Vipshop reported a 189% increase in second-quarter GAAP net income, but a one-time commercial REIT gain exceeded the company’s entire reported profit and masked substantial weakness in adjusted earnings.
Net income attributable to Vipshop shareholders increased to RMB4.3 billion, or approximately $634.7 million, from RMB1.49 billion in the prior-year quarter.
The primary driver was a one-off RMB5.79 billion investment gain generated by the listing of a commercial real estate investment trust tied to two outlets operated by Shan Shan Outlets. Using the company’s reported exchange rate, that gain was approximately $853 million, making it roughly $218 million larger than Vipshop’s entire quarterly GAAP net income.
The transaction also produced substantial tax effects. Vipshop recorded RMB1.63 billion of income tax expense related to the REIT gain. The company separately accrued RMB1.56 billion of withholding tax expense related to historical dividend distributions from mainland China to Hong Kong.
Those items contributed to a very different adjusted earnings picture. Non-GAAP net income attributable to shareholders fell to RMB392.2 million, or $57.8 million, from RMB2.08 billion a year earlier. Non-GAAP net margin dropped to 1.6% from 8%, and adjusted diluted earnings per ADS fell to $0.12 from approximately RMB4.06 per ADS in the prior-year period.
The underlying retail business also faced pressure. Revenue declined to RMB24.7 billion, or approximately $3.6 billion, from RMB25.8 billion. Gross merchandise value fell to RMB50.6 billion from RMB51.4 billion.
Active customers declined to 42.3 million from 43.5 million, while total orders fell to 182.4 million from 193 million. Gross profit declined to RMB5.8 billion from RMB6.1 billion, and gross margin slipped to 23.3% from 23.5%.
Operating income declined to RMB1.5 billion from RMB1.7 billion, and operating margin fell to 6.2% from 6.6%. Non-GAAP operating margin fell to 8.1% from 9.3%.
Cash flow also contrasted sharply with the headline profit. Vipshop used RMB374.7 million, or $55.2 million, of cash in operating activities during the quarter and reported free cash outflow of RMB748.7 million, or approximately $110.3 million, compared with positive free cash flow a year earlier.
Vipshop ended the quarter with approximately $4.4 billion of cash and restricted cash plus $533.3 million of short-term investments. The company also authorized a new $1 billion share repurchase program to begin after utilization of its existing authorization.
KEY QUOTES:
“We navigated a challenging consumer environment in the second quarter by staying disciplined to our core value proposition, offering a curated selection of high-value branded products to our most loyal customers.”
Eric Shen, Chairman and Chief Executive Officer of Vipshop
“During the first half, we returned approximately US$400 million to shareholders through dividends and share repurchases, and we remain on track to meet our full-year shareholder return target.”
Mark Wang, Chief Financial Officer of Vipshop
