Baozun Inc Sponsored ADR Class A Aktie

Good morning, ladies and gentlemen, and thank you for standing by for Baozun's first quarter 2026 earnings conference call. [Operator Instructions] 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 2 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 ongoing and Red Note, 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 a 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 both 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 Rewards, we were recognized across major marketplaces as top-tier service provider, achieving a grand slam of awards across all platforms.

These recognitions including Tmall 6-star service provider, JD Jan Excellence Partner, Douyin Diamond service provider, Tencent Qianucertified 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 continuous 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 the 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 quality 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 are expected 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 remaining 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 first quarter.

Gross margin remained healthy at 50% with 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 the 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 tailormade 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 displaying the seasonal sequencing. During Chinese New Year, we activated our collaboration, a new addition of class. We're integrating traditional aesthetics through modern design. This marked our second consecutive CNY anchored by a major culture 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 2 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 a significant social buzz.

We remain on track to deliver our full year target of 50 new GAP stores 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, 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.

[Operator Instructions] 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 first quarter is from GAP. And also, I think from the consumption environment in Q1 because of the effect of winter sale of the spring festival and also the climate change, it helps drive more traffic as we expected. So the overall increase objective for us in 2026 is over 20%. So in the first quarter, we achieved 39%. And in the coming quarters, we are confident to deliver the 20s increase continuously.

And the next question comes from Vicky Wei with Citi.

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

Okay. This is Junhua. So let me answer your first 2 questions. First one is regarding the consumer sentiment. So we had a strong Q1. That was due to we had a late CNY, and we had a longer period of the Queen's Day. So for the Q1, so we had a very strong finish on the first quarter, and we foresee the consumer sentiment is growing faster. And for the 618 preparation, actually, we are in the progress of the 618 right now. So tonight is the night for the second big wave of second campaign. So we are looking forward to also foreseeing a strong finish of 618 this time. Thank you.

And for GAP's margin, -- we -- for GAP, our objective is still to keep a relatively stable gross margin during the year, but try to increase the scale effect through both our online and offline channels as well as the BBM headquarters. So by this scale effect, the result is trying to keep improving the store level contribution margin and also in the end, the overall operating margin. Our current performance is on track and also our current expansion plan is also on track.

This is Vincent. Also some more words on this on the margin trend. Actually, in general, the business is contributed by 2 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 whole business, the margin trend will be improved in the coming quarters. So that is what we are expecting. And also along with the synergy in between BEC and BBM, this gives us more opportunities working with our existing brands in BEC portfolio, which can give us more potential to generate more margin. So that is also a good thing for general margin trend.

And the next question is from Jiawei Yin from Citic.

Congratulations on this quarter's strong performance. I have 2 questions. The first is regarding BEC. As growth rate across different e-commerce platforms converge, what new trends are emerging in brand's marketing budget allocation across different channels? And what impact does this have on the company's service pricing and the bargaining power? And 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 the specific screening criteria such as category positioning, business scale, profitability level and/or deal structure?

Okay. So this is Junhua. Let me answer your first question. So in terms of the platform allocation between different platforms in terms of the marketing budget, so both platforms and the brands are maintaining a relatively the same CMRTR rate. So we don't see any significant kind of shipment or movement about the budget allocation. But in terms of the spending, the most of brands are switching a little bit from the traditional performance marketing to the content-driven platform like Red Note, like seeding platform, like creating a lot of creative content facilitated by the AI and powered by Baozun.

So we realized that this kind of new allocation tends to moving from a traditional performance traffic driving to transaction to setting up an emotion linkage before making transactions based on the content driven. So this is the overall kind of the trend we are foreseeing for leading brands in different categories. And for those kind of impacts that our company as a service provider, which has the bargaining power is we can provide an end-to-end solutions for all those brands in terms of content creating and the performance marketing.

And if the brands are dedicating everything to Baozun, so we are able to help them to allocate from the oversight to see how do you allocate the overall budget from performance marketing to content-driven to Retino to Red Cat and then to -- back to the CPS, et cetera. So we can leverage from the omnichannel perspective to use their money wisely.

Vincent here. Let me talk about the brand acquisition thought processes. Yes. The letter is written by me, not AI, so I can clearly remember this sentence, yes. In the past 3 years, I think we have already forged a model, a new model of the development of Baozun. So right now, the model, we are going to a next phase, which is the acceleration phase. So talking about the standards when we talk about the new brands to work with, I think the scale is quite important because we want to accelerate. We want to harvest what we have built in the past. So talking about the scale, we want the bigger scale opportunities.

Category-wise, we -- of course, we focus on fashion apparel, which we can utilize the experiences we get from the GAP operation process. So that is a category. And also, we want the new opportunities to bring us profit immediately because we think we -- right now a lot of opportunities emerges in the market. So we can have -- we are in a very good position in talking with this kind of potential opportunities because Baozun's model today is very unique and very valuable.

No one today or maybe just very, very few ones who can do MMC from our industry. Because in the past, talking about the e-commerce service sector, we only operate the online channel for brands. But right now, channel, we can do both online and offline. And the channel is only one factor in the MMC methodology. Right now, we know how to do merchandising, how to do marketing, how to do the channel business together. So in this position, we will be very unique and valuable to all the potential brands within the BEC portfolio and outside brands. So we -- our position is so good, so we can have good opportunities. So our standard will be very high, yes. That is what we say we will be very cautious.

[Operator Instructions] And the next question comes from Chris Cao with Huatai Securities.

I have 2 questions. The first one is regarding the AI technology. With the advancement of AI technology, are there any ongoing changes to our service systems and mechanisms for merchants during major promotion events or in our daily operations? And in the long run, how do we view the impact of AI on the key competitive factors in the e-commerce industry? How will the company seize the opportunities and tackle the challenges presented by this shift?

And the second question is about the trend in the recent sales. 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 data for apparel also narrowing sequentially. How will our e-commerce business and the brand management business, respectively, leverage our strength to sustain our ARFA growth momentum that outperforms the home market?

Okay. So let me answer your first question and the first half of the second question. So in terms of the AI, so basically, we are leveraging AI mostly focused on our bottom line efficiency. So we know that we have a lot of AI agent, which can do automatically do a lot of job in terms of the saving human powers. So right now, we have a dedicated team in Baozun E-commerce Services segment to really just leverage a lot of AI technology like large-scale mode and AI agent to increasing our efficiency like digital asset management, like customer service and like a lot of kind of the automation work we used to use a lot of intense labor.

And in terms of the top line, we haven't realized that the current public service of AI can really help us to do creative job because they are a learning business mode. So we're leveraging those large-scale mode on the top line more focused on to facilitate our operation team to make decisions like getting -- collecting a lot of competitors' data, digital analytics and forming a lot of data formats and giving us a lot of kind of the suggestions based on their learning and their data.

So that's more focused on the facilitate our top line growing. So in the long run, that we will closely work with the large platform like Tmall and the other platform, Alibaba and the other platform to leveraging their public services even if they can provide a closed loop like GEO kind of services within their ecosystem. And we also will keep maintenance about our in-house system, upgrading our backbone systems based on our AI. So hopefully, we can share you more at the end of next year.

And the second half of the -- second question is -- in terms of the overall business, for online business, we haven't seen a big drop of our online business. So the April business still maintain the same within our budget. So because this is also the beginning of a prewarm stage before the 618 period. So we can realize that a lot of our brands, they are saving their budgeting and they are saving their assortment allocation for the 618. And the 618 kind of campaign is -- has a longer period than last year. So we can realize that within the -- that kind of saving until the right now, I mean, the beginning of the May, so we really just see a big growth compared to the last year in this -- in the beginning of the 618 campaign. So today is also the first wave of the 618 campaign. So we are forward to see that the strong finish will be happening this year for 618. So that's from the online perspective.

And for BBM, I think we have proved in Q1 our ARFA growth momentum with a very high growth rates. And even in April, we still continue to keep the growing trend, not only from online, but also from offline through our well-planned marketing activities and merchandise plan. So for BBM because we -- first, we have GAP target mass market with attractive price range. And we also have Hunter, Sweaty Betty, which target different market segments. So I think our strength is not to use up any brand value, but try to increase the brand value in the same time of increasing the scale.

