On Thursday, Citi revised its price target for Vipshop Holdings (NYSE:VIPS), a leading Chinese online discount retailer, from $20.00 down to $17.00. Despite the reduction, the firm maintained its Buy rating on the stock. The adjustment comes in anticipation of Vipshop's second-quarter 2024 earnings report, expected to be released around mid-August.
Vipshop is projected to face a challenging quarter with revenue and non-GAAP profit forecasts reduced by 2.1% and 3.9%, respectively. This revision is partly due to the intensified competition during the 6.18 shopping event, a major mid-year online sales event in China. Competitors' aggressive low-price strategies, particularly in the fashion apparel category, have put pressure on Vipshop's performance.
The company is expected to report a year-over-year revenue decline of 4.5% to RMB 26.6 billion for the second quarter, aligning closely with the lower end of its guidance range of RMB 26.5 to 27.9 billion. Looking ahead to the third quarter and second half of 2024, Vipshop may continue to experience slow growth due to a higher comparison base from the previous year and the ongoing impact of its strategy to avoid competing in standardized product categories.
Despite these challenges, Vipshop remains committed to prioritizing its SVIP members by offering attractive merchandise and managing expenses prudently. The company also plans to continue enhancing shareholder value through stock buybacks. Following the revised estimates, Citi has based its new price target on a 7x multiple of the revised 2025 earnings per share (EPS) forecast of $2.49.
In other recent news, Vipshop Holdings Limited reported a marginal increase in total net revenues for Q1 2024, with a significant rise in gross profit. The company's revenues grew by 0.4% year-over-year to RMB 27.6 billion, while gross profit saw a 10.9% increase from the previous year, reaching RMB 6.5 billion. The company also experienced a record high non-GAAP net margin of 9.3% attributable to shareholders.
Active Super VIP (SVIP) members, accounting for 45% of online spending, grew by 11%. Vipshop plans to repurchase approximately $500 million worth of shares by year-end and anticipates a cautious revenue outlook for Q2 2024, forecasting total net revenues to be between RMB 26.5 billion and RMB 27.9 billion.
Despite a cautious near-term revenue outlook, Vipshop remains confident in its long-term growth and is committed to expanding its SVIP customer base. The company experienced a slight decline in active customers in Q1 due to strict customer lifetime value requirements. However, management emphasized a strategic shift towards acquiring high-quality customers without heavy investment in subsidies and plans to cautiously relax customer acquisition restrictions while maintaining a focus on SVIP member expansion.
InvestingPro Insights
As Vipshop Holdings (NYSE:VIPS) prepares for its upcoming earnings report, InvestingPro data provides a snapshot of the company's financial health and market position. With a market capitalization of $7.48 billion and a compelling P/E ratio of 6.65, Vipshop is trading at attractive valuation multiples. The company's P/E ratio has been adjusted to an even lower 6.03 based on the last twelve months as of Q1 2024, suggesting a potential undervaluation relative to its earnings capacity.
InvestingPro Tips highlight that Vipshop is not only trading at a low revenue valuation multiple but also boasts a strong free cash flow yield. Additionally, the stock's current position in oversold territory, as indicated by the Relative Strength Index (RSI), could signal a buying opportunity for investors. It's worth noting that while some analysts have revised earnings expectations downwards, Vipshop's balance sheet strength is evidenced by holding more cash than debt. Moreover, the company is trading near its 52-week low, which might be an attractive entry point for long-term investors.
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