Vipshop Holdings Limited (VIPS) Earnings

Management highlights

### Core Business Strategy - Management maintained discipline by prioritizing profitable, sustainable growth over chasing unprofitable, unpredictable volume growth amid weak consumer sentiment. The company stayed aligned with its core value proposition of delivering high-quality, deeply discounted branded products. - The 1P (first-party) retail model provides a durable competitive edge, enabling deeper trust and closer collaboration with brand partners, who have increased merchandise allocations to the VIPShop platform amid the soft market. ### Customer Loyalty and SVIP Development - The SVIP membership cohort remained a resilient business anchor: active SVIP grew 8% YoY, driving 54% of total online spending, as budget-constrained high-intent shoppers prioritized VIPShop's trusted value, quality, and service. SVIP membership hit the 10 million milestone entering the second half of 2026. - Management launched an integrated marketing campaign with a refreshed signature slogan "dress the best for 70% less" to expand reach to both younger and mature demographics, reinforcing the brand's enduring value proposition across market cycles. Customer engagement strategy is focused on retention and lifetime value, with SVIP loyalty positioned as the primary engine for operational stability and profitable growth. ### Merchandising Adjustments - The merchandising team sharpened assortment focus on core apparel and lifestyle essentials, aligning product mix with current real-life customer demand to capture immediate spending. Opportunistic sourcing strategy leverages brand partners' inventory management needs in the soft market, locking in unique high-demand inventory at deep discounts to reinforce the differentiated merchandise pipeline. - The exclusive made-for-VIPShop product line is being repositioned to drive higher customer mindshare and loyalty, with aligned seasonal launches alongside brand partners, delivering improving conversion rates and overall portfolio stability. ### Technology Advancement - AI integration is being deepened across the business: customer-facing AI tools (virtual try-on, intelligent AI customer service, AIGC-powered product discovery) are already lifting conversion rates. AI-optimized marketing, the most impactful use case to date, improves customer acquisition efficiency and customer quality. - AI is being scaled from standalone tools to a unified, secure intelligence layer across the business, with early wins already achieved in supply chain optimization and daily operational workflow efficiency. ### Capital Strategy and Shanshan Outlets Expansion - Management successfully launched two public REITs backed by three high-quality Shanshan Outlets properties, creating a capital recycling loop that unlocks asset value, improves portfolio quality, and frees up capital to reinvest in further outlet expansion, while maintaining financial flexibility. - In the first half of 2026, VIPShop returned ~$400 million to shareholders via cash dividends and share repurchases. The Board of Directors approved a new $1 billion share repurchase program, reaffirming the company's commitment to returning no less than 75% of full-year 2025 non-GAAP net income to shareholders.

Guidance

- Third quarter 2026 total net revenue is expected to be between RMB 20.3 billion and RMB 21.4 billion, representing a year-over-year decline of approximately 5% to 0%, aligned with current expectations of continued soft consumer demand. - Full year 2026 total revenue is expected to be slightly negative year-over-year, with consumer sentiment projected to remain similar to the weak environment seen in the first half of the year. - Shanshan Outlets is expected to maintain its over 20% full-year 2026 growth momentum, with double-digit same-store sales growth projected for the second half of the year. - Management projected that operating and net margins will remain resilient and relatively stable in the second half of 2026, supported by structural cost discipline, as the company avoids unprofitable customer subsidies and prioritizes healthy profitability. - The company remains fully committed to its long-term shareholder return target of returning no less than 75% of 2025 non-GAAP net income to shareholders, with opportunistic share repurchases to continue under the newly approved $1 billion program.

Segment performance

VIPShop reports financial performance for two core business segments: 1) Online off-price retail: This segment accounts for the vast majority of total net revenue, which was RMB 24.7 billion in Q2 2026, down from RMB 25.8 billion year-over-year. Gross profit for the overall firm was RMB 5.8 billion (23.3% gross margin), down from RMB 6.1 billion (23.5% margin) YoY. 2) Shanshan Outlets (omni-channel discount retail): This segment grew over 20% YoY in the first half of 2026, reaching 22 operational outlets (making it China's largest outlet chain by store count). It maintains a top-tier position by total GMV, and has delivered double-digit same-store sales growth in the first half of the year. The REIT transaction for three of its outlet properties generated a one-off investment gain of RMB 5.79 billion for the firm in Q2 2026.

Risks & headwinds

- Broad-based softening in consumer sentiment, with highly budget-conscious and selective customers that are cautious about discretionary spending on categories like apparel, creating pressure on near-term top-line growth. July and August 2026 sales momentum saw only a slight improvement from June, with no meaningful broad recovery. - Rising product return rates have driven higher proportional fulfillment expenses, contributing to slight operating margin deleverage in Q2 2026 alongside lower revenue scale from macro pressures. - A one-time non-recurring withholding tax adjustment for historical dividend distributions from mainland China to Hong Kong reduced Q2 2026 non-GAAP net income, though the adjustment is fully compliant with tax regulations and expected to be finalized in Q3 2026. Going forward, the adjustment will increase the cost of cash remittance to offshore equity holders, but management expects the impact on future net margins to be minimal.

Analyst Q&A

• Q: What is the current trend in consumer sentiment, where does Q3 2026 revenue stand relative to guidance so far, and what is the outlook for the second half of 2026? /

  A: Management confirmed consumer sentiment remains weak, with customers only purchasing items that deliver clear value and cutting back on discretionary spending. Sales momentum in July and August is only slightly better than June, and far from a strong recovery. It expects consumer sentiment in the second half will remain similar to the weak first half, leading full year 2026 total revenue to be slightly down year-over-year.

• Q: Why did operating margin decline year-over-year in Q2 2026, and what is the margin outlook for the second half? /

  A: The slight YoY decline was driven primarily by higher proportional fulfillment costs from rising product return rates, plus minor fixed cost deleverage from lower revenue scale; core gross margin remained flat to slightly up, showing strong core profitability management. Management expects margins will remain resilient and stable in the second half, as it avoids unprofitable customer subsidies and maintains strict structural cost discipline to preserve healthy profitability.

• Q: What caused the large Q2 2026 withholding tax adjustment, is it a penalty, and will it impact future shareholder return plans? /

  A: The adjustment is not a regulatory penalty; it is a proactive, compliance-aligned reassessment of historical dividend distributions to improve the company's compliance framework, and the company has always operated in full accordance with tax regulations. The adjustment is a one-time transaction cost for capital mobility, not an ongoing operational expense, and the impact on future net margins is expected to be minimal. The company remains fully committed to its existing shareholder return target and repurchase plans.

• Q: What is the second half outlook for Shanshan Outlets, what is the plan for future REIT securitization of remaining outlet properties, and what is the pace of shareholder returns in H2 2026? /

  A: Management expects Shanshan Outlets will maintain its over 20% YoY GMV growth in H2 2026, with double-digit growth for existing same-store sales. After the successful launch of two REITs for three outlet properties, the company holds 18 additional outlet projects, and will evaluate future securitization based on strategic needs and market conditions. The company remains committed to its 75% payout target for 2025 non-GAAP net income, and will continue opportunistic share repurchases under the new $1 billion program in H2.