gentlemen, that’s the end of our question-and-answer session. Now, I would like to hand the conference back to our presenters, Ms. Wendy Sun. Please go ahead.
谢谢。 女士们，先生们，这是我们问答环节的结束。 现在，我想把会议交给我们的主持人Wendy Sun女士。 请继续。
Thank you, operator. In closing, on behalf of the Baozun management team, thank you for the participation today. If you require any further information or keen to visit us in China, please let us know. Thank you for joining us today. This concludes the call.
谢谢运营商。 最后，代表宝尊管理团队，感谢您今天的参与。 如果您需要任何进一步的信息或热衷于访问我们在中国，请告诉我们。 感谢您今天加入我们。 电话结束了。
Thank you. Ladies and gentlemen, that does conclude the conference for today and thank you for participating. You may now all disconnect.
谢谢。 女士们，先生们，今天的会议结束了，并感谢您的参与。 你现在可能都断开了。
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