Vipshop Loses Shoppers, Orders and Momentum in a Tough Chinese Retail Market

Vipshop Holdings Ltd. (NYSE:VIPS) stock traded lower Tuesday after the Chinese discount retailer reported a steep decline in adjusted profit and issued a weaker-than-expected third-quarter sales forecast.

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

Consumer Weakness Pressures Operations

Gross merchandise value declined to 50.6 billion yuan from 51.4 billion yuan a year earlier. Active customers fell to 42.3 million from 43.5 million, while total orders dropped to 182.4 million from 193 million.

Gross margin narrowed to 23.3% from 23.5%. Adjusted operating income fell to 2 billion yuan from 2.4 billion yuan. The adjusted operating margin contracted to 8.1% from 9.3%.

Vipshop Chairman and CEO Eric Shen said the company navigated a "challenging consumer environment" during the quarter. The retailer plans to strengthen merchandising, improve the customer experience and expand its use of artificial intelligence.

Vipshop’s results highlighted mounting pressure from China’s consumer slowdown. Active customers, total orders and merchandise sales all declined, while adjusted profit plunged and margins narrowed.

One-Time Gain Lifts Reported Profit

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

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

The company generated a free-cash outflow of $110.3 million during the quarter. It held $4.4 billion in cash, cash equivalents and restricted cash as of June 30.

Vipshop Forecast Trails Estimates

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

VIPS Price Action: Vipshop Holdings shares were down 2.65% at $13.94 during premarket trading on Tuesday, according to Benzinga Pro data.

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