Baozun Inc. American Depositary Shares 2026 Q2 Earnings Call

Hello everyone, and thank you for joining us today. Our second quarter 2026 earnings release was distributed earlier before this call, and is available on our IR website at ir.baozun.com, as well as on PR Newswire Services. They have also posted a PowerPoint presentation that accompanies our comments to the same IR website, where they are available for your download. On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer, Ms. Catherine Zhu, Chief Financial Officer, Mr. Junhua Wu, Director and Chief Strategy Officer of Baozun Group, and Mr. Ken Huang, Chief Financial Officer of Baozun Brand Management. Ms. Qiu will first share our business strategy and company highlights. Ms. Zhu will then discuss our financials, followed by Mr. Wu and Mr. Huang, who will share more regarding our e-commerce and brand management segments respectively.

They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the U.S. Securities Act of 1933 as amended, the U.S. Securities Exchange Act of 1934 as amended, and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management current expectations and current market and operating conditions, and relates to events that involve known or unknown risk, uncertainties, or other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statements.

Further information regarding these and other risk, uncertainties, or factors is included in the company's filings with the United States Securities and Exchange Commission, and its announcement, notice, or other documents published on the website of The Stock Exchange of Hong Kong Limited. All information provided in this call is as of the date here, and is based on assumptions the company believes to be reasonable as of this date. The company does not take any obligation to update any forward-looking statements except as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. In addition, we may like to use adjusted in place of non-general accepted accounting principles on non-GAAP in order to reduce all the confusion that may arise from our discussions about financial related to the GAAP brand.

You may now turn to slide number 2 for the executive highlights for the quarter. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead. Thank you, Wendy.

Hello everyone, and thank you for joining us. We delivered another solid second quarter, with earnings quality continuing to improve. Group revenue grew 7% to RMB 2.7 billion, while non-GAAP operating income reached RMB 74 million, a year-over-year improvement of 25% compared with adjusted base of RMB 59 million in the same period of last year. Both BBM and BEC have contributed solid results, demonstrating the strength and the resilience of our business in a competitive market. BEC achieved resilient 5% year-over-year revenue growth. More importantly, BEC improved its efficiency and profitability with expanded non-GAAP operating profit margin. Against a weak e-commerce industry backdrop, we view this performance as a clear demonstration of BEC improving business quality. Our deep brand knowhow has been instrumental in understanding and anticipating market trends, consumer behaviors, and brand needs.

This expertise enables us to engage with our brand partners more strategically while keeping value creation at the heart of our approach. BBM sustained strong brand momentum, delivering 22% year-over-year top line growth, double-digit same store growth, solid gross margin expansion, and a further improvement in operating profitability. Gap remains the primary drive of this performance, supported by our effective MMC initiatives and increased consumer engagements from our seasonal brands ambassador program. At the same time, our emerging brands are progressing according to plan and are beginning to make more contribution to the top line. As we start to invest in building their long-term presence. We also are very excited to share our advancements in technology innovation and the AI empowerment. We recently began piloting AI and automation initiatives within our Gap e-commerce operations to streamline selected processes.

The initial results have demonstrated substantial productivity gains, highlighting the potential to extend these capabilities across the broader BEC ecosystem. We are glad that the success of our strategic transformation over the past three years have laid a strong foundation for a more flexible and scalable business model. Leveraging AI and our established technology infrastructure, BBM provides an environment where we can develop and prove new operating capabilities, while BEC provides a scale to deploy them across a broader portfolio of brands. With continued AI-driven empowerment and deeper synergies between our two business segments, we are raising our 2028 non-GAAP operating profit target from RMB 550 million to RMB 700 million, reflecting our increased confidence in long-term growth potential. Now I will hand over the call to our team for a deeper dive into our financials and business performances.

