Caroline Dong - IR Director Vincent Qiu - Chairman and CEO Junhua Wu - COO Beck Chen - CFO.

Evan Zhou - Credit Suisse Julia Zhou - Morgan Stanley Binnie Wong - Merrill Lynch Nicky Ge - China Renaissance.

Thank you for standing by. And welcome to the Baozun Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions]. I must advise you that this conference is being recorded today, November 16, 2016.

I would now like to hand the conference over to, Ms. Caroline Dong, Investor Relations Director. Please go ahead Madam..

Thank you, Operator. Hello everyone, and thank you for joining us today. Baozun's earnings release was distributed earlier today and is available on our IR Web site at ir.baozun.com, as well as on global newswire services. On the call today from Baozun are Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr.

Junhua Wu, Chief Operating Officer; and Mr. Beck Chen, Chief Financial Officer. Mr. Qiu will review business operations and Company highlights, followed by Mr. Chen who will discuss financials and guidance. They will 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 Section 21E of the Securities Exchange Act of 1934 as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminology such as will, expect, anticipate, future, intends, plans, beliefs, estimates, targets, going-forward, outlook and similar statements.

Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and 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, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Mr. Qiu, please go ahead..

Thank you, Caroline and thanks everyone for joining our earnings call today. I’m pleased to report another quarter of robust financial and operational goals in which total GMV increased by 71% year-over-year. Our growth was primarily driven by existing online stores and the expansion and the future optimization of our portfolio of brand partners.

We continue to partner with international leading brands that benefit from good customer reorganization and demand of high quality authentic products.

Our total number of brand partners increased to 127 with a member of strong brands in the pipeline, we’re confident that we will be able to increase the number of brand partners by at least 20 at the end of this year when compared to 2015.

We continued to attract high quality brands seeking to benefit from China's rapid growth in e-commerce by diversifying and the customizing the services we can provide and the innovative new products. We finished successful trail runs of new intelligent O2O app, Shopdog in Hong Kong.

Designed for use on tablets Shopdog was developed to help brand partners closely integrate our end sales channels with online stores, and overall online stores to sell inventories through online stores with an integrated warehouse management system.

Shopdog enhances the customer experience by facilitating the terms exchanges and pick-up of online orders at offline stores, and also allows customers to make online orders in offline stores when products are out of stock. In addition Shopdog incorporates merchant tools such as a CRM system to attract and then retain customers.

We are very excited to begin rolling Shopdog app across Mainland China where we know demand for innovative products such as this is very high.

With more and more brands and merchants seeking experience in the professional B2C warehouse and the fulfillment services, we diversified the e-commerce services we can provide by establishing outlet statistics subsidiary, Baotong E-Logistics during the quarter.

Baotong provides an enhanced and the highly customizable area of logistical service to a wide variety of brand partners across the number of categories and it improves our operational efficiency. Through Baotong, we will be able to develop relationships with additional brand partners starting with logistical services.

In addition, Baotong became a certified Cainiao partner, which allows it to provide best-in-class services to merchants on Cainiao network. We opened our first premium warehouse, which we have the Baotong Cube in September. This premium warehouse marks the beginning of a new generation of intelligent warehouse in the fulfillment services.

Baotong Cube demonstrated its value to brand partners during this Singles’ Day where we’re able to process and pre-sought orders for delivery to over 100 cities in China. The Baotong Cube also serves as the proof-of-concept for new supply chain model we are developing.

Leveraging our improved IT and the logistical capabilities, we were able to successfully settle total order value of RMB2.5 billion during Singles’ Day; more than double of the amount from the same day last year. We are proud of our solid results during this Singles’ Day, especially the agreed performance from brands on the non-distribution model.

Through our logistical services, we send out 1 million orders on November 11th, a historical high an increase of 130% when compared with the same day last year. To conclude, we have made significant progress over the quarter in developing deeper relationships with our brand partners, diversifying revenue and innovating new products and services.

We will continue to invest in strengthening our market leading position and long-term and sustainable growth. With that, I will pass the call over to Beck who will review our financials..

Thank you, Vincent. Just a few housekeeping items before I go through the numbers. We believe year-over-year comparisons are one of the most useful ways to judge our performance. All percentage changes I am going to give will be on that basis.

So to start, GMV during this quarter increased by 71% to RMB2.4 billion, our focus remains on growing our non-distribution model businesses where GMV increased by 107% this quarter. We continue to optimize our business model mix towards the non-distribution model. Total net revenue increased by 28% to RMB749 million.

