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Will Customer Loyalty Drive Vipshop (VIPS) in Q2 Earnings?

Zacks Equity Research
Updated

Vipshop Holdings Limited VIPS is slated to report second-quarter 2018 results on Aug 13, after the closing bell. Notably, the company has a mixed record of earnings surprises in the past four quarters. Let’s discuss how things are shaping up for the upcoming quarterly results.

Customer Loyalty Bodes Well

Vipshop boasts a strong consumer base. This has further encouraged the company to undertake initiatives for ensuring consumer satisfaction, which helps facilitate repeat orders. Evidently, during the first quarter of 2018, 86% of the customers belonged to the repeat order category. Moreover, almost 96% of orders during the quarter were from such repeated customers. Buoyed by such factors, revenue per customer increased almost 25% year over year, which propelled overall revenues to increase around 24.6% in the last reported quarter.

Vipshop also engages in strategic investments to consistently increase consumer base, as reflected from its partnership with Tencent and JD.com. The company is also focused in promotional events on its main application as well as on JD and Wechat. In terms of brands, it has been enhancing portfolio through additions like Stella McCartney and Dodo. Going ahead, the company aims to continue working with partners to ensure traffic growth and conversion rates. Moreover, to serve consumers efficiently, the company has undertaken warehouse-expansion efforts, especially on the international front and continues to bolster last-mile delivery services.

Encouraged by such efforts, management estimates revenues for second-quarter 2018 in the range of $20.5-$21.3 billion, which depicts a year-over-year rise of 17-22%. Incidentally, the Zacks Consensus Estimate for revenues for the impending quarter is pegged at $3,334 million, reflecting an improvement of 29% from the prior-year quarter’s tally.

Vipshop Holdings Limited Price, Consensus and EPS Surprise

Vipshop Holdings Limited Price, Consensus and EPS Surprise | Vipshop Holdings Limited Quote

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Cost Botherations Likely to Persist

Rising promotional costs has been a headwind for Vipshop’s performance for a while, thanks to a highly-competitive online retail market. This has led to lower gross margin in the past few quarters, which has affected profits. In the last reported quarter, gross margin declined 300 basis points. Although Vipshop has been trying to reduce other marketing expenses, rising promotional spending is a threat to overall profitability.

Due to such deterrents, the Zacks Consensus Estimate for earnings for the impending quarter is currently pegged at 15 cents per share, which depicts a decline of 11.8% from the prior-year quarter’s figure.

All said, let’s see what the Zacks Model reveals about Vipshop’s upcoming quarterly release.

Zacks Model

Our proven model does not show that Vipshop is likely to beat estimates in this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Vipshop carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combinations

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Castlight Health, Inc CSLT has an Earnings ESP of +0.83% and a Zacks Rank #2.

Gardner Denver Holdings, Inc GDI has an Earnings ESP of +2.85% and a Zacks Rank #3.

Oracle Corporation ORCL has an Earnings ESP of +0.24% and a Zacks Rank #3.

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Castlight Health, inc. (CSLT) : Free Stock Analysis Report
 
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