Baozun, Inc. Q3 FY2024 earnings call

• Baozhun is well on track with strategic transformation, total revenues grew by 13% year-over-year. - BEC achieved 14% revenue increase, with Douyin business growing triple digits, services revenue up 15%, and product sales recovering 10%. - BBM had 10% revenue growth, marking Gap brand's first top-line turnaround in China, with 24 new stores opened in Q3. - Hunter made progress with category refinement and channel optimization, including a pop-up store launch in Shanghai during Golden Week. - Double 11 shopping festival saw record high total order value with double-digit year-over-year growth, though record-high return rate impacted operating efficiency.

Baozhun Group's total net revenues increased by 13% year-over-year to RMB 2.1 billion. eCommerce revenue (BEC) grew 14% to RMB 1.8 billion, which is 85.7% of total revenue. Services revenue within BEC increased by 15%, and product sales revenue resumed growth with 10% year-over-year growth. Brand management revenue (BBM) grew 10% to RMB 331 million, accounting for 15.8% of total revenue. BBM's growth marked the first revenue expansion for the Gap brand in China following years of contraction.

• Expect consumption to stabilize further in 2025. - Remain cautiously optimistic about top-line given supportive government policies and internal operational improvements. - Focus on efficiency and resource optimization to achieve sustained margin improvement in 2025.

• Record-high return rate during Double 11 slightly impacted overall operating efficiency. - Macro-economic pressures could affect categories like luxury and FMCG, with some showing flat growth or softness.

Q: Could management elaborate on the overall performance during this year's Double 11, specifically which categories performed better than expected and which underperformed? Also, how were Gap China’s sales during Double 11, and were there any noticeable changes in shopping behavior compared to previous years? Secondly, regarding AI advertising tools, how does Baozhun plan to embrace AI to capture bigger opportunities? Do you see domestic brands relying more on your services for targeted digital ad campaigns?

A: Overall, the campaign performance was solid. Categories like apparel, sports, and luxury exceeded expectations, while small appliances and travel-related categories underperformed. Gap China’s performance exceeded expectations, moving up three positions in Tmall's apparel rankings compared to last year, achieving double-digit growth in GMV and net sales. On AI, Baozhun has been leveraging AI in operations for a few years, with tools like intelligent customer service assistant Sway and Baozhun Business Intelligence tool helping enhance efficiency and provide data-driven strategies, and domestic brands are seen relying more on their services for targeted digital ad campaigns.

Q: Thank you, management. My question is about the slowdown in live-streaming eCommerce growth this year. How does management see this trend, and will there be any adjustments to your operating strategy in the coming quarters?

A: While there has been some deceleration in live-streaming eCommerce, it does not fundamentally change the strategy. Baozhun operates across multiple channels, offering omnichannel services to brand partners, and uses tools and data analytics to help brands allocate resources effectively across platforms.

Q: Thanks, management. I have two questions. First, how has Baozhun performing on JD.com, especially in apparel? Secondly, media reports mention high return rates for Ralph Lauren during Double 11. Could you comment on this and share any broader insights on return rates in the apparel category?

A: Baozhun has a strong partnership with JD.com, being a top-performing partner in their apparel and luxury segments, with Gap being one of JD’s top-performing brands and operating five out of ten luxury brands for JD. Regarding Ralph Lauren, cannot comment specifically on their strategy, but Baozhun's technology ensures rapid restocking of canceled products. Return and cancellation rates in apparel remain an industry-wide challenge with a single-digit increase year-over-year, but Baozhun's operational efficiency helps mitigate the impact for partners.

Q: Could you share your consumption trend outlook and top-line and margin expectations for next year?

A: Expect consumption to stabilize further in 2025. Brands are focusing on building internal capabilities, and Baozhun is well-positioned to support them with omnichannel expertise and innovation. Aim to drive growth by expanding into new categories while strengthening core segments. From a top-line perspective, remain cautiously optimistic given supportive government policies and internal operational improvements, with focus on efficiency and resource optimization to achieve sustained margin improvement in 2025.