A lot can change in one quarter. Vipshop Holdings Ltd – ADR (NYSE:VIPS) took a 12% beating after earnings last quarter, but this quarter, the market is neither too bullish nor bearish. The difference? Vipshop made it known that its glory days are not over … sort of.
Part of the reason for the rout after Q1 earnings was Vipshop’s worst-ever revenue gain of 41% coupled with decelerating guidance of 39.5% for Q2. Much to the delight of VIPS stock investors, the Chinese retailer hit a top-line gain of 49% year-over-year to $2.02 billion, enough to best the $1.9 billion consensus.
That sort of growth makes the 13% gain in net income look puny, but that’s due to a one-time “impairment loss of investments” charge. Gross income surged 44%, and per-share earnings gained 31%, coming in at 17 cents versus the 15 cents the Street was expecting.
Further, the online discount retailer accelerated active customers by 62% to 23 million, up from 14.2 million a year ago. Total orders also increased a healthy 54% to 68.9 million from 44.9 million in the same quarter last year.
Vipshop Chief Financial Officer Donghao Yang had this to say:
“Consistent with our growth strategy, in the past quarter, we reaccelerated our top-line growth and significantly strengthened our operating cash flow. Additionally, we remain focused on enhancing and expanding our logistics capabilities and are on track to add approximately 500,000 square meters of warehousing capacity by the end of this year.”
Yet, VIPS stock has traded in and out of the red since the opening bell, and is now down a third of a percent.
Why Isn’t the Market Rewarding VIPS Stock?
While VIPS managed to make a comeback in the sales department, its future guidance is again blowing puffs of smoke rather than fire. For the current quarter, Vipshop projects 37% to 43% revenue growth. Sound familiar? That’s pretty much the conservative guidance the company gave for Q2, before completely blowing through those projections.
And for his part, Yang sees the growth story remaining intact:
“Looking ahead, we aim to continue delivering solid top-line growth while maintaining our margins. We remain focused on providing our customers with high quality end-to-end user experience through our robust logistics platform. By doing so, we are confident that we will continue to drive sustainable growth and generate additional value for all of our stakeholders.”
It seems investors, however, are wondering how much longer before growth actually does stall out and commits to the projected range.
Vipshop grew at an outstanding 187% over the last five years, but recent projections put its next five years at a decidedly ho-hum 4%. So, even if VIPS stock does best its own projections yet again, it has now reached that point in the S curve where growth slows and the buy thesis either changes or dies with its growth.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
