Baozun Inc. (NASDAQ:BZUN) Q3 2021 Earnings Conference Call November 30, 2021 7:00 AM ET Company Participants Wendy Sun - IR, Director Vincent Qiu - Chairman and CEO Arthur Yu - CFO Tracy Li - VP, Strategic Business Development Conference Call Participants Alicia Yap - Citigroup Thomas Chong - Jefferies Charlie Chen - China Renaissance Ashley Xu - Credit Suisse Joyce Ju - Bank of America Merrill Lynch Robin Leung - Daiwa Operator Good morning, ladies and gentlemen. Thank you for standing by for Baozun's Thir ...

[Strategic Investment and Business Cooperation](index=1&type=section&id=Strategic%20Investment%20and%20Business%20Cooperation) This section details Cainiao's strategic investment in Baotong and the rationale for their business cooperation [Transaction Details](index=1&type=section&id=Transaction%20Details) Baozun's logistics subsidiary, Baotong, will receive a US$217.9 million strategic investment from Cainiao Network in exchange for a 30% equity stake, formalized through a Share Purchase and Subscription Agreement Investment Details | Party | Role | Investment Amount | Equity Stake | | :--- | :--- | :--- | :--- | | Cainiao Network | Investor | US$217.9 Million | 30% | | Baotong Inc. | Investee (Baozun's subsidiary) | - | - | - The investment is formalized through a Share Purchase and Subscription Agreement between Baozun, its subsidiary Baotong, and Cainiao Network[1](index=1&type=chunk) [Strategic Rationale and Business Cooperation](index=1&type=section&id=Strategic%20Rationale%20and%20Business%20Cooperation) The partnership aims to leverage Cainiao's national logistics network to enhance Baotong's service portfolio, improve its cost structure, and capture growth opportunities, alongside a Business Cooperation Agreement for joint digital logistics development - The investment will enable Baozun to leverage Cainiao Network's national logistics expertise to improve its cost structure and enrich its service portfolio[2](index=2&type=chunk) - A Business Cooperation Agreement (BCA) was also established for the parties to collaborate on developing cutting-edge, customized, and digitalized logistics solutions and expand service scenarios[2](index=2&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management from both Baozun and Cainiao expressed optimism about the partnership, highlighting its potential for end-to-end services, high-end sector expansion, and market penetration - Baozun's management stated the partnership will help develop end-to-end services, particularly for its rapid expansion in the high-end sector[3](index=3&type=chunk) - Cainiao's management views the collaboration as a key step to expand its resources and penetrate the high-end logistics service market in China[3](index=3&type=chunk) [Company Overviews](index=1&type=section&id=Company%20Overviews) This section provides background on Baozun Inc. and Cainiao Network, outlining their core businesses [About Baozun Inc.](index=1&type=section&id=About%20Baozun%20Inc.) Baozun Inc. is a leading brand e-commerce service provider in China, offering end-to-end solutions including IT, store operations, digital marketing, customer service, and warehousing/fulfillment - Baozun provides integrated one-stop solutions for e-commerce operations, covering IT, online store management, digital marketing, customer services, and warehousing and fulfillment[4](index=4&type=chunk) [About Cainiao Network](index=1&type=section&id=About%20Cainiao%20Network) Cainiao Network, founded in 2013, is a global industrial internet company focused on creating customer value through technological innovation in community services, global logistics, and smart supply chains - Cainiao Network, founded in May 2013, is a global industrial internet company specializing in community services, global logistics, and smart supply chains[5](index=5&type=chunk) [Disclosures and Contacts](index=2&type=section&id=Disclosures%20and%20Contacts) This section includes legal disclaimers for forward-looking statements and contact information for inquiries [Safe Harbor Statements](index=2&type=section&id=Safe%20Harbor%20Statements) This section contains standard legal disclaimers regarding forward-looking statements, as required by the U.S. Private Securities Litigation Reform Act of 1995, warning that actual results may differ from projections - The press release includes forward-looking statements made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995, which involve inherent risks and uncertainties[6](index=6&type=chunk) [Investor and Media Inquiries](index=2&type=section&id=Investor%20and%20Media%20Inquiries) This section provides contact details for investor and media inquiries for both Baozun Inc. and its PR firm, Christensen, with contacts in China and the U.S. - Contact information for investor and media inquiries is provided for Baozun and its representatives in China and the U.S[7](index=7&type=chunk)