So we have -- after 3 years, we have already deep understanding of online, offline channels, our faster reaction to the market changes. We also built up strong supply chain of knitwear, woven and denim. We also have approved ability in MMC model. So all of this will help us try to meet the consumers' needs. And I think in the end, better understand the brands, better understand the consumers and then you gain your ARFA growth momentum.

And the next question comes from with Jefferies.

So I have 2 questions. The first one is, can management share some color about the recent month sales performance? And my second question is for different categories, can management share some outlook for different categories like luxury, apparel, FMCG, consumer electronics and appliance?

Okay. So let me give you the outlook of the category segmentation. So the sports and outdoor still maintain the leadership in terms of the growth of online categories. And the premium and luxury is follow-up with sports outdoor. FMCG still have a very strong -- they maintain the similar kind of the growth rate compared to last year. And consider about the -- we're just after the Queen's Day. So FMCG, especially the cosmetics category, they already just digested too much of the campaign. So they need to just wait a little bit for several months, maybe 1 or 2 quarters until the Double 11 coming this year.

And the consumer electronics, yes, especially for home appliance and electronic devices, so we are -- we have a strong growth rate for the coming -- for the first part of this 618 campaign. So we're looking forward to see a strong finish for consumer electronics category also. So overall, the apparel, fashion apparel category is still taking the lead, follow-up with FMCG and consumer electronics. And for recently month sales performance, Catherine, do you want to share some kind of?

Okay. Thank you for your question. I think as you see that we have done quite good for the first quarter of 2026. And we are now quite optimistic on several recent months sales performance regarding our top line and also bottom line. So the management still hold very high confidence for our whole group's performance, including both e-commerce part and also our BBM part. So that's all for the question.

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 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.

Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded.

I will now turn the meeting 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 fourth quarter 2025 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. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website, where they are available for your 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 Hao, Director and Chief Strategy Officer of Baozun Group, and Ms. Ken Huang, Chief Executive Officer of Baozun Brand Management. Ms. Qiu will first share our business strategy and company highlights. Ms. Zhu then will discuss our financial outlook, followed by Ms. Wu and Ms. Huang -- Mr. Wu and Mr. Huang, who will share more about 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 unknown risks, uncertainties and other factors, 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. 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 of 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. In addition, we may elect to use adjusted in place of nongeneral accepted accounting principle on non-GAAP in order to reduce overall confusion that may arise from our discussion of our financials related to the GAAP brand.

You may now turn to Slide 2 for the executive highlights for the quarter. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.

Thank you, Wendy. Hello, everyone, and thank you for joining us. I'm pleased that Baozun delivered a strong fourth quarter closing 2025 on a high note and successfully completing our 3-year strategic transformation. Over the past 3 years, we have rebuilt our company with focus and intention driving consistent sequential momentum throughout 2025.

In the fourth quarter, our revenue increased 6% to RMB 3.2 billion while non-GAAP operating profit grew 91% to RMB 198 million. This was not just about short-term recovery. It was about fundamentally improving the quality and the potential of our business. BEC has become a sustainable cash engine. Through sharper execution and continued cost rigor, BECs are more agile and consistently profitable. We have moved from pursuing scale to focusing on value, prioritizing margin expansion and reliable cash generation. and most importantly, build alignment with BBM. BBM, meanwhile, has reached a defining inflection point. After 3 years of repositioning and localization, our brand management platform achieved its first quarterly breakeven in fourth quarter '25. This milestone validates the sustainability of our model. Importantly, scale is beginning to translate into tangible operating leverage, marking the transition from a turnaround to profitable growth.

Our financial profile has strengthened alongside operational progress. Margins have expanded, profitability has improved meaningfully and our balance sheet remains solid. In addition, our operating cash flow more than tripled to RMB 420 million in 2025. These results validate that our business is not only growing. It is growing with better structure and healthier economics. In summary, 2025 marks the successful completion of the initial phase of our transformation. As we enter into 2026, our focus shifts decisively from rebuilding to scaling.

Our priority now is to amplify the progress to accelerate in the next 3 years. We will do this by expanding BEC's margin, building scale and operating leverage in BBM and deepening the strategic synergies between BEC and BBM. Our ambition is clear, to drive the group's non-GAAP operating profit growth to RMB 550 million by 2028. With a stronger organization, a proven strategy and a highly focused execution culture, we are entering this next phase with confidence and the momentum.

Now I will hand over the call to our team for a deeper dive in our financials and the business performance.

Thanks, Vincent, and hello, everyone. Now let me provide a more detailed overview of financial results for the fourth quarter and full year of 2025.

Please turn to Slide #3. While Group's total net revenues for the fourth quarter of 2025 increased by 6% year-over-year to RMB 3.2 billion. Of this total, e-commerce revenue grew by 2.5% in to RMB 2.6 billion, while Brand Management revenue rose by 24% to RMB 664 million.

Breaking down e-commerce revenue by business model. Services revenue increased 3.1% year-over-year to RMB 2 billion. This increase was driven by revenue growth in digital marketing and IT solutions as well as strong performance in the luxury category within our online store operation services. BEC product sales revenue increased modestly by 0.5% year-over-year to RMB 574.5 million mainly driven by growth in Health and Nutrition category, which was partially offset by lower sales in appliance category as we continue to optimize category mix to prioritize profitability. BBM product sales totaled RMB 663.7 million, representing a 24% year-over-year growth. This growth was mainly driven by the strong performance of the GAAP.

Please turn to Slide #4. From a profitability perspective, our blended gross margin for product sales at the group level was 36.5%, an expansion of 640 basis points year-over-year. Gross profit increased by 35.9% year-over-year to RMB 451.5 million for the quarter.

Breaking this down by our key business lines. Gross margin for e-commerce product sales expanded to 18.4%, reflecting a 760 basis point improvement compared to 10.8% a year ago. This margin expansion was primarily driven by product mix optimization. Gross margin for BBM improved to 52.1% from 50.4% a year ago, reflecting the adaptiveness of its merchandising and marketing initiatives.

Now please turn to Slide #5 for a walk-through of our OpEx. Sales and marketing expenses increased by RMB 181 million to RMB 1.2 billion. This included an increase of RMB 136.9 million for BEC which was mainly due to higher spending on creative content and market initiatives onto, in line with the growth in digital marketing revenue. BBM sales and marketing expenses increased by RMB 49.6 million, which was mainly driven by the expansion of offline stores and marketing activities during the quarter. Fulfillment costs for the quarter was reduced by 11.1% to RMB 683.4 million, reflecting ongoing efforts in cost optimization. Technology and content expenses decreased by 20.2% to RMB 116.9 million as we continue to enhance tech monetization efficiency. G&A expenses decreased slightly by 2% to RMB 187.9 million due to the company's continued efforts to implement cost control and efficiency improvement initiatives.

Turning to bottom line items, please refer to Slide #6. During the quarter, our non-GAAP income from operations was RMB 197.7 million, an increase of 91.4% from RMB 103.3 million in the same period of last year. BEC's adjusted non-GAAP income from operations was RMB 195.9 million, representing 43% year-over-year increase compared with a year ago.

BBM reported a non-GAAP operating income of RMB 1.8 million, a solid milestone as we achieved a very first breakeven quarter for the segment.

Let us turn to a quick full year summary. The group's total revenue was RMB 9.9 billion, an increase of 6% year-over-year, of which e-commerce net revenues were RMB 8.3 billion, an increase of 2% year-over-year. BBM net revenues were RMB 1.8 billion, an increase of 25% year-over-year. Our adjusted operating income totaled RMB 126 million, a significant improvement compared with RMB 11 million in fiscal year 2024.

As of December 31, 2025, our cash, cash equivalents, restricted cash and short-term investments totaled RMB 2.8 billion. We continue to improve working capital efficiency through back-end process optimization across inventory management, billing and cash collection. As a result, our adding operating cash flow reached RMB 420 million, representing a 315% year-over-year increase. Let me also briefly address our GAAP item recorded during the quarter. We recognized an investment impairment loss of RMB 230 million primarily related to preinvestments in the e-commerce sector as well as impairment provisions for certain equity investments. While these investments have at the time, today's macroeconomic environment, combined with our sharpened focus on developing our brand management business, make it prudent to recognize this impairment. These adjustments reflect our commitment to maintaining a focus and resilience business portfolio. Importantly, our remaining investment will be healthy, and we are confident in their long-term potential.

