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Vipshop (VIPS) Tops Q2 Earnings on Accelerated Orders

Zacks Equity Research
Updated

Shares of Vipshop Holdings Ltd. VIPS advanced more than 3% on Aug 15 after the company posted better-than-expected results in the second quarter of 2016.

Quarter in Detail

The Chinese online discount retailer reported adjusted earnings of 17 cents per share. Earnings beat the Zacks Consensus Estimate of 14 cents by 21.4%. Earnings also increased 30.2% on a year-over-year basis in local currency, driven by higher sales.

Revenues surged 49% to $2.02 billion in the quarter, beating the Zacks Consensus Estimate of $1.905 billion, despite the challenging macro environment. Accelerated growth in active customers, repeat customers and total orders over the past quarter led to the growth.

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During the quarter, the number of active customers increased 62% to 23.0 million from 14.2 million in the prior year period. The number of total orders increased 54% to 68.9 million from 44.9 million in the prior year period.

VIPSHOP HOLDNGS Price and Consensus

VIPSHOP HOLDNGS Price and Consensus | VIPSHOP HOLDNGS Quote

Margins

Gross profit soared 44.0% in local currency to RMB3.24 billion ($487.7 million). However, gross margin contracted 90 basis points (bps) to 24.1% due to the company's promotional pricing to attract customers.

Adjusted operating income increased 47.2% to RMB837.2 million ($126.0 million). However, operating margin declined 10 bps to 6.2% in the second quarter.

Third Quarter 2016 Guidance

For the third quarter, the company expects its total net revenue to increase in the range of approximately 37% to 43% on a year-over-year basis.

Our Take

We are impressed by the fact that Vipshop has delivered impressive results in a difficult macro-economic environment. This was driven by the addition of more than 8.2 million new customers in the second quarter, which fueled the top-line growth. The company also witnessed the addition of younger and more Internet- and mobile-savvy shoppers to its customer base.

Vipshop now expects to target these expanding demographics and offer products tailored for shoppers in various age groups. The company will also focus on delivering more personalized products and services to its customers.

However, the ongoing macroeconomic slowdown in China and increasing competition in the retail space are headwinds.

Vipshop holds a Zacks Rank #4 (Sell).

Better-ranked Internet companies in the industry include Bitauto Holdings Limited BITA, CafePress Inc. PRSS and GrubHub Inc. GRUB. All of them hold a Zacks Rank #2 (Buy).

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BITAUTO HOLDNGS (BITA): Free Stock Analysis Report
 
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