Baozun Inc. (BZUN) Q1 2026 Earnings Call Transcript

Good morning, ladies and gentlemen, and thank you for standing by for Baozun's first quarter 2026 earnings conference call. As a reminder, today's conference call is being recorded. I would now like to turn the call over to your host for today's call, Ms. Wendy Sun, Senior Director of Corporate Development and Investor Relations of Baozun. Please proceed, Wendy.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our first 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 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. Mr. Qiu will share first about 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 segment, 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'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 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 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 the date hereof and is based upon assumptions that the company believes to be reasonable as of this date, and the company does not undertake 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. You may now turn to Slide 2 for the executive highlights for the quarter. It is now my pleasure to introduce Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.

Thank you, Wendy. Hello, everyone, and thank you for joining us. Q1 2026 was solid throughout. We achieved growth across every key metric, revenue, profitability and working capital turnover efficiency. For the quarter, group revenue grew 15% year-over-year to CNY 2.4 billion. Non-GAAP operating income turned profitable at CNY 8 million, a significant improvement compared to a loss of CNY 67 million a year ago. Both business lines delivered solid growth in top line and bottom line. Importantly, these are not just financial improvements. They reflect notable progress in sales quality, profitability and cash generation across both engines. BEC resumed sustainable top line growth this quarter with a 10% year-over-year revenue increase compared with scale. What is even more critical is actually the quality of this growth. We will continue to prioritize our revenue streams towards enhancing business quality, refining service satisfaction and ultimately improving overall profitability. With growing synergies with BBM and the integration of this brand management mindset, we aim to engage more deeply with our clients, understand their businesses at a granular level and collaborate closely to drive sustainable growth. BBM delivered acceleration this quarter with revenue up 39% year-over-year and continued improvement in profitability. GAAP reached operating breakeven for the second consecutive quarter. This is especially impressive given the relatively smaller seasonal cycle in the first quarter. We believe this performance is a testament to our methodologies in MMC, merchandising, marketing and channel. We will continue to leverage this proven approach to nurture smaller niche brands within our portfolio to expand our addressable market. The strong Q1 results bolster our confidence in the full year outlook and more importantly, in our ability to excel during the acceleration phase of our business transformation over the next 3 years. Our two engines are each playing distinct yet reinforcing roles. BEC is not simply resuming growth. It is becoming a higher-quality and a value-driven business. Meanwhile, BBM is accelerating with GAP on a clear path towards 2026 annual operating breakeven. Both engines are performing in sync and operating synergy is beginning to emerge, opening up broader development opportunities and unlocking new growth potential for our company. Now I'll hand over the call to the team for a deeper dive in our financials and business performance.

Thanks, Vincent, and hello, everyone. Now let me provide a more detailed overview of financial results for the first quarter of 2026. Please turn to Slide #3. Baozun Group's total net revenues for the first quarter of 2026 increased by 15% year-over-year to CNY 2.4 billion. Of this total, e-commerce revenue grew by 10% to CNY 1.9 billion, while brand management revenue grew by 39% to CNY 538 million. Breaking down e-commerce revenue by business model. Services revenue increased 7% year-over-year to CNY 1.4 billion, while BEC product sales revenue increased by 21% year-over-year to CNY 510 million. Please turn to Slide #4. From a profitability perspective, gross profit for product sales increased by 33.6% year-over-year to CNY 350 million for the quarter. Our group level blended gross margin for product sales was 33.5%, representing an expansion of 110 basis points year-over-year. Within this, gross margin for e-commerce product sales expanded to 15.9%, reflecting a 98 basis point improvement from 15% a year ago. Gross margin for BBM was 50% for the quarter compared with 51.6% in the same period of last year. Now please turn to Slide #5 for a walk-through of our OpEx. Sales and marketing expenses increased by CNY 93 million to CNY 893 million. This included an increase of CNY 43 million for BEC, which was mainly due to higher spending on creative content and marketing initiatives consistent with the growth in digital marketing revenue. BBM sales and marketing expenses increased by CNY 56.8 million, mainly driven by the expansion of offline stores and marketing activities in the quarter. Fulfillment costs for the quarter decreased slightly by 1% to CNY 519 million, reflecting our ongoing efforts in cost optimization. Technology and content expenses increased by 7% to CNY 125 million, primarily due to more revenue contribution from technology monetization. G&A expenses decreased by 4% to CNY 164 million, reflecting our continued 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 CNY 8 million compared to a non-GAAP loss from operations of CNY 67 million in the same period of last year. BEC's adjusted non-GAAP income from operations was CNY 13 million, significantly improved from a loss of CNY 46 million a year ago. BBM reported a non-GAAP operating loss of CNY 4.9 million compared with a loss of CNY 21.1 million a year ago. Lastly, with the growing significance of our distribution business across both operating segments, we would like to share key metrics related to capital turnover efficiency and inventory turnover days, first enhancing our transparency and accountability. For the first quarter of 2026, our working capital turnover improved to 109 days compared with 193 days a year ago. Within this, inventory turnover shortened to 113 days from 185 days a year ago. This improvement was driven by both BEC and BBM segments. As of March 31, 2026, our cash, cash equivalents, restricted cash and short-term investments totaled CNY 2.9 billion. Let me now pass the call over to Junhua to update you on BEC, our e-commerce business.