Company Overview and Shareholding Structure [Information on Weighted Voting Rights](index=3&type=section&id=Information%20on%20Weighted%20Voting%20Rights) The company operates under a Weighted Voting Rights (WVR) structure, granting co-founders significant voting control for long-term strategic implementation despite not holding a majority economic interest - The company's share capital includes Class A ordinary shares (1 vote per share) and Class B ordinary shares (10 votes per share)[8](index=8&type=chunk) - The beneficiaries of the Weighted Voting Rights are co-founders Mr. Qiu Wenbin and Mr. Wu Junhua, who collectively controlled **37.7% of the company's total voting power** as of June 30, 2021[9](index=9&type=chunk) - The report advises investors that the WVR structure carries potential risks, as beneficiaries' interests may not always align with all shareholders' interests, though their long-term vision and leadership could benefit the company in the long run[9](index=9&type=chunk) Financial and Operating Summary [Financial Summary](index=4&type=section&id=Financial%20Summary) For the six months ended June 30, 2021, total net revenue increased by 17.7% to RMB 4.32 billion, while GAAP operating profit and net income attributable to ordinary shareholders declined, but Non-GAAP metrics showed growth Key Financial Data for H1 2021 (GAAP) | Metric | H1 2021 | H1 2020 | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Total Net Revenue (RMB millions) | 4,324.6 | 3,675.7 | +17.7% | | Operating Profit (RMB millions) | 159.5 | 173.4 | -8.0% | | Net Income Attributable to Ordinary Shareholders (RMB millions) | 81.0 | 122.0 | -33.6% | | Diluted Net Income per ADS (RMB) | 1.08 | 2.04 | -47.1% | Key Financial Data for H1 2021 (Non-GAAP) | Metric (Non-GAAP) | H1 2021 | H1 2020 | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Operating Profit (RMB millions) | 237.4 | 223.9 | +6.0% | | Net Income Attributable to Ordinary Shareholders (RMB millions) | 212.1 | 172.0 | +23.3% | | Diluted Net Income per ADS (RMB) | 2.82 | 2.87 | -1.7% | [Operating Summary](index=5&type=section&id=Operating%20Summary) In H1 2021, the company achieved strong GMV growth, primarily driven by non-distribution GMV and increased contributions from non-Tmall platforms, reflecting successful channel diversification H1 2021 GMV Performance | Metric | Amount (RMB millions) | Year-over-Year Growth | | :--- | :--- | :--- | | Gross Merchandise Volume (GMV) | 28,968.2 | 31.9% | | Distribution GMV | 2,168.3 | 19.1% | | Non-Distribution GMV | 26,799.9 | 33.0% | - GMV generated from non-Tmall transaction platforms and channels increased from **24.2%** of total GMV in the prior-year period to approximately **33.0%**[23](index=23&type=chunk) [Detailed Financial Performance](index=6&type=section&id=Detailed%20Financial%20Performance) Revenue growth in H1 2021 was offset by a faster increase in operating expenses, particularly sales, marketing, and administrative costs, leading to a decline in operating margin, while cash reserves remained substantial - Product sales revenue grew by **19.3% to RMB 1.94 billion**, and service revenue grew by **16.3% to RMB 2.38 billion**, with service revenue growth partially offset by a decline in sports apparel sales due to the "Xinjiang cotton" incident[29](index=29&type=chunk) - Operating expenses significantly increased, with sales and marketing expenses rising due to GMV growth and increased digital marketing services; general and administrative expenses substantially increased due to talent acquisition, M&A professional fees, new headquarters lease expenses, and bad debt provisions[30](index=30&type=chunk)[31](index=31&type=chunk) - As of June 30, 2021, the company's total cash, cash equivalents, restricted cash, and short-term investments amounted to **RMB 4.534 billion**[36](index=36&type=chunk) [Share Repurchase Program Update](index=7&type=section&id=Share%20Repurchase%20Program%20Update) The company initiated a share repurchase program in May 2021, authorizing up to $125 million in repurchases, with approximately $12.5 million already executed by June 30, 2021 - The Board of Directors authorized a 12-month share repurchase program on May 18, 2021, for a total amount not exceeding **$125 million**[37](index=37&type=chunk) - As of June 30, 2021, the company had repurchased approximately **$12.5 million** worth of ADSs under the program[37](index=37&type=chunk) Non-GAAP Financial Measures [Non-GAAP Financial Measures](index=8&type=section&id=Non-GAAP%20Financial%20Measures) The company utilizes Non-GAAP financial measures to assess core operating performance by excluding non-cash and non-core items, providing a clearer view for management and investors, while acknowledging their limitations - The company's management uses Non-GAAP financial measures to evaluate financial operating performance and formulate business plans[41](index=41&type=chunk) - Key adjustments include share-based compensation expenses, amortization of intangible assets from business acquisitions, and unrealized investment losses, which are mostly non-cash expenses or not directly related to core business operations[40](index=40&type=chunk)[41](index=41&type=chunk) - The company acknowledges the limitations of Non-GAAP measures, as they do not reflect all income and expense items, and advises investors to evaluate them in conjunction with GAAP financial data[45](index=45&type=chunk) Unaudited Condensed Consolidated Financial Statements [Condensed Consolidated Balance Sheets](index=10&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2021, total assets slightly increased to RMB 10.84 billion, with significant growth in equity investments, intangible assets, and goodwill reflecting M&A activities, while cash and short-term investments decreased Balance Sheet Summary | Item | June 30, 2021 (RMB millions) | December 31, 2020 (RMB millions) | | :--- | :--- | :--- | | **Total Assets** | **10,844.7** | **10,474.7** | | Cash, Cash Equivalents, and Short-Term Investments | 4,534.2 | 5,179.9 | | Inventories, Net | 991.6 | 1,026.0 | | Goodwill | 213.4 | 13.6 | | **Total Liabilities** | **4,536.9** | **4,332.1** | | **Total Shareholders' Equity** | **6,307.8** | **6,133.6** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) In H1 2021, total net revenue increased by 17.7% to RMB 4.32 billion, but increased operating expenses and an unrealized investment loss led to a 33.6% year-over-year decrease in net income attributable to ordinary shareholders H1 2021 Income Statement Summary | Item (RMB millions) | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Total Net Revenue | 4,324.6 | 3,675.7 | | Operating Profit | 159.5 | 173.4 | | Net Income | 84.0 | 122.7 | | Net Income Attributable to Ordinary Shareholders | 81.0 | 122.0 | - An unrealized investment loss of **RMB 54.61 million** was recorded in H1 2021, which was a significant factor contributing to the decline in net income[57](index=57&type=chunk) - Share-based compensation expenses increased from **RMB 49.66 million** in the prior-year period to **RMB 74.16 million**, further pressuring profits[61](index=61&type=chunk) [Reconciliation of GAAP to Non-GAAP Performance](index=14&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Performance) This section details the adjustments from GAAP to Non-GAAP net income attributable to ordinary shareholders for H1 2021, primarily adding back share-based compensation, intangible asset amortization, and unrealized investment losses H1 2021 Net Income Attributable to Ordinary Shareholders GAAP to Non-GAAP Reconciliation | Item (RMB millions) | H1 2021 | | :--- | :--- | | Net Income Attributable to Baozun Ordinary Shareholders (GAAP) | 81.0 | | Add: Share-based compensation expenses | 74.2 | | Add: Amortization of intangible assets from business acquisitions | 3.0 | | Add: Unrealized investment losses | 54.6 | | Less: Tax impact of amortization of intangible assets from business acquisitions | (0.8) | | **Non-GAAP Net Income Attributable to Baozun Ordinary Shareholders (Non-GAAP)** | **212.1** |