Thanks, Vincent, and hello everyone. Now, let me provide a more detailed overview of financial results for the second quarter of 2026. Please turn to slide 3. Baozun Group's total net revenues for the second quarter of 2026 increased by 7% year-over-year to RMB 2.7 billion. Of this total, e-commerce revenue grew by 5% to RMB 2.3 billion, while brand management revenue grew by 22% to RMB 486 million. Breaking down e-commerce revenue by business model, services revenue increased 10% year-over-year to RMB 1.8 billion, while BEC product sales revenue decreased by 10% year-over-year to RMB 541 million, as we prioritize business quality. Please turn to slide 4. From a profitability perspective, gross profit for product sales increased by 21.3% year-over-year to RMB 343 million for the quarter.

Our group level blended gross margin for product sales was 33%, representing an expansion of 499 basis points year-over-year. Within this, gross margin for e-commerce product sales was 13% compared with 12.8% in the same period of the last year. The gross margin for BBM was 56.1% for the quarter, compared with 52% in the same period of last year. Now please turn to slide 5 for a walkthrough of our OPEX. Sales and marketing expenses increased by RMB 239 million to RMB 1.2 billion. This included an increase of RMB 188 million for BEC, which was mainly due to higher spending on creative content and marketing initiatives on Douyin and Xiaohongshu. Consistent with the growth in digital marketing revenue, BBM sales and marketing expenses increased by RMB 46 million, mainly driven by the expansion of offline stores and marketing activities in the quarter.

Fulfillment costs for the quarter decreased by 9% to RMB 549 million. Technology and content expenses decreased by 0.4% to RMB 114 million. G&A expenses decreased by 22% to RMB 175 million. The reduction in these three OPEX items reflected our focus on cost control and operational efficiency. Turning to bottom line items, please refer to slide 6. During the quarter, our non-GAAP income from operations was RMB 74 million compared to RMB 6 million in the same period of last year, or RMB 59 million in the rebased same period of last year if we exclude a one-time write-off cost. BEC's adjusted and non-GAAP income from operations was RMB 107 million, a record level for the second quarter since 2022. BBM reported a non-GAAP operating loss of RMB 33 million, compared with a loss of RMB 35 million a year ago.

For the second quarter of 2026, our working capital turnover improved to 107 days compared with 148 days a year ago. Within this, inventory turnover shortened to 112 days, from 134 days a year ago. This improvement was driven by both BEC and the BBM segments. As of June 30, 2026, our cash equivalents, restricted cash, and short-term investments total RMB 2.9 billion. Let me now pass the call over to Junhua to update us on BEC, our e-commerce business.

Thanks, Catherine, and hello, everyone. For BEC, we have been focused on the quality of growth with greater emphasis on the business where we can deliver high-value results. We believe this approach better aligns the interests of our brand partners with our own, which will ultimately translate into improved productivity and margin expansion for BEC. During the second quarter, BEC's revenue grew by 5% year-over-year, and non-GAAP operating income reached RMB 107 million, the highest second quarter level since 2022. This highlights the improvement in our financial performance and its successful execution of our strategy. Underlying these impressive results, we have taken a proactive approach to refining our service model. We expanded market share in key categories including luxury, sports, and outdoor, driving 10% year-over-year growth in service revenue. Enhanced consumer engagement through content creation, digital marketing, and Douyin initiative has also helped strengthen consumer awareness.

For example, this June, we produced a large-scale live broadcast of a women's night run for one of our sportswear brand partners. More than just a race, the event was designed to empower women and foster a sense of community. Our live broadcast enabled millions of viewers to join the excitement virtually, amplifying the brand's value while creating a memorable experience that resonates with its target audience. This event set a new benchmark for how we can leverage digital platforms to amplify business opportunities while driving both brand value and sales. We are proud to have once again been awarded Douyin E-commerce Diamond Service Provider Certification for the second quarter. These achievements validate our strategy of prioritizing high-quality revenue streams and expanding margins, and reinforce our confidence in growth momentum of our service business.