Let me now pass the call over to Junhua to update you on BEC, our ecommerce business.

Thank you, Catherine, and hello, everyone. I'm pleased to share we've closed 2025 with significant momentum. In the fourth quarter, we delivered 2% revenue growth and a 43% increase in non-GAAP operating profit, capping a year of progression from stabilization to accelerate performance. Throughout the year, we focus on driving sustainable, profitable growth while making strategic investments in high opportunity areas.

Now let me quickly walk through some of our operational highlights in the e-commerce segment for the first quarter of 2025.

Please turn to Slide #7, highlighting the continued quality improvement of our distribution model. During the quarter, BEC product sales gross profit increased 70.9% despite a largely flat top line. Notably, BEC's gross margin rose to 18.4%, setting a new record since our inception. This improvement was mainly driven by ongoing optimization of our category mix with strong growth from health and nutrition and beauty and cosmetics categories. In addition, our efforts to expand into nonstandard categories and are beginning to show results. Apparel delivered a strong contribution across sales, gross margin and profitability during the quarter. .

Turning to Slide #8. Our services revenue grew 3% year-over-year in the fourth quarter, led primarily by strong performance of BBM and IT solutions, which includes 19%. We gained market share in key categories such as luxury, sports and outdoor. Our omnichannel capability remains one of the Baozun's core advantages and a focus of developing on going forward. During the quarter, we received 41 awards in Tmall ecosystem, including the Prestigious 2025 Tmall Ecosystem in Service Award. Douyin we were once again certified as a Douyin e-commerce diamond service partner, the platform's highest tier of accredition. Together, these recognitions affirm our sustained leadership and execution strength across major platforms.

We also continue to focus on strengthening our bottom line. Across the organization, we are implementing a series of lean initiatives designed to streamline processes, reduce costs and enhance efficiency. Furthermore, we are expanding the use of artificial intelligence tools across a wide range of employees and business scenarios to enhance productivity. These efforts have significantly improved our profitability. With BEC's non-GAAP operating income increased 43% year-over-year to RMB 196 million in the fourth quarter of 2025. Overall, we are pleased with our performance in the final quarter of the strategic transformation, a period that certified our shift towards the sustainable and profitable operations.

Moving forward, we will continue to deepen client engagement and stickiness, innovate our service models and enhance operational efficiency.

For 2026, our priorities are clear. Deliver the numbers, deliver the strategy and deliver the talent. Delivering the numbers means maintaining our focus on profitable growth and ensuring that our operational progress continues to translate into strong financial performance.

On strategy, we are advancing 3 key initiatives. First, we will expand our apparel distribution business leveraging the synergy between BEC and BBM to unlock the new growth opportunities and strengthen our brand ecosystem. Second, we will further enhance our digital marketing and the traffic acquisition capabilities. helping brands partners capture demand more efficiently across an increasingly complex omnichannel landscape. Third, we will deepen technology empowerment, accelerating the deployment of AI and digital tools to improve operational efficiency and elevate our service capabilities. Finally, delivering the talent remains essential. We will continue strengthening our leadership bench and reinforcing a strong execution culture with the right people and the capabilities in place. we are well positioned to scale the business and deliver sustainable growth in the years ahead.

Now I'll pass to Ken for an update on BBM.

Thank you, team, and hello, everyone. Please turn to Slide #9 for BBM's performance in the fourth quarter of 2025. .

The fourth quarter marks a defining milestone for BBM as we delivered our first breakeven quarter. This result reflects our structural improvements across merchandising, marketing, store productivity and networking expansion.

In Q4, BBM revenue grew by 24% year-over-year to RMB 664 million, supported by a double-digit same-store sales growth and the continued contributions from new store openings. Gross margin improved by 170 basis points from a year ago to 52.1%, leading to a 28% increase in gross profit. Moreover, inventory turnover efficiency improved, reducing our inventory turnover days by 16% to 114 days. Merchandising was the core growth driver for the quarter. We entered the winter season with a balanced assortment architecture, reinforcing Gap's iconic categories, sweatshirts, denim and denim wear while sharpening segmentation across channels and consumer groups. Our partnership with the Forbidden City has maintained a strong sell-through in Q4.

More recently, we launched a new IP collaboration with packing Oprah, showing case our ability to blend the Chinese culture storytelling with Gap's global DNA in a commercially effective manner. Since introduced our brand ambassador on September 15, we have collaborated closely to create authentic, engaging content that connects with our audience. We also launched the seasonal products and the limited styling collections aligned with the key moments in the retail calendar. This ambassador-driven initiatives have boosted social buzz leading to higher consumer engagement, increased brand visibility and a strong brand voice. Offline expansion continues to be a strategic priority for us. In the fourth quarter, we opened 7 new stores for a total of 29 new Gap stores in 2025, bringing our total store count to 164 by the year-end.

Our new stores continue to outperform older locations, driven by better site selection and enhanced visual merchandising. For instance, our new image stores at Dongguan Min International Trade City and Shanghai Century Link Mall have delivered strong results. The improving in-store experience and the outfit-based presentation have driven a double-digit gain in sales productivity. This early performance indicators are highly encouraging and reinforce our confidence in our store expansion strategy. As a result, we are accelerating our store opening efforts to build on this momentum, and currently plan to open 50 stores in 2026 through a hybrid model that combines direct and partnership stores in line with our asset light approach.

With these initiatives in place, we are confident in sustaining double-digit year-over-year revenue growth and achieving operating breakeven for GAAP on an annual basis in 2026.

Turning to Hunter. The brand continued to strengthen its premium positioning in Q4, elevated store plantation created lifestyle storytelling are resonating with urban consumers seeking both function and fashion. In the fourth quarter, we launched 5 new Hunter locations and entered our national footprint into high potential Tier 2 cities, including Nanjing, Qingdao, Shenyang and Taiwan. We concluded 2025 with a portfolio of 177 stores under the BBM umbrella. This expanded physical network sets a solid foundation to enhance supply chain efficiency in the future.

In summary, Q4 2025 represents a structure inflection point for BBM. We achieved our first breakeven quarter. This validates our strategy, strengthens partner trust and sets the stage for long-term double-digit growth. The direction is clear, BBM is well positioned to become an increasingly meaningful growth engine for Baozun Group. That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

[Operator Instructions] Our first question comes from Chris with Huatai Securities.

I have 3 questions. The first one is about the AI, and with the rapid evolution of AI technology, would the management share that -- what is the current status of our workflow transformation using AI agents? And have we observed any measurable gains in efficiency? The second question is about the AI to our mid- to long-term impact. This is -- what is our perspective on the mid- to long-term impact and opportunities that AI agents present for our e-commerce business and the brand management business?

And my third question is about our business outlook to the mid- to long term. And I have noticed that in our report, we stated that in 2028, we will reach RMB 550 million on operating profit. So with the management share, what is the key driver behind this business outlook?

Okay. This is Junhua. So let me address your first 2 questions regarding AI implementation in Baozun. So the first one is about the AI agent. So we have already leveraged a lot of AI agent technology from the beginning of last year. So most focused on our bottom line. In terms of the digital assets creating and uploading products, digital assets on to different platforms, saving a lot of operating people in terms of doing repeatable kind of works. We have already leveraged a lot of AI agents. .

So AI agent technology is more focused on driving our efficiency internally more focus on the bottom line. In terms of the top line, we haven't having any very clear definition about the scenario in business case about how do we leveraging AI technology, increasing our top line.

About the AI agent, the agentic platform and technology is very new in this industry. So we realize that in terms of the agentic kind of the technology right now is more focused on the GEO generic search engine optimization. So there is amount -- your DAU among the shopper APP is close to approximately about 850 million. And among them, the DAU of 300 million is on AI and all those apps in terms of the large-scale mode and AI agent APPs. So this is transforming the consumer behavior and reallocate the traffic structure. So we are closely focused on the trend of different big platforms and attracting all those changes of the traffic allocation, and we can share you more in the future quarters. The third one is regarding the business outlook.