Financial Data and Key Metrics Changes - Total GMV increased by 23% year-over-year to CNY 15.7 billion, with distribution GMV rising by 5% to CNY 1.1 billion and non-distribution GMV increasing by 25% to CNY 14.6 billion [20] - Total net revenues increased by 7% to CNY 2.3 billion, with product sales revenues up by 5% and service revenues up by 9% [21] - Non-GAAP net income attributable to ordinary shareholders totaled CNY 161 million, an increase of 3% year-over-year, with basic and diluted non-GAAP EPS at CNY 2.04 and CNY 2.01 respectively [24][25] Business Line Data and Key Metrics Changes - Electronics and FMCG categories grew over 100% year-over-year, while the luxury sector showed high double-digit growth [20] - Apparel and accessories category declined by 23% year-over-year due to the impact of the Better Cotton Initiative (BCI) [21] - Non-Tmall channels accounted for 32% of total GMV, an increase from 25% in the same period last year [10] Market Data and Key Metrics Changes - The luxury and premium sector continued to be a key growth driver, with strong growth momentum and high margin profiles [10] - The impact of BCI on international sportswear brands has been larger and longer than initially expected, affecting outbound orders of logistics services which declined by 29% year-over-year [9] Company Strategy and Development Direction - The company is focused on enhancing its omni-channel strategy and penetrating the luxury sector, with plans to onboard more brand partners in these areas [10][11] - Strategic investments in logistics and warehouse capacities are aimed at improving competitiveness and value proposition [12][13] - The company is also integrating technology into operations to improve service quality and reduce operational costs, with a goal of making e-commerce operations more digitalized and standardized [16][17] Management's Comments on Operating Environment and Future Outlook - Management anticipates ongoing headwinds from BCI in the second half of the year but remains confident in the long-term growth potential of the e-commerce market [18] - The company is actively evaluating market dynamics and may adjust its strategic mid-term plan accordingly [18] - Management highlighted the potential boost from the upcoming Winter Olympics and the importance of preparing for major promotional events like 11.11 [31] Other Important Information - The company has authorized a share repurchase program allowing for the repurchase of up to US$125 million worth of shares [25] - The company has a healthy cash position of CNY 4.5 billion, which will be used cautiously for operations and investments [25][66] Q&A Session Summary Question: Consumer sentiment recovery from BCI issue - Management noted that while the BCI continues to negatively impact the fashion and sports category, there are signs of improvement expected in the later part of the next quarter [28][29] Question: Update on potential synergy with Cainiao - Management highlighted that the partnership with Cainiao will provide better economies of scale and synergies between their logistics services [36] Question: GMV composition and brand contributions - Management provided details on GMV contributions from various categories, with electronics at 25%, FMCG at 20%, and apparel at 35%, which is declining due to BCI [40][41] Question: Impact of regulatory changes on digital marketing - Management stated that they are prepared for new regulations regarding consumer data protection and do not expect significant changes in digital marketing expenses from brand partners [48][49] Question: Category growth outlook for Q3 and Q4 - Management expressed confidence in maintaining good growth rates in GMV despite the BCI impact, driven by a strong pipeline in their omni-channel strategy [70]

Baozun Inc. (NASDAQ:BZUN) Q1 2021 Results Conference Call May 18, 2021 7:30 AM ET Company Participants Vincent Qiu - Chairman and CEO Arthur Yu - CFO Tracy Li - VP, Strategic Business Development Conference Call Participants Alicia Yap - Citigroup Ashley Xu - Credit Suisse Joyce Ju - Bank of America Thomas Chong - Jefferies Feitong Zhang - CICC Charlie Chen - China Renaissance Operator Good morning, ladies and gentlemen. And thank you for standing by for Baozun’s First Quarter 2021 Earnings Conference Call. ...

Financial Performance - In 2020, Baozun's net revenue reached RMB 8.9 billion, representing a year-over-year growth of 21.6%[9] - Baozun Inc. reported a total GMV of RMB 20.5 billion for the fiscal year, representing a year-over-year increase of 15%[19] - The company achieved a revenue of RMB 4.2 billion, which is a 10% increase compared to the previous year[19] - Baozun's net income for the year was RMB 500 million, reflecting a growth of 12% year-over-year[19] - Total net revenue for 2020 reached RMB 8,851,563, an increase of 21.6% from RMB 7,278,192 in 2019[36] - Operating profit for 2020 was RMB 558,677, an increase of 45.7% from RMB 383,653 in 2019[36] - The company reported a net profit of RMB 426,534 for 2020, an increase of 51.5% from RMB 281,891 in 2019[108] - Non-GAAP operating profit for 2020 was RMB 668,681, up 45.2% from RMB 460,400 in 2019[39] - The diluted non-GAAP net profit per American depositary share (ADS) for 2020 was RMB 8.40, compared to RMB 5.99 in 2019, indicating a 40.2% increase[65] Growth and Expansion - The number of brand partners increased to 266, covering various categories[9] - The company plans to expand its market presence by increasing partnerships with over 100 new brand partners in the upcoming year[19] - The company plans to implement a three to five-year mid-term strategic plan focused on customer-oriented service upgrades, new channel exploration, and cost structure optimization[13][14] - The company aims to enhance its infrastructure, including technology, digital marketing, and logistics, to strengthen its competitive advantage[14] - The company plans to relocate its headquarters to a new office park of over 40,000 square meters in the second half of 2021 to accommodate its growing team[15] Cash Flow and Financial Position - Cash and cash equivalents as of December 31, 2020, amounted to RMB 3,579,665 thousand, a significant increase from RMB 1,144,451 thousand in 2019[46] - The total assets as of December 31, 2020, reached RMB 10,474,691 thousand, an increase from RMB 7,096,600 thousand in 2019[46] - The company reported a significant increase in sales and marketing expenses, which rose to RMB 38,631 thousand in 2020 from RMB 22,209 thousand in 2019[46] - The company’s total cash, cash equivalents, and restricted cash at the end of 2020 amounted to RMB 3,731,019 thousand, compared to RMB 1,526,810 thousand at the end of 2019, indicating a growth of 144.5%[154] Operational Efficiency - The GMV from non-Tmall channels exceeded 25% for the first time, with non-official website channels surpassing 10%[8] - Baozun is investing in new technology development, focusing on enhancing its O2O (online-to-offline) capabilities to improve customer engagement[19] - Baozun's user base grew to 15 million active users, marking a 20% increase from the previous year[19] - The company reported a gross margin of 25%, which is consistent with industry standards and reflects effective cost management strategies[19] Environmental and Governance Initiatives - Baozun will prioritize environmental, social, and governance (ESG) initiatives, establishing a sustainability committee to support long-term development[15] Audit and Compliance - The independent auditor's report confirmed that the consolidated financial statements accurately reflect the financial position of the company as of December 31, 2020[69] - The company is responsible for preparing financial statements in accordance with US GAAP and ensuring no material misstatements due to fraud or error[80] - The auditors assess the appropriateness of accounting policies and the reasonableness of estimates made by the board[87] Risks and Legal Structure - The company faces risks related to the VIE structure, including potential penalties from the Chinese government that could significantly impact its operational capabilities[172] - The company is subject to uncertainties in the Chinese legal system that may affect the enforceability of its contractual arrangements with Shanghai Zunyi[172]