Breaking down further, product sales revenue rose by 9% to RMB418 million. As we have mentioned during previous earnings calls, we began and transitioning some of our existing distributional benefit towards consignment models into last year. As expected, this has impacted the year-over-year growth of product sales revenue.

Maikefeng accounted for RMB7 million in product sales revenues. Services revenue rose by 83% to RMB217 million, of which Maikefeng contributed RMB2 million.

The increase in services revenue was mainly due to rapid growth in our business and the consignment model and the service fee model, and in particular growth in sales of apparel products sold by existing brand partners as they expand their online presence. Total operating expenses were RMB727 million.

In particular, cost of products rose to RMB420 million, primarily due to the increase in the volume of product sales from our core branded ecommerce benefits. Maikefeng accounted for RMB7 million in costs of products. Fulfillment expenses rose to RMB110 million.

The increase was mainly due to the increases in GMV contribution from consignment business, more orders fulfilled by the premium delivery service provider as a percentage of total orders and the warehouse rental expenses. Maikefeng accounted for RMB2 million in fulfillment expenses. Sales and the marketing expenses rose to RMB152 million.

The increase was primarily due to an increase in promotional and marketing expenses associates with our online stores. Maikefeng accounted for RMB2 million in sales and the marketing expenses. Technology and content expenses rose to RMB24 million.

The increase was primarily due to the increases in technology-focused staff and the project-based variable technological expenses from branded stores. Maikefeng accounted for RMB2 million in technology and content expenses. G&A expenses rose to RMB22 million. Maikefeng accounted for RMB0.3 million in general expenses.

Non-GAAP income from operations was RMB31 million, a significant increase compared with RMB4 million in the same quarter of last year. And the non-GAAP operating margin improved significantly to 4.1% compared with 0.6% in the same quarter of last year.

In Q3, net income attributable to Baozun ordinary shareholders rose to RMB20 million, an increase of 172% compared with the same quarter of last year. Basic and diluted net income attributable to ordinary shareholders per ADS was RMB0.39 and RMB0.36 respectively compared to RMB0.15 and RMB0.12 respectively during the same period last year.

Non-GAAP net income attributable to Baozun ordinary shareholders rose to RMB28 million, an increase of 135% compared with the same quarter of last year.

Basic and diluted non-GAAP net income attributable to Baozun ordinary shareholders per ADS was RMB0.56 and RMB0.52 respectively, compared with basic and diluted non-GAAP net income attributable to Baozun ordinary shareholders per ADS of RMB0.24 and RMB0.22 respectively for the same period of year 2015.

As of September 30, 2016, the Company had RMB671 million in cash, cash equivalents and short-term investments, a decrease from RMB837 million as of December 31, 2015, due to our procurement of inventories for the Singles’ Day share repurchase program and the investment in logistics and office space.

Last quarter, we raised our fiscal year 2016 GMV guidance for an increase of over 50% to an increase of over 60% on a year-over-year basis.

With GMV during each of the first three quarters of 2016 exceeding the 60% growth rate and the strong confidence in our strategy and the operations, we expect GMV during the fourth quarter of 2016 to continue to grow faster than 60% on a year-over-year basis.

Turning to the revenue guidance, for the fourth quarter of 2016, we expect total net revenues to be between RMB1.26 billion and RMB1.28 billion, representing a year-over-year growth rate of approximately 24% to 26%, due to the continued strategic shift in our business model to increase our margin profile.

Our non-distribution model will continue to grow at a rapid pace as will services revenues, which will increase and contribute more to net revenues on a year-over-year basis, and generates more profits. This concludes our prepared remarks.

Before we open the call up for the Q&A session, I would like to remind everyone to please limit the questions to two. Operator, we are now ready to begin the Q&A Session. Thank you..

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions]. Our first question comes from Evan Zhou from Credit Suisse. Please go ahead. Your line is open..

Just wondering, I noticed that our non-distribution continues to grow really well, and this distribution channel actually came down pretty meaningfully.

So just wondering, are we kind of ahead of plan in the mix of that? How do we -- so we forecast the outlook for the overall business model mix in 2017? And if we can have some more color on the kind of GMV outlook for 2017 that would be helpful? Thank you..

So, basically, as we have said we have shifted our opinion towards more to standard model and service fee model. In the same time since last year, we have successfully transferred some business -- existing business from distribution model to consignment. So like I said, deploying in the restructuring the transitioning will impact the product outline.

So basically these numbers will be still fitting in the products sales revenue in the competitive figures. While during this year, actually our businesses revenue is going through the services revenues. So that's why in the transition periods there will be some mix change.