Thanks, Catherine, and hello, everyone. BEC delivered a solid first quarter with revenue growing 10% year-over-year and non-GAAP operating income of CNY 13 million, a meaningful turnaround from a non-GAAP operating loss of CNY 46 million in the same period last year. This performance reflects both a return to sustainable growth and meaningful progress on our broader priority of improving revenue quality and expanding margins. Please turn to Slide #7. Our product sales revenue grew 21% year-over-year with broad-based growth across all key categories, benefiting from deeper relationships that improve execution on major platforms. It is encouraging to see apparel product sales deliver high double-digit growth as our efforts to expand into nonstandard categories began to scale. We continue to deepen our engagement with brand partners in refining go-to-market strategies through channel diversification and merchandising segmentation. We are pleased to have achieved not only healthy top line growth and product sales, but also improvements in gross margin and inventory efficiency. Now please turn to Slide #8. Services revenue from the quarter grew 7% year-over-year, led by digital marketing and IT solutions as well as online store operations. We continue to gain market share in key categories like luxury, sports and outdoor, reflecting the depth and trust of brand partnerships in these high-value segments. In the recently disclosed 2025 Annual Rating Awards, we were recognized across major marketplaces as a top-tier service provider, achieving a grand slam of awards across all platforms. These recognitions included Tmall 6-star service provider, JD Jan Excellence Partner, Douyin Diamond service provider, Tencent certified Excellent Partner and Retino e-commerce operation partner, reflecting our expanding ability to activate brands across an increasingly complex multichannel landscape. Returning to growth is only part of the story. We are equally focused on the quality of that growth. We have begun conducting comprehensive profitability and productivity analysis across service layers, business models and margin contribution by revenue stream. With the explicit goal of concentrating on higher-value work while reducing exposure to lower ROI services, gross margin improvement is an active priority across both our product sales and service business. Lastly, we continue to focus on strengthening our bottom line. To support this, we are rolling out enterprise-wide lean initiatives to drive operational agility and cost optimization while scaling the adoption of AI tools across functions to unlock higher productivity. The improvement in non-GAAP operating income from a loss of CNY 46 million to a profit of CNY 13 million is an early and tangible signal of this progress. Multiple AI-powered tools have already been deployed across daily operations, and we expect them to drive meaningful efficiency gains. We also have several initiatives aimed at restructuring and reengineering our end-to-end operational process, creating even greater opportunities to capitalize on fast-moving AI advancements. We are encouraged by BEC's first quarter results. Looking ahead, our focus remains on deepening client relationships, driving service innovation and continuously improving operational excellence and margin quality within this business. Now I'll pass to Ken for an update on Baozun Brand Management.

Thank you, Junhua, and hello, everyone. Please turn to Slide #9 for BBM's performance in the first quarter of 2026. BBM carried its strong momentum into the first quarter with revenue growing 39% year-over-year. We also achieved a significant improvement in the bottom line with GAP delivering its second consecutive breakeven quarter in non-GAAP operating profits. More encouragingly, the solid growth was driven by gains across key operating metrics, including traffic, conversion and average transaction value. Leveraging our omnichannel capabilities and agile integration, GAP achieved record same-store sales growth in the 20s in the first quarter. Gross margin remained healthy at 50% with an optimized commercial strategy during the Spring Festival to maximize traffic and conversion during the peak window. Inventory management also improved significantly with BBM inventory turnover reduced to 114 days from 157 days a year ago. Now let me share our key initiatives around merchandising, marketing and channel for GAP during the quarter. Merchandising: our ability to blend GAP's American casual aesthetic with locally appealing features is connecting strongly with our target consumers. Our online segmentation strategy also moved beyond price-driven initiatives toward more fashion-forward and tailor-made assortment, an increasingly important driver of online growth. Underpinning both is improved internal alignment. Our merchandising design and product development teams have operated in close coordination for several quarters, translating to tighter supply chain execution, stronger vendor relationships and more consistent cost management. Marketing: Our Q1 campaign strategy reflected seasonal sequencing. During Chinese New Year, we activated a collaboration integrating traditional aesthetics through modern design. This marked our second consecutive CNY campaign anchored by a major cultural IP following the Forbidden City collaboration in first quarter of 2025. In mid-March, we launched our spring women's campaign "Flow in the GAP" in collaboration with dance artist Xie Xin through expressive movement and storytelling. The campaign explores themes of self-expression and personal growth among modern women. In fact, the women's division was a standout performer during the quarter. Channels: following the successful launch of new stores featuring enhanced visual merchandising and upgraded store image in the fourth quarter, we remodeled and upgraded two additional stores in Beijing, Florentia Village and Shine Hills in Q1. We also combined the charm of traditional Chinese aesthetics with contemporary culture in our newly launched flagship store at Taiyuan's Zhonglou Street, creating a unique and engaging shopping experience. The grand opening not only drove strong foot traffic, but also generated significant social buzz. We remain on track to deliver our full year target of 50 new GAP store openings, including about 10 new stores planned in Q2. Looking beyond the quarter, our April brand ambassador campaign with Cheng Yi, "Moving Forward in GAP," continued to outperform. This gives us strong confidence in the momentum and reaffirms the power of well-executed China-for-China storytelling. Our partnership with GAP Inc. continues to strengthen, including the Victoria Beckham collaboration launched recently and additional IP collaborations planned for the second half of this year. With double-digit top line growth on track and a second consecutive breakeven quarter delivered, we are well positioned to achieve our full year target. That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

And the first question comes from Frank Tao with CMBI.

Congrats on a solid set of results. Can you help us unpack the drivers behind the strong revenue growth of your BBM business? And how should we think about the growth trajectory in the coming quarters?

The major driver for BBM's growth in the first quarter is GAP. Also, the consumption environment in Q1 helped, because the winter sale effect, the Spring Festival and climate change helped drive more traffic as we expected. Our overall increase objective for 2026 is over 20%. In the first quarter, we achieved 39%. In the coming quarters, we are confident we can deliver continuous growth in the 20s.

And the next question comes from Vicky Wei with Citi.

So my question is mostly related to consumption sentiment and the June 18. Would management share your observation on the current consumption sentiment and the June 18 preparation of brands? What are your expectations for that? And lastly, would you please share some latest update about GAP performance and margin trend?

Okay. Let me answer the first two questions. First, regarding consumer sentiment: we had a strong Q1 due to a late Chinese New Year and a longer period of Queen's Day. For Q1 we had a very strong finish, and we foresee consumer sentiment continuing to improve. Regarding 618 preparation, we are currently in progress for 618. Tonight is the night for the second big wave of the campaign, and we are looking forward to a strong finish for 618 this time.

For GAP's margin, our objective is to keep a relatively stable gross margin during the year while increasing scale effects through both online and offline channels as well as BBM headquarters. Through scale, we expect to improve store-level contribution margin and ultimately the overall operating margin. Our current performance and expansion plan are on track.

Also some more words on margin trend. Generally, the business is contributed by two parts, BEC and BBM. You can see that BBM, with a higher margin, is contributing more growth to the total business. So we can expect the overall margin trend to improve in the coming quarters. Along with synergy between BEC and BBM, we have more opportunities to work with our existing brands in the BEC portfolio, which can help generate more margin. So that is what we are expecting.

And the next question is from Jiawei Yin from Citic.

Congratulations on this quarter's strong performance. I have two questions. The first is regarding BEC: as growth rates across different e-commerce platforms converge, what new trends are emerging in brands' marketing budget allocation across different channels? And what impact does this have on the company's service pricing and bargaining power? My second question is regarding BBM: in the Chairman's letter to shareholders, the company mentioned that it will be very cautious about new brand acquisitions. Could you elaborate on specific screening criteria such as category positioning, business scale, profitability level and/or deal structure?

Let me answer the first question. In terms of platform allocation and marketing budgets, both platforms and brands are maintaining a relatively similar return rate. We don't see significant shifts in budget allocation across platforms. However, many brands are moving from traditional performance marketing to content-driven platforms like RED (Xiaohongshu) and seeding platforms, creating more creative content facilitated by AI and powered by Baozun. This shift moves spend from pure traffic driving to building emotional linkage before transactions, based on content. As a service provider, our bargaining power is that we can offer end-to-end solutions for content creation and performance marketing. If brands entrust Baozun with comprehensive execution, we can help allocate budgets across performance marketing, content-driven channels, Retino, RED and CPS, leveraging an omnichannel perspective to use their money more efficiently.

Let me talk about our brand acquisition thought process. Yes, the letter is written by me. In the past three years, we have forged a new model of development for Baozun. We are entering an acceleration phase. When evaluating new brands, scale is quite important because we want to accelerate and harvest what we have built. So we seek larger-scale opportunities. Category-wise, we focus on fashion apparel, where we can utilize our GAP operation experiences. We also want opportunities that can bring immediate profit because many opportunities are emerging in the market, and Baozun's model today is unique and valuable. Very few players can execute MMC in the industry. Historically, e-commerce service providers operated only online channels for brands. Today, we can do both online and offline, and channel is only one factor in the MMC methodology. We know how to do merchandising, marketing and channel together. In this position, we are uniquely valuable to potential brands within and outside the BEC portfolio. Therefore, our standards are very high and we will be very cautious.

The next question comes from Chris Cao with Huatai Securities.

I have two questions. The first is regarding AI technology: with the advancement of AI, are there any ongoing changes to our service systems and mechanisms for merchants during major promotion events or in daily operations? In the long run, how do we view the impact of AI on key competitive factors in the e-commerce industry? How will the company seize the opportunities and tackle the challenges presented by this shift? The second question is about recent sales trends: we see that the growth rate of overall online retail sales saw a month-on-month decline in April with the growth of social retail sales for apparel also narrowing sequentially. How will our e-commerce and brand management businesses respectively leverage strengths to sustain ARFA growth momentum that outperforms the home market?

Let me answer your first question and the first half of the second. On AI, we are leveraging AI mostly to improve bottom-line efficiency. We have many AI agents that can automate tasks and save labor. We have a dedicated team in the E-commerce Services segment focused on applying large-scale models and AI agents to increase efficiency in digital asset management, customer service and other automation tasks previously very labor intensive. For top-line impact, current public AI services have not fully replaced creative jobs, since creative is a learning business model. We are using large models to facilitate our operation teams in decision-making by collecting competitor data, performing digital analytics and presenting data-driven suggestions. In the long run, we will work closely with large platforms like Tmall and others to leverage their public AI services even if they provide a closed loop within their ecosystems. We will also maintain and upgrade our in-house systems with AI. We hope to share more by the end of next year. Regarding recent sales, we have not seen a major drop in our online business; April stayed within our budget. This period is a prewarm stage before 618, and many brands are conserving budgets and assortment allocation for 618. The 618 campaign period is longer than last year, so brands are preserving spend into May. Today is the first wave of the 618 campaign, and we look forward to a strong finish this year for 618.

For BBM, we proved in Q1 our ARFA growth momentum with very high growth rates. Even in April, we continued the growth trend, both online and offline, through well-planned marketing activities and merchandise plans. BBM's strength is to increase scale while preserving brand value. After three years we have deep understanding of online and offline channels, faster reaction to market changes, strong supply chains for knitwear, woven and denim, and proven MMC capabilities. All of this helps us meet consumers' needs, better understand brands and consumers, and sustain our ARFA growth momentum.

And the next question comes from Jefferies.

So I have two questions. First, can management share color about recent monthly sales performance? Second, can management share outlooks for different categories like luxury, apparel, FMCG, consumer electronics and appliances?

Let me give an outlook by category. Sports and outdoor maintain leadership in online category growth. Premium and luxury follow sports and outdoor. FMCG still has a strong performance and maintains a similar growth rate to last year. Considering we are just after Queen's Day, FMCG—especially cosmetics—has already run many campaigns and will likely need one or two quarters to reset before Double 11. Consumer electronics, especially home appliances and electronic devices, showed strong growth at the start of this 618 campaign, and we look forward to a strong finish for the consumer electronics category as well. Overall, apparel and fashion remain leaders, followed by FMCG and consumer electronics. Regarding recent monthly sales performance, Catherine, do you want to add?

Thank you for your question. As you can see, we performed quite well in Q1 2026. We are quite optimistic about recent months' sales performance regarding our top line and bottom line. Management retains high confidence in our group's performance, including both e-commerce and BBM segments.

And as there are no questions at the present time, I would like to return the floor to management for any closing comments.

Thank you, operator. On behalf of the Baozun management team, we would like to thank you again for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us today. This concludes the call.

As mentioned, that concludes today's presentation. Thank you for attending today's event and you may now disconnect your lines.