Q4 2016 Real-Time Call Brief

Highlights

We completed the year on a strong note delivering robust operational results with strong customer growth and market share gains, with over 50 million total unique active customers shopping on Vipshop platform in 2016.

We provide each of our customers with high-quality products selected by our 1,000 plus buyers, including many exclusive merchandise at guaranteed low prices. This includes more than 96% of our products checked by our staff for quality assurance before delivery.

Through the Vipshop platform, we enabled more than 5,000 leading brands to liquidate products and generated large sales, while gaining high-quality customers.

Domestically, our 2 million square meters of warehouses and more than 20,000 full-time delivery staff can provide customer with a fast and superior experience across all over China.

Our in-house last-mile delivery network currently covers 30 provinces, 300 cities and 2,872 countries across the country.

In the past quarter, we saw remarkable growth in our free cash flow, which increased by over 600% year-over-year.

Furthermore, in January 2017, a subsidiary operating the internet finance business completed its first offering of RMB-denominated asset-backed securities of RMB300 million, which is listed on Shanghai Stock Exchange in China.

Turning to our customer and supply financing programs, as of December 31, 2016, the total balance of credit outstanding to customers was approximately RMB2.17 billion and the total balance of credit outstanding to suppliers was RMB877.7 million.

For the full year of 2016, we had 3.3 million users taking advantage of our consumer financing program.

Total net revenue for the fourth quarter of 2016 increased by 36.5% to RMB18.98 billion primarily attributable to a 39% year-over-year increase in the number of active customers, which grew to RMB27.5 million and a 26% year-over-year increase in total orders to RMB82 million.

Gross profit for the fourth quarter of 2016 increased by 33.4% to RMB4.47 billion primarily driven by the expanding scale of the business.

Gross margin for the fourth quarter was 23.5% as compared with 24.1% in the prior year period.

Fulfillment expenses for the fourth quarter of 2016 were RMB1.65 billion as compared with RMB1.26 billion in the prior year period primarily reflecting the increase in sales volume and number of orders fulfilled.

As a percentage of total net revenue, fulfillment expenses decreased to 8.7% from 9.1% in the prior year period, primarily reflecting the scale effect associated with our growth in total net revenue and improved fulfillment efficiency.

Marketing expenses for the fourth quarter of 2016 were RMB920 million as compared with RMB715 million in the prior year period reflecting our strategy to drive long-term growth through sustainable investments in strengthening our brand awareness, attracting new users and expanding our market share.

As a percentage of total net revenue, market expenses decreased to 4.8% from 5.1% in the prior year period primarily attributable to our strategic balance between promotional activities and sales with our broader marketing efforts.

Technology and content expenses for the fourth quarter of 2016 were RMB471 million as compared with RMB322 million in the prior year period, reflecting our continued efforts to invest in human capital, advanced technologies such as data analytics as well as new business opportunities including our internet finance unit.

As a percentage of total net revenue, technology and content expenses were 2.5% as compared with 2.3% in the prior year period.

General and administrative expenses for the fourth quarter of 2016 were RMB624 million as compared with RMB421 million in the prior year period primarily due to the build-out of our internet finance team.

As a percentage of total net revenue, general and administrative expenses were 3.3% as compared with 3% in the prior year period.

Our income from operations increased by 17.1% to RMB939 million for the fourth quarter of 2016.

Operating margin was 4.9% as compared with 5.8% in the prior year period.

Non-GAAP income from operations, which excludes share-based compensation expenses and amortization of intangible assets resulting from a business acquisition, increased by 20% to RMB1.16 billion from RMB966 million in the prior year period.

Non-GAAP operating income margin was 6.1% as compared with 6.9% in the prior year period.

Our net income attributable to Vipshop's shareholders for the fourth quarter of 2016 increased to by 51.7% to RMB768 million from RMB506 million in the prior year period.

Net margin attributable to Vipshop's shareholders increased to 4% from 3.6% in the prior year period.

Net income per diluted ADS increased to RMB1.26 from RMB0.84 in the prior year period.

Non-GAAP net income attributable to Vipshop's shareholders, which excludes share-based compensation expenses, impairment loss of investment and amortization of intangible assets resulting from business acquisitions and equity method investments increased by 30.9% to RMB970 million from RMB741 million in the prior year period.

Non-GAAP net margin attributable to Vipshop's shareholders was 5.1% as compared with 5.3% in the prior year period.

Non-GAAP net income per diluted ADS increased to RMB1.58 from RMB1.22 in the prior year period.

As of December 31, 2016, our company had cash and cash equivalents of RMB4.11 billion and held-to-maturity securities of RMB672 million.

For the fourth quarter of 2016, net cash from operating activities was RMB0.8 billion.

Looking at our business outlook for the first quarter of 2017, we expect our total net revenue to be between RMB15.3 billion and RMB15.8 billion, representing a year-over-year growth rate of approximately 26% to 30%.