Yes. The -- we just talked about the 2028 operating profit goal. That will go to RMB 550 million is our planned target. The main driver for this is that we are -- firstly, is our strategy. We're turning the e-commerce business into a BEC plus BBM plus synergy model. And you can see, firstly, BBM is improving its profitability, especially GAAP, is getting more and more profitable in the coming years. And in the meantime, because we leverage the experience in this kind of apparel industry from BBM, we then add more brands into BEC with a franchise model. So this also expand our margin greatly.

So combined by both BBM's growth and also margin expansion of BEC, we can see this result in 2028, but it's not the end of our acceleration. I think in the coming years, even beyond 2028, we can see a more clear sign of this improvement of our profitability.

Next question comes from Alicia Yap with Citi. .

My first question is about the latest macro sentiment and would management share some color about latest macro Chinese New Year demand and the March promotional performance. And what is your expectation for 2026?.

And my second question is about AI. How do you see generative AI and other advanced AI technology, changing consumer behavior and the e-commerce landscape? Would you elaborate on Baozun's strategy for integrating AI into your operations and service offerings? Are you developing -- are you developing your AI tools or partnering with leading AI firms? My last question is about Gap China. What is the growth expectation for Gap China this year? What is your long-term vision for the Gap business in China? And what do you see as the key growth drivers for the brand over the next 3 to 5 years?

Okay. This is Junhua. Let me address the first 2 questions. And the first one, I will elaborate from the BEC perspective and Ken can just feedback some new sentiment kind of the forecast, aligned with the third question from the BBM perspective. So yes, we did have a very strong finish on the Chinese New Year campaign and the Queens day campaign on the March 3. So this is definitely very strong. And we had a late Chinese New Year this year. So from the online digital e-commerce growing, that was very promising. And we see the momentum of each category growing a lot, and the platforms are still compensating a lot of kind of coupons to the end consumers to increase the overall GMV growth.

And the efficiency of the traffic quality is increasing. So yes, we believe that we had a very good, strong start. And the future quarters will be very promising from the BEC perspective. And the second one is also related to the AI in terms of the GEO and how does GEO really changing the consumer behaviors. Just like I mentioned that GEO is changing the consumer behavior, is changing from the DAU of 850 DAU shoppers from different APPs to 300 million from different kind of apps like, and Changan, those kind of the generating kind of AI large-scale mode. So consumers started to asking questions for their daily lives -- during their daily life and those kind of GEO can smoothly push a lot of information along with some kind of the reference with the brand-oriented right information such as a shopping link or such as a very emotion linkage from the brand's perspective, with the content, with short video clips or with a very comprehensive information.

So we can foresee that the change of consumer behavior is slightly changed from the instant shopping category to different categories. So in terms of the instant shopping category, so the AI agent is becoming very promising. You can easily order a bubble tea from, for example, from the AI GEO systems. And -- but from different categories, it's still not in the business scenario. So we are closely tracking all those technology operation and make sure that we can share more in the future quarters. And in terms of the bottom line, so we definitely input a lot of efforts in the AI agent to increase our efficiency, especially those repeatable kind of systems. So those proprietary AI tools, so we're not a partner with any other leading AI firms for now. We still use some kind of the public services with our in-house engineering team to do a lot of Baozun customization for our leading brand partners. .

This is Ken. For the first question about the C&I consumer segment. For GAAP, we also see high increase in February and January in both months. The increased rate year-to-year is over 30% for Gap. So we can forgive actually, we continued our 20 to 30 increased rate in the last quarter and this quarter. .

For the third question, the gross expectation for Gap, First, I think for 2026, we will still continue to keep the growth rates. In 2025 our growth rate is more than 20%. So we will keep this around 20% increase in 2026 by both same-store increase and new openings. We plan to open more than 50 stores, and we will also expand our e-commerce sales scale. For the long-term vision of Gap business, in 2027 and 2028, we plan to accelerate our growth rate from 20% to 30% so we'll be 25% to 30% in the next 2 years in the top line. And we were also trying to improve our operating profit from breakeven to 150 basis points increase per year. And the main growth driver for Gap in the next 3 years, I think we're coming from 3 areas. One is the same-store sales increase. driven by our product improvements, our vision merchandising, our store new images, which will, in the end, to improve our in-store traffic and commercial rates.

And the second is the scale expansion, both offline and online. For example, offline also plan to open reenter some markets such as Hong Kong and Macau. And the third one is the supply chain efficiency. With the scale increase, we expect to gain our efficiency in our cost management and also in the expenses. That's all.

Here is Vincent. We have some more things to say about the AI because AI application right now is one of the core strategy of the Baozun Corporate. So our goal is quite clear. We want to make the AI utilization and also application as the best practices for both e-commerce and also apparent industry. So we will be the best practiced AI for these two areas. So not only for the sales side, but also the supply side for BBM and also, of course, for the efficiency improvement. So it's quite important for us. And we are confident we'll be in a leading position in utilizing AI capabilities, yes.

Our next question comes from Jiawei Yin with CITIC Securities.

I have 2 questions. The first is that we have seen many industry changes such as the compliance of e-commerce tax, the levy of traffic tax and the restriction of competition in the industry, which are generally beneficial to the sales of branded goods and are also accommodated by a narrowing growth gap between platforms. How does Baozun impact of such evolution on operational preference and strategies? And what's the brand's response to this change? And my second question is, has there been any change to Baozun's development strategy for the BBM business in 2026? And how view Baozun balance scale and profit what are your expectation for the growth pace and the long-term vision of each brand?

Okay. So this is Junhua. Let me address the first question. So those policies really don't really affect our detailed operations and day-to-day because the government has signed up the direction about setting up a different sliding scale in terms of different kind of policies, and none of the term has really changed the allocation of the marketing fee of our existing brand partner, because after the pandemic, so all our brand partners are being very careful and very cautious about spending money, especially into the marketing spending, allocation and the others. So we want to help the brand partner to leverage all those money wisely and to drive a higher ROI as before.

So in terms of that, so we are really within the range of all those policies. And in terms of the cutthroat competition in the industry, so Baozun is taking the lead of providing logistics and courier services. So we have already leveraged a lot of kind of the pricing efficiency and the cost efficiency for so many years. So that doesn't really just affect our day-to-day operations. So in terms of the brand repositioning between different platforms, so indeed, the brands are either diversifying view different kind of the strategy for different brands because for some kind of the leading live stream brand, to focus on GMV growth or treat those platform as a content creation platform and let those traffic exceeded to all those traditional transaction platforms is different strategies from different kind of categories.

So most -- some kind of the categories of the brands, they choose to drive GMV from both categories, both Baozun platforms and some of the brands that treat the livestream platform as a content creation center and let them exceed all those content building the leakage to the traditional kind of via transactional platforms. So we are helping all those different brands in different categories to diversify their strategy across in different platforms. So there is no unified strategy in general in terms of that question.

Here's Vincent. I will talk about the BBM strategy. I think the strategy is quite consistent with the past years. The only change is about the level of our confidence. We think we are much more confident right now than before that the transformation is already there, we can see the results. So we build a 3-year model. And we believe in the coming 3 years, BBM will grow -- we'll enter into acceleration phase. So we were quite excited about that. .

And talking about -- especially for Gap, the biggest brands, we will see a very good trend and also the improvements or the capabilities also promising. For the premium brand like Hunter and others, I think we -- the most important thing for us is to build capability on merchandising and also marketing. So they will be also growing quite fast, but building capability is more important. And talking about the BD of the new brands, yes, I think we are -- now a lot of more brands come to us trying to work with us. It's a good sign. And right now, not only BBM can work with the brands in a very deep relationship and also BEC also have the capability to do more franchise business with brands, so in this case, we -- that's why we think the coming 3 years will be an acceleration phase. Thank you for that.

Our next question comes from Wang with HSBC.

I have 2 questions. The first one is on the growth outlook for 2026. And what are the key upside and downside risks you see based on your expectations? And the second question is how should we think about the capital allocation plan given the AI investment and other investment priorities this year? And can management share our stores how you think about shareholder return going forward?

Sorry, the first 1 is about the overlook of the business growth in the future 3 years or 2026?

2026 for the group outlook.

The group outlook. Okay.

Yes. Maybe I try to say something, maybe Catherine, you can say more about that because it's expectation. Yes. I'd say, firstly, we are trying to make a positive year in terms of net income to ordinary shareholders, and -- so yes, it is quite exciting goal to achieve because that means we have more to contribute to our shareholders and investors. To achieve that, of course, we need to make all the aspects of our operation better than before. Our margin expansion needs to be improved as well. So in this case, we're not only to treat our customer or employee better and also give more return to our investment -- investors. Yes. In terms of numbers, can we share anything or...

Yes. Okay. Thank you for your question. I think the management are quite confident and -- for the coming 2026. We think it's quite promising. Of course, we are doing a lot of initiatives, including like the easy part and also brand management segment. So regarding the revenue, we are expecting a certain number of increase and like BEC segment. If we split into 2 segments, BEC, we expect a single-digit increase. And for BBM part, we are expecting like a very good number to come.

And regarding the non-GAP operating profit, we are also expecting like double the number compared with the 2025. And so we are expecting this -- we are doing all kinds of initiatives like I mentioned in the call, so I think the management are quite confident about that.

And also Vincent here again. Talking about the AI right now, although it is still an initial phase for the industry to adopt the results, the development of the AI, but we are seeing this change very fast. So first we need to keep us very active and agile to keep our pace up to this development. So for us, along with the investment into IT and the internal process improvement every year, we put resources there. And this year, starting from this year, we have more initiatives from the corporate level.

We have several very interesting and important initiatives. But doesn't require a lot of investments. So I think talent will be more important than investments. So that's why we are so confident that we will be the best practice for not only e-commerce but also apparel industry in China will be the -- we're quite committed to be the most advanced utilization of AI capabilities.

The next question is from with CMBI.

My question is regarding your development strategy for overseas business. And can management share with us the update regarding your overseas strategies? And can management share with that your development plan regarding both International business?

Yes. Let me first address some about the international business. Right now, for the priority, of course, BBM and BEC are contributing the major share of our business and also growth. So these 2 are very important. So that's why we talk more about these 2 sections. For BCI, I think recently, we have a very solid progress, but still, it's a minor contribution to the whole company and the growth. We are consolidated in outside the business outside of China. Hunter is already in Southeast Asia making progress.

We have several major e-commerce projects improving and to be profitable in the region as well. We have opportunities in Korea and also South Korea and also several very big projects is going on in Hong Kong, in Taiwan. We are seeing this improving which is a promising future, and we are confident that the growth of the international business will be solid but we are not expecting a big contribution from international business yet in the coming 2 years.

BBM new brands.

Yes. I think you just talked about the new brands of BBM as well. Right now, I think we are in a very good situation because we are having quite big base of our brands from BEC. So when there's opportunity emerges in the market we'll be the first one to have the opportunity to work with them. Recently, we see a lot, yes. They trust us, and we have such a solid track record for BBM in the coming -- in the past 2 years. So people just want to work with us. But for us, I think we know what we need to have.

So at least we will not have a lot more brands in the future. But definitely, during -- in the coming 3 years, I think we will have new brands, carefully selected, better profitable brands to add to our portfolio.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Wendy Sun for closing comments. Over to you.

Thank you, operator. On behalf of the Baozun management team, I 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 again. This concludes the call. Thank you. .

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded.

I will now turn the meeting 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 third quarter 2025 earnings release was distributed earlier before this call and is available on our IR website at ir.baozun.com as well on PR Newswire services. They've also posted a PowerPoint presentation that accompanies our comments to the same IR website where they are available for your download. .

On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Ms. Catherine Zhu, our 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 first share our business strategy and company highlights. Ms. Zhu will then discuss our financials and outlook, followed by Mr. Wu and Mr. Huang, who will share more about 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, 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 following statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the United States Securities Exchange Commission and its announcement, notice or other documents published on the website of Stock Exchange of Hong Kong Limited.

All information provided in this call is as of the date hereof and is based on 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 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 our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.

Thank you, Wendy. Hello, everyone, and thank you all for your time. I'm pleased that Board is advancing its strategic transformation with steady momentum, delivering a strong quarter marked by 5% total revenue growth and a big improvement in profitability. Fueled by strong gross margin expansion, our non-GAAP operating loss narrowed to RMB 11 million from RMB 85 million a year ago. These results show that our transformation is effective and demonstrate the strength of our business model. Both of our 2 core engines are driving this success.

BEC's solid execution and growing agility continue to deliver strong results this quarter. Building on the 56% year-over-year increase in adjusted operating profit from Q2, BEC achieved its most profitable third quarter in recent years with non-GAAP operating profit of RMB 28 million compared with operating loss of RMB 30 million a year ago. This significant improvement in profitability, along with 6% services revenue growth and strong gains in creative content and marketplace connectivity shows that BEC is now more agile and efficient.

BBM continued with strong top line growth with revenue up to 20% year-over-year, driven by impactful merchandising and marketing initiatives. This quarter, we engaged our first Gap China brand ambassador, a top-tier actor with 30 million followers on Weibo and 8 million on Douyin. We also launched a series of marketing campaigns and themed products to deepen emotional connections with local consumers.

Hunter continued its brand momentum and opened our new store in Qingdao, bringing Hunter's total offline stores to 8, including 5 in China and 3 in Southeast Asia. These efforts contribute to sales growth, stronger gross margin and improved overall profitability for BDS.

In summary, we are firmly on track with our strategic transformation with a resilient e-commerce foundation, accelerating brand management momentum and the technology as our catalyst, we believe 2025 is a highly productive building phase. We anticipate 2026 to mark our inflection point, shifting from transformation investment to sustained profitable growth.

Now I will hand the call over to our team for a deeper dive into our financials and the business performances.

Thanks, Vincent, and hello, everyone. Now let me provide a more detailed overview of financial results for the third quarter of 2025. Please turn to Slide #3. Baozun Group's total net revenues for the third quarter of 2025 increased by 5% year-over-year to RMB 2.2 billion. Of this total, e-commerce revenue grew by 2.4% to RMB 1.8 billion, while brand management revenue rose by 20% to RMB 396 million. Breaking down e-commerce revenue by business model, services revenue increased 6.3% year-over-year to RMB 1.4 billion. This increase was driven by revenue growth in online store operations and digital marketing and IT solutions.

B2C product sales revenue decreased 8.9% year-over-year to RMB 413.4 million, mainly due to decline in appliance and health and nutrition categories. PBM product sales totaled RMB 395.2 million, representing a 20% year-over-year growth. This growth was mainly driven by the strong performance of the Gap brand.

Please turn to Slide #4. From a profitability perspective, our blended gross margin for product sales at the group level was 34.3%, an expansion of 620 basis points year-over-year. Gross profit increased by 26.1% year-over-year to RMB 277.4 million for the quarter. Breaking this down by our key business lines. Gross margin for e-commerce product sales expanded to 30.1%, reflecting a 300 basis point improvement compared to 10.2% a year ago. This margin expansion was primarily driven by product mix diversification, consistent with our progress throughout the year.

Gross margin for BBM was 56.5% compared with 52.8% a year ago, reflecting the success of merchandising and marketing initiatives of BBM.

Now please turn to Slide #5 for a walk-through of our OpEx. Sales and marketing expenses increased by 10.7% to RMB 886.6 million. This included an increase of RMB 67.5 million for BEC, which was mainly due to higher spending on creative content on Douyin and Red Note and more revenue contribution from digital marketing for BEC during the quarter. BBM sales and marketing expenses increased by RMB 18.8 million due to higher front-end expenses from expanded offline network and more marketing initiatives for BBM during the quarter. Fulfillment cost for the quarter was reduced by 4.5% to RMB 495.9 million, reflecting our ongoing efforts in cost optimization. Technology and content expenses decreased by 18.2% to RMB 115.2 million as we continue to enhance tech monetization efficiency. G&A expenses decreased by 4.4% to RMB 168.9 million, primarily attributable to our ongoing efforts in efficiency enhancement and cost optimization.

Turning to bottom line items. Please refer to Slide #6. During the quarter, our non-GAAT loss from operations was RMB 10.8 million, a sharp improvement from RMB 85.2 million in the same period of last year. BC's adjusted non-GAAP income from operations was RMB 28.1 million, while non-GAT loss from operations was RMB 29.8 million a year ago. DBM reported a non-GA operating loss of RMB 38.7 million, an improvement of 30% compared to the same period of last year. As of September 30, 2025, our cash and cash equivalents, restricted cash and short-term investments totaled RMB 2.7 billion.

Lastly, I'd like to quickly address an accounting update on the balance sheet to reflect expiration of options related to the Cainiao minority investment in Baotong, our warehouse and logistics business. According to the agreement with Cainiao, if certain triggering events occur, Cainiao had the right to exercise a put option requiring Baotong to redeem Baotong's shares within 12 months starting from August 2024. As a result, this investment was originally recorded as redeemable noncontrolling interest, which is a complex financial instrument classified between liabilities and equity. With these options expiring during the third quarter, the investment has now been reclassified as noncontrolling interest and equity item.

Following this accounting adjustment, our total equity increased to RMB 5.5 billion compared with RMB 4 billion in the previous quarter. Importantly, this adjustment has no impact on our warehouse and logistics operations.

Let me now pass the call over to Junhua to update you on BEC, our e-commerce business.

Thanks, Catherine, and hello, everyone. I'm pleased to share our progress and achievements for the third quarter. Building on the momentum established in the first half of the year, we continued advancing our strategic priorities with a clear focus on sustainable profitability and growth. As previously outlined, our 2025 road map follows a clear progression, Q1 for adjustment, Q2 for stabilization and the second half for acceleration. I'm pleased to report that Q3 delivered meaningful progress across key business segments. BEC posted solid performance with a stabilizing revenue based a significantly improved revenue mix and quality, leading to a notable improvement in profitability. On a non-GAAP basis, operating profit reached RMB 28 million, making the most profitable third quarter in the recent years for BEC.

Please turn to Slide #7. BEC product sales declined by 9% this quarter, reflecting our transition strategy towards a quality-driven portfolio, optimizing selected clients in the health and nutrition category and shifting certain clients in beauty and cosmetics category from a DC mode to a service model. In the appliance category, top line softness persisted as we prioritize profitability over volume. These adjustments followed a thorough review of each segment's market dynamics and have led to stronger profitability under a distribution model. As a result, BEC delivered a 300 basis point improvement in gross profit margin to 13.1% for product sales.

Just as importantly, enhancements in procurement discipline and turnaround management drove nearly a 20% improvement in inventory turnover days, enabling us to maintain a healthy and efficient inventory levels. In addition, we remain focused on building a more sustainable and quality-driven distribution portfolio. During the quarter, we achieved healthy growth in beauty and cosmetics, alcohol and apparel categories. Notably, we are expanding our pipeline into nonstandard categories, including apparel within distribution mode. By leveraging our brand management expertise in our core category, we are increasingly able to apply deeper expertise and a more brand owner-oriented mindset. Looking ahead, we expect BEC product sales to return to top line growth in 2026.

Turning to Slide #8. Our services revenue grew by 6% in the third quarter, primarily driven by strong performance from online store operations, which saw 16% growth and a 6% growth in DM and IT solutions. Within online store operations, the core apparel and accessory category was a key driver with all key segments generating encouraging top line growth. The strong performance of our services mode reflects how we have advanced the brand empowerment by utilizing our data-driven insights and expertise and capturing opportunities from ever-changing industry dynamics. We remain committed to leading innovation in creative content as these are critical for consumer engagement and traffic attraction.

On RedNote, we planted content seeds to drive interest and brand awareness. which enhances emotional connection and refines the consumer shopping experience. Furthermore, by leveraging enhanced connectivity between marketplaces such as the Tmall RedCat and JD Regin collaborations, we help brands to generate better marketing conversion and sales performance. This quarter, we were accredited as a premium service partner, further validating our leadership position on this viral live platform and building on our earlier designation as one of the first batch of partners in February. On Douyin, we continue to pioneer live stream content and formats, including scenario-based showcases and celebrity collaborations to drive quality business contribution to our brands.

In mid-September, we successfully partnered with a leading international electronics brand to launch its flagship stores to further enhance the brand's cultural engagement and product promotion. This initiative was immediately effective. Within a month, we helped the brand gain 3 million consumer followers and achieved the #1 GMV ranking in its category. We are proud to continue setting new industry benchmarks for Douyin brand e-commerce. Overall, this quarter is another solid quarter for BEC, marked by a return to profitability in a lower seasonality quarter, which demonstrates the effectiveness of our strategic focus on sustainable and high-quality growth. We are actively driving the bottom line through efficiency enhancing measures, including the ongoing application of artificial intelligence and automation tools as well as our lean cost control initiatives. We are confident that the foundation built throughout 2025 will continue to accelerate our momentum and deliver long-term value.

Now I'll pass to Ken for an update on BBM.

Thank you, Jun, and hello, everyone. Please turn to Slide #9 for BBM's performance in the third quarter of 2025. I'm pleased to share that BBM maintained its strong growth momentum this quarter with total revenue growing 20% year-over-year to RMB 396 million. The strong growth was driven by improvements across key operating metrics, including same-store sales, traffic, average transaction value and network expansion. Overall, GA's same-store sales growth was 7% for the quarter.

Gross profit for BBM totaled RMB 223 million, an increase of 28% year-over-year, with gross profit margin expanding to 56.5%, up 370 basis points from 52.8% a year ago. This margin expansion, along with strong top line growth highlights the effectiveness of our merchandising and marketing initiatives. The higher gross profits, combined with improved operating efficiency, further enhanced our overall profitability. As a result, BBM's non-GAAP operating loss for the quarter improved by 30% to RMB 39 million from RMB 55 million in the same period of last year.

Now let me expand on our key initiatives for GAP China in the third quarter. First, marketing as we made a major leap forward in brand storytelling and culture engagement this quarter. On September 15, we announced the appointment of Chen Yi, one of China's most acclaimed actors as the inaugural brand ambassador for GAP China.

In accordance, we launched Mind Gap Bridge the Gap campaign using music as a bridge to engage younger audiences and reintroduce GA as a comfort, confident, modern lifestyle brand. We also introduced the GA Club capsule collection and upgraded the brand image in our offline stores to reflect stronger creative energy and local relevance. To provide immersive experiences, we hosted 2 pop-up experience stores, one in Shanghai Road and one on Shenzhen Coco Park, both featuring live performance, vinyl shops and art collaborations, successfully merging lifestyle and fashion. In this campaign, we also introduced innovative interactions with social PGC and UGC content. These efforts helped us attract more customers, strengthen brand renaissance and deliver meaningful business results. In total, the campaign had more than 1.2 billion impression, 9 million interactions and 176,000 new followers. These efforts also drove a 25% increase in young customers and strengthened GA's position as an authentic and aspirational brand for China's younger generation.

Meanwhile, we continue to work closely with GA Inc. to capitalize on its global marketing assets and upward momentum. This August, Gap Inc. partnered with Kai on the Bedin denim campaign, blending GA's iconic timeless denim with Kai's contemporary and education sensibilities. And China is one of the few countries that offer Kai's exclusive products to the market, also achieved a very satisfying result.

Second, merchandising, which remains the core engine of our growth. We continuously sharpened the product offerings and introduced a higher mix of online exclusive and segmented products across different marketplaces over the summer and fall. We also deepened the collaboration with major platforms through exclusive assortments and joint marketing programs such as Tmall Fashion Show and Douyin Super Brand Day. This tailored e-commerce strategy, coupled with our participation in platform promotional events accelerated traffic and conversion growth.

At the same time, our improved supply chain ensured fast and localized fulfillment. We believe that our agility and flexibility in shifting between online and offline channels has become an important competitive advantage. From a channel perspective, we continue to expand our physical presence. For GAP, we opened 11 new stores in Tier 1 and Tier 2 cities, including Guangzhou and Yinchang, while closing 4 low productivity stores. We also started to remodel existing stores in Wuhan and Wuxi this quarter to upgrade our store image, visual merchandising and the customers' experience. This brought the total number of GAP stores to 163 by the end of this third quarter. Together with Hunter's network expansion, our Baozun brand management offline portfolio now stands at 171 stores. In addition, we hosted a national partner conference in September, convening a dozen top-tier business partners, which cover all important provinces.

Notably, half of these partners were new with strong brand portfolio and operating expertise in their regions. Cooperations with these new partners also aligned with our expansion plan by enhancing our business in the key cities in North, Southwest and South China. This event allowed our partners to directly experience our ascending brand influence and our marketing product and channel strategy in the coming year. Their positive feedback reaffirmed the strong partners' confidence in our brand direction.

In summary, BBM delivered another quarter of healthy growth and brand revitalization. Furthermore, our integrated marketing campaigns have laid a solid foundation for the GI brand to further unlock market potential. This was evident in the big improvements in brand rankings across all key divisions, men's, women's and kids during the most recent Double 11 campaign. This success places us on track to achieve GA's first breakeven quarter in the upcoming fourth quarter. With both GA and Hunter building stronger emotional relevance and culture momentum, we are confident in sustaining our growth through year-end and beyond.

That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

[Operator Instructions] Our first question comes from Alicia Yap with Citigroup.

Congrats on the solid results. Two questions. First, can you provide some observations on the latest consumer sentiment? So have you seen any shift of the consumer spending behavior recently, especially with the recent Singles Day promotions? Any change of the consumer preference in terms of the purchase willingness? And then categories that you have seen doing better than you previously expected and also categories that performing worse than you anticipated?

And then also, what are the brands -- how are the brands' willingness to spend on the marketing budget during this year's Singles' Day? How should we be thinking about the impact from the Singles' Day to the fourth quarter outlook? And then second question is, I know it's a little bit early, but then any comments on the 2026 outlook in terms of your different business segments? And also what are your top strategic priorities? For example, is there any target for margin expansions or any of these brand expansions? So -- and also how AI will play in a role on helping you to achieve some of your 2026 priorities?

Okay. This is Junhua. So let me address your first question, and maybe Vincent can address the second one. So in terms of the latest consumer sentiment, I can -- from our perspective, according to the just finished Double 11, so we realize that the consumer sentiment is getting better. So you can see a lot of consumers, they are paying for value. So they are not just -- they are being very targeted. They know what they want and they wait until all those kind of the values and profitabilities from the brand and all those coupons are addressed. So especially with the recent promotion, we can definitely expect a very strong finish for the Double 11 this year.

And from the preference, so as far as our observation, so it's still towards on the sports category and apparel category and the FMCG categories follows. So if you're talking about some kind of the categories performing worse than we anticipated, I would say, after the pullback of the subsidiaries of the home appliance category, so consumers rather to wait for another kind of benefit from the platform and from another support when their subsidiaries are supported. So -- but the willingness of the consuming power is still getting stronger and the willingness of the brand in spending marketing budget and allocate our new inventory is getting stronger.

So after 6/18 this year and after Double 11, we are saying that we definitely can expect a stronger support in terms of the marketing fee from the brand perspective and the inventory allocation for the new year. A lot of brands during this past Double 11, they are focused on their P&L rather than the GMV growth. So a lot of our brand partners, they have increased their P&L to several point percent and which maybe lead better results from their global strategy. So that's my answer for the first question.

Okay. Thank you for the question. This is Vincent. And I think your second question about our strategies is a very important question. Basically, we have 2 business divisions or units, BEC and BBM. One by one, for BEC, I think next year, the most important job for them to do is to expand the margin. And in the meanwhile, to optimize the cost efficiency. I think these 2 are very important. So for the margin expansion part, we are doing more and more distribution model. We are taking more ownership of -- in the process of the sales, trying to get better margin. That is one side.

The other side is that we are initiating a lot of these kind of lean operation initiatives to help us to get a better cost. So it is to do more with less strategy for BEC. On the other hand, we have the BBM business, which the priorities are quite different. So firstly, for the existing brands like Gap, Hunter and others, we are trying to make every brand to be successful. business operations. That is very important, not only for the quarter-to-quarter business performance, but also for the future potential of how many and how well we can work with the other brands. So the first priority for the BBM is doing well for each brand.

The second thing is that we are trying to develop the synergy between BBM and the BEC, trying to convene more and more knowledge, experiences and mechanisms to BEC to enable them to have more ownership in the distribution business. More ownership always means more margin. and put more potential on profitability. So that is very important. Because in the past 3 years, we spent a lot of time and energy in BBM and we gained as a group, a lot of solid experiences how to do higher ownership business.

So this kind of knowledge, experience and mechanisms can transfer to BEC to make them a better potential to do this kind of high-quality distribution business, especially in the softer goods sections categories. So in the past more than 1 year, we have some of the experiments. We have several projects, which is quite more apparel, fashion products, distribution model. They are very successful. So next year, we're trying to expand this model into more brands. So we are expecting a huge potential of growth for this soft goods distribution model. So this gives us a huge potential space to grow the business, not only the top line, but more importantly, on the margin expansion side. So that is basically our plan for 2026 and the years ahead.

So for the -- of course, we are actively looking for brands for the BBM portfolio. But I think we'll be very careful in bringing new brands in to make sure we have a good chance to be successful each brand, as I mentioned, for the first priority. And also, we are investing in data warehouse, AI, all these kind of technology factors, and we are seeing yields from these efforts and investments. We are going to do this in the future as well. So all these kind of technology, AI capability and data warehouse can contribute in the future. So synergy between BBM and BEC is very important. Just like what Ken just said, the gap bridge the gap, yes. So BEC and BBM are getting more and more as one.

And the next question comes from Violet Yi with CICC.

Congratulations on this quarter's strong performance. I have 2 questions regarding BEC. The first question is that, as we have seen recently, premium consumption has shown signs of stabilizing and recovering. Has the company's relevant categories benefited from this trend? And my second question is, in recent years, the growth gap between content e-commerce and the traditional e-commerce has narrowed. Meanwhile, China's online traffic and sales channels has become more diversified with emerging platforms like RedNote and Bilibili, , how does the company view the strategic shift brands should make? And how is Baozun adapting to this change?

Okay. Let me address your 2 questions. The first one is a very positive answer. So yes. So premium luxury category is still taking the lead of the result, especially after Double 11. So I can make one example about a leading American premium brands, which maintains a 60% Y-o-Y and the pattern keeps going for the past 3 years. So in this category, if you want to drive a higher margin, a higher GMV, it's not relied on listing more products online. It relies on the content-driven, how do you want to just set up the emotion linkage before making transactions. So I cannot review a lot of details, but if you have the chance to go to our live stream studio for that brand, you can see that. They are scenario-based. They are building a lot of different scenes for selling total look instead of a single article for top or for bottom.

So the luxury and premium category, they can provide a very big value for consumers to purchase, and they can provide a lot of history, the brand storytelling, a lot of things. So this is very much promising in the future. And we realize that the consumer shopping is pay for value. So they rather wait until the good momentum and a good window to shop in all those premium and luxury brands. And the second question is related to content e-commerce and the traditional e-commerce. So I mean, for the past 2, 3 years, there's no such a thing to separate the content with the traditional e-commerce. They are merging together. They are interweave with each other. You need to just build up the content before making transactions, not just getting the traffic to your store and let them convert.

So the RedNote before they had the Red Cat initiative, they were the UGC platform. That was the pure content. And in the past 6, 18, the initiatives, all those RedCat initiatives link all those content to the transaction, which makes that the brands are shifting their strategy, putting a lot of marketing fee and marketing spending into an ROI-driven kind of the initiatives. So more and more brands realize that investing in content and getting more investment into the content creation, set up the emotion linkage is the key because we can trace all those content, how much ROI can be driven from those content to the transaction.

So we are providing -- the platforms are also providing a lot of tools and mechanism to validate all those kind of investments from the marketing to EC operations. So if in the future, we believe that marketing and EC operation, they are going to be rebudgeting for the future growth. From the brand perspective, you need to just harmonize the marketing spending and the EC operation, not just inside performance marketing driving traffic, but also invest in the content to drive from the content to transactions. Yes, that's my answer for 2 questions.

And the next question comes from Joanna Ma with CMBI.

Congratulations on a strong quarter. So I have 2 questions. The first is regarding -- what can management share with us regarding your revenue and profitability outlook in the last quarter and also for the full year '26. While my second question is, can management share with us your development plan for BBM business in the full year '26, both regarding Gap, Hunter and other new initiatives?

Okay. This is Vincent. Let me answer these questions. For the first one, right now, we are already in late November. So we can see that from day-to-day business management and updates, we are quite confident for both BEC and BBM results in the coming quarter. We are trying to deliver another solid quarter in the near future. So, so far, I think it is quite on track, and we are quite confident for the results. For the coming year, 2026, we are hoping that both business with its performance and also with the synergy in between to be developed, we are expecting a big improvement in profitability. for the whole business.

Separately, BBM, we are expecting big improvements and also BBM and because we are developing the synergy. So in general, we are expecting big improvements for profitability. For the BBM business, as I just mentioned, the priority is that we just make each of the single brand to achieve the expectations and plan we made for this year and next and in the coming 3 years. And also, we are developing a synergy between BEC and the BBM. Certainly, we'll be actively looking for new opportunities, but we'll be very careful in bringing in new brands. So that is about the BBM strategy. Yes.

Our next question comes from [indiscernible] with Huatai Securities.

I have 2 questions. The first question is about quick commerce. Driven by the traffic from Taobao's quick commerce on the main app, Taobao's DAU recorded a noticeable year-on-year increase in third quarter with further momentum continuing into 4Q. Have we observed any positive impact from the increase in Taobao main site traffic on our third quarter performance and in which aspect is this mainly reflected? And looking ahead to fourth quarter, should we expect any sustained positive influence or some potential action on the quick commerce?

And my second question is about the recent new regulation on advertising spend and tax. Some of our brands under our portfolio in the beauty category, the new tax policy introduced updated requirements on advertising spending. Have we seen any impact on our advertising operations so far? How should we assess the potential magnitude and extent of this policy's impact on revenue and profitability going forward?

Okay. Thank you for the question. This is Junhua. Let me address your 2 questions. The first one is related to the instant shopping, quick commerce. So when you're talking about the instant shopping, you need to talk about the categories. The category really just have that business nature. like FMCG, food, wine, some kind of category, they are more related to the instant shopping. So this is not our majority battlefield in the Baozun BEC business growth. We are in the fashion business, in the luxury business, electronic devices. Some of our FMCG and brands, they are pilot run and they devote themselves into the quick commerce. But it's very hard for us to imagine a premium luxury brand listed their products next to, for example, like birth control products. So that scenario is not our majority part of the battlefield. But -- and this is the second one.

The second one is the traffic pool from the instant shopping to the Tmall and Taobao, they are very different. So they are personalized to a very targeted traffic into different brands. So we are not targeting all those instant shopping traffic rather than we just targeted the OAIPL. So we need to just spend our money wisely in the big pool. So we are focused on more the top tier -- I mean, the 300 million among the 800 million traffic among all the Tmall, for example. So this is our target traffic, not the instant shopping traffic. That's the first one.

The second one, you mentioned about the -- especially the cosmetics category because we realize that in that category, the marketing spending is mostly bigger than the other categories. But after the pandemic, all the brands are spending their money wisely. So even in the cosmetics brand, the brand doesn't really just spend that much pie like years ago. So within the regulation and policy, we do not -- we have not realized any kind of impact about the regulation to us. So the brand in that category, also the other category also still maintain a decent and very logical investment proportion among their GMV.

And the last question comes from Ya Wei with [indiscernible].

I have one question regarding BBM. In September, Gap has signed a top-tier brand ambassador and the brand management business also delivered a strong growth this quarter. So what impact has this collaboration had on Gap's brand awareness and user profile? And has there been any synergetic sales growth in other business lines like children's wear? And what is the company's long-term view on Gap's profit potential and the development vision?

Thank you for the question. This is Ken. I will answer your question. I think for the -- firstly, as I mentioned before, we -- in this campaign, we attracted more young customers from the younger generations, 25% increase. It's not only increasing in the young generation, but in the whole customer base, we see a big increase in all the AI PL customer base. And more importantly, we see a lot of new UGC content in the social media. The brand -- our brand and our products are discussed within the young generations.

and our consumers. And this campaign also helped us to promote our key category products, especially denim and sweatshirt. Our ambassador wear different color, different feed, silo, logo sweatshirt during the campaign. It further help us further strengthen the brand awareness and the key product awareness to the market. And second, for the kids and baby business, we do see the synergy because kids and baby is a very strong division of GA brand. And it's also our advantage because nearly all our stores sell both adult and kids and baby products. So this can be proved from our increase of our units per transaction. So we see more family customers also shop both adult and kids products at the same time.

And for the last -- your last question about GA's future profit potential, I think by capitalizing this marketing asset of this campaign, we will continue using this -- our winning formula to continue to expand our customer base, brand and sales in the coming quarter and the coming year. So we expect to continue our double-digit growth in Q4, around 20% increase. And for next year, we also expect a continuous double-digit increase in our sales. In Q4, we will also introduce our new store image. So with this new store image, we expect a bigger store sales productivity in our new store format in next year. So we will further accelerate our store expansion, keep the momentum of sales growth in both scale and unit stores, which in total, I think, will help us to improve the profit.

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Wendy Sun for any closing remarks.

Thank you, operator. On behalf of the Baozun management team, we'd 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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded.

I will now turn the meeting over to your host for today, 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 second quarter 2025 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. We 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, our Chief Financial Officer; Mr. Junhua Wu, Director and Chief Strategy Officer; and Mr. Ken Huang, Chief Financial Officer of Baozun Brand Management.

Mr. Qiu will first share 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, 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, 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 United States 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 of the date hereof and is based on 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 our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.

Thank you, Wendy. Hello, everyone, and thank you all for your time. I'm pleased to share that Baozun delivered another solid quarter, with both BEC and BBM making commendable progress.

Overall, our total revenue grew by 7%. Excluding one-off expenses, our adjusted operating income expanded to CNY 59 million, a significant improvement from CNY 10 million in the same period of last year. We believe these results demonstrate the resilience of our underlying business model, highlighting meaningful profitability expansion alongside top line growth.

BEC's disciplined execution is starting to yield tangible results. BEC revenue grew by 3%, while adjusted operating profits rose 56% year-over-year to CNY 94 million, the highest second quarter level in 4 years since the pandemic.

Amid ever-changing market dynamics, BEC has shown agility in adapting to the evolving needs of our brand partners. This profitability improvement underscores our progress in reshaping BEC into a stronger and more profitable business. With our scale and premium client base, we are confident that these efficiency gains can translate into meaningful earnings upside.

BBM continues to build and accelerate top line momentum. Revenue grew 35% year-over-year, up from 23% in the previous quarter. We remain on track with our merchandising, channel expansion and marketing initiatives for Gap, driving healthy top line momentum while improving profitability.

Hunter also reached a remarkable milestone in unit economics from its first 3 offline stores opened in May and is making steady progress in category expansion. Together, we believe these achievements validate our transformation vision, with BBM now established as a growth driving core division that demonstrates our ability to execute with precision.

Beyond our financial results, we continue to make significant strides in technology empowerment. We remain committed to leveraging technology and data-driven solutions to bridge demand and supply chain in retail. In the first half of this year, our focus on refining the retail operating platform has enabled deeper insights into market and consumer demand trends for BBM.

This enhanced intelligence allows us to optimize decision-making and improved target setting and tracking. These initiatives are driving the success of product development, while enhancing inventory efficiency and productivity. The combined strength of BEC's resilience, BBM's accelerating growth and our technological leadership position us well to deliver sustainable long-term value creation.

Now I'll hand the call over to our team for a deep dive into our financials and business performance.

Thanks, Vincent, and hello, everyone. Before we dive into the financial details, I'd like to quickly address the one-off write-offs. Back in September 2021, we initiated arbitration against a distributor in health care and cosmetic industry for payment. Taking a conservative and prudent approach, we had previously made a provision of CNY 93 million in 2021. This quarter, based on the latest progress in arbitration, we assess the likelihood of recovery as remote. Therefore, we wrote off the remaining CNY 53 million in this specific accounts receivable. This was recorded as a one-off onetