Vipshop Q2 Profit Plunges, Q3 Guidance Misses Expectations

Vipshop Holdings Ltd. shares fell Tuesday after the Chinese discount retailer reported a sharp drop in adjusted profit and issued weaker-than-expected third-quarter sales guidance.

Vipshop reported second-quarter adjusted earnings per American depositary share of 12 cents, missing the analyst estimate of 51 cents. Revenue fell 4.3% year-over-year to $3.641 billion, but beat the $3.620 billion expectation.

Weak Consumption Pressures Operations

Gross merchandise value declined to RMB 50.6 billion from RMB 51.4 billion in the same period last year. Active customers fell to 42.3 million from 43.5 million, and total orders dropped to 182.4 million from 193 million.

Gross margin narrowed to 23.3% from 23.5%. Adjusted operating income fell to RMB 2.0 billion from RMB 2.4 billion. Adjusted operating margin contracted to 8.1% from 9.3%.

Vipshop Chairman and CEO Eric Shen said the company navigated a "challenging consumption environment" during the quarter. The retailer plans to strengthen merchandise strategies, improve customer experience, and expand the application of artificial intelligence.

Vipshop's results highlight growing pressure from China's consumption slowdown. Active customers, total orders, and gross merchandise value all declined, adjusted profit fell sharply, and margins narrowed.

One-Time Gain Boosts Reported Profit

Reported net income surged 189% to $634.7 million. However, this increase primarily reflected a one-time RMB 5.79 billion investment gain related to the listing of a commercial real estate investment trust.

Adjusted net income dropped sharply to $57.8 million from approximately $306 million. Vipshop attributed the decline mainly to a one-time withholding tax adjustment related to historical dividend distributions.

The company generated negative free cash flow of $110.3 million in the quarter. As of June 30, it held $4.4 billion in cash, cash equivalents, and restricted cash.

Vipshop Guidance Misses Expectations

Vipshop expects third-quarter revenue of $2.992 billion to $3.154 billion, below the analyst estimate of $3.180 billion. The guidance implies a year-over-year decline of up to 5%.

VIPS share performance: Vipshop Holdings stock fell 2.65% to $13.94 in Tuesday premarket trading.