So I think for the next year when if there is no more new transaction happen, basically I think the distribution model will grow, still grow relatively faster than this quarter because everything, you don’t just like compare with apple-to-apple basis.

And we believe that based on our strong capabilities to grow the numbers like same-store sales growth. So we can still achieve relatively reasonable gross rate for this distribution model, if there is no more transaction. But of course we will continue to negotiate the transfer the benefit towards the more profitable business model..

Second question regarding our outlook in the new customer or brand acquisition. Wondering I think we’ve been having pretty successful Singles’ Day event, you all know that fourth quarter is probably like our relatively speaking, very busy quarter in terms of execution, but not that so in customer acquisition.

So just wondering like looking to the following quarters, any kind of the major pipeline brands or categories of brands that you guys are working on that you can share with us? Thank you..

Talking about BD process, right now we are seeing a very partly positive pipeline brands. The majority of the potential clients we’re talking to is majorly from the apparel industry, which is of the biggest potential, and also will benefit from the e-commerce lot for the category.

So talking about the total numbers, we think we are still confident that we will increase the number of brand partners by at least 20. So that is the goal for today. So number of brands is important for us, and also the same-store growth is even more important for us to carry on.

So, we are right now we talk to different categories, including the apparel luxury and even some of the electronic. But we think most of the potential clients will be from the apparel industry.

And the other most important things that when we’re talking to some new brands, we are trying to gather much better turn than the existing ones, so this will also help us to better our future financial performance..

Your next question comes from Julia Zhou from Morgan Stanley. Please go ahead..

Hi management. Thank you for taking my question and congratulations for the strong quarter. I have two questions here first one is on same-store-sales growth. Could you share with us the trend for the same-store sales growth for the third quarter? And also by category performance, like which are the fastest and slowest growth category, et cetera.

And my second question is regarding Baotong. We understand that it's still early in operation, but could you share with us the implication on fulfillment expenses in the future from Baotong and operation, and also, for example, CapEx and other P&L lines? Thank you very much..

Actually, and for the question -- for the first question, the higher growth rate is in the category of apparel and electronics for the quarter. And in terms of the same-store-sales growth rates, for Q3, we achieved almost around 60% year-over-year, 60% year-over-year.

And in terms of the fulfillment expenses, we have some investments into to view that the higher automation streamline. And we already see a lot of options just to be benefit from this investment. So we can -- generally, we have more value-added services package to fulfill the demand or escalated demands from those brands.

So, we can achieve a higher service revenue from fulfillment, while we can achieve actually a better operating profit through this enhanced fulfillment services as well..

Can I have a follow-up question on the same-store-sales growth?.

Yes, of course..

Yes. So for the same-store sales, if it's 60% year-on-year, we know that, and it does not decelerate much from the second quarter. So we note for the overall GMV growth, for example, reported by National Bureau of Statistics. The overall GMV is decelerating in the third quarter.

So is that representing back the key brands, total brands, are still seeing very healthy growth and the faster growth than the overall brands in their performance?.

So actually due to many current buy, so for second quarter, our core GMV is growing more than 80%, while our same-store sales growth rate is more than -- along 70% year-over-year. So for the third quarter, our GMV growth rate is more than 70% while the same-store-sales growth is around 60%. So generally it's in line with the total benefit.

And we think right now our revenues our GMV contributed it by the leading brands is actually decreasing on a year-over-year basis; although, it may not be so fast, but we still achieve it year-over-year..

Your next question comes from the line of Binnie Wong from Merrill Lynch. Please go ahead. .

I have few questions here. First question, I was wondering that, can you explain to me, can you clarify in terms of the -- we understand that there is potentially could be some pick rate expansion in the consignment model. And understand that we’re talking about expansion more into apparel, and that we’re offering more printing budget.

And then we hoping more -- picking more than in budget rather than just doing transactional marketing. So, from there, could you may be, and some more elaboration as to how Baozun can do more transact branding marketing product brands? And then I guess they’re sitting away some of the market budget from traditional media, that would be very helpful.

And I’ll follow-up with my second question. Thank you..

Actually, we basically start to work with the brands to the transactional online retail for the brands with our different service categories, including the customer service, warehouse, management, and also IT, this kind of services. We keep spending our service offerings to all these brands.

And also, we keep improving our service qualities to them as well. So, in transactional based services, we not only help to achieve higher sales volumes, but also help them to restructure their back-end supply chain system to reduce the cost of the fulfillment. So actually we provide lot of savings values to the brand.

And in return we have more and more margin and profit that is one thing.

The other of course, right now we are enlarging our digital marketing service coverage, and we are improving the capability of our team because in the markets there is big potential when we just want to integrate the sales and marketing together to provide a target, more target, and more performance based marketing capabilities, not only CRM but also still showing -- we just want to put everything together to form up very sophisticated solution, suite of the marketing solution for the brands.

So I believe in the future, not only we can provide a wider range of services with a better service quality in the transactional side, but also we will provide more and more digital marketing services to the brands, and we integrate all this together.

And also we’ll have more innovations in the also integration also omni- channel coverage; so by doing so, we just want to expand our take-rate from the business we are operating for the brand..

And my next question just about on the -- because I think the way to understand strategy is also similar from what we understand from Alibaba this year. They are also getting incremental marketing dollars on branding budget besides just on the transactional side, right.

So in terms of the marketing dollars, when you talk to the brands, what will -- because it's actually more -- because for those branding budget, it’s not just really focused on our it's something beyond that right when you talk to those for agencies is beyond that.

So what are that key KPIs that they will be -- is that they will monitor here for us to negotiate for more? And just final more like a housekeeping question is that, because I remember earlier this year, you were talking about this year, we should focus more on the gross profit growth rather than on the revenue or GMV growth is in the mix of the transitional mix change between distribution model to consignment model.

So I was wondering that should we expect this shift to be continuing into like next year. Because I think we are talking about this almost like every quarter.

So just want to understand that should we expect that maybe you should be -- it will take until like fourth quarter, or maybe even into next year? How should we think about that? So it's just one of the -- when we are looking, measuring the companies in terms of the performance, which is why should we be focusing on? Thank you..

We can see the trends that brands are putting more and more investments into the digital side, not the traditional side. So, that is a good thing to improve our drive to more sales online. And also it gave us also the opportunity to develop or enhance our digital marketing service to benefit our business and also the brand business.

I think right now the reality side is that ROI is still the very important thing. When the brands spend marketing dollars, this is one to get direct results from that expense. So ROI is still very important for each of the marketing dollar spent on each of our outside products.

But the trend you are right, we think that the trend is -- in the future will be beyond ROI itself. So not only they just want to help the people to buy products but we also want to use this digital channel to deliver things. The message is the branding, positioning, and also some of the interactions in between.

For example, today we’re developing some of the comments and review analysis tools for the brand. That is also a good example of where marketing dollar can spend and to interact with your consumers. So Baozun here is to develop the transactional related marketing services capabilities and also the non-transactional based marketing services to them.

So by doing so, we can not only deliver a better ROI for marketing dollars spend and also we can help brands to talk to their customers more efficiently, and in return they can know more of the customers versus -- and they improve their products and the branding..

And in relation to the question about the gross profit growth. Yes, for Q3, we have successfully growth of gross profit by over 70% year-over-year basis. And we expect that we will still keep momentum in Q4, and the next year, so, on a year-over-year basis. So I think we have addressed your questions Binnie..

Your next question comes from the line of Nicky Ge from China Renaissance. Please go ahead..

Congratulations on a strong quarter. I’ve got a question about your logistics subsidiary, Baotong. In your prepared remarks we saw Baotong is already partner of Cainiao.

And I am wondering what kind of collaboration can we expect from Baotong and the Cainiao? And could you give us more color on the detail of collaboration, such as the data or warehouse sharing, et cetera. Thanks a lot..

Right now, as separated subsidiary Baotong, right now is going faster than before, because they can work with the external customers and also business partners like Cainiao. So in September, we established this relationship with Cainiao and right now we have already become a certified partner of Cainiao.

So right now we work with Cainiao through our Baotong E-Logistics warehouse.

And for us we are a good addition to Cainiao, because we are providing premium services and also supply chain integration for the order back-end of the rents, not only just manage the warehouse and deliver goods but also working with our IT capabilities we connect to Cainiao and to other brand partners to form a very good network to talk to each other.

And then we have to reach all the back-end supply chain of not only the brands but also us and team and also Cainiao. So this one will be a very efficient network and help each party to reduce the cost and fulfillment and also more intelligence and that can deliver better services and experiences for the customers. So, this one is very promising.

They are asking for us to follow..

[Operator Instructions] There are no further questions at this time. Ms. Caroline Dong, please continue..

Okay. Thank you, Operator. In closing, on behalf of the entire Baozun management team, we’d like to thank you for your interest and the participation in today's call. If you require any further information or have any interest in visiting us in China, please let us know. Thank you for joining us today. This concludes the call..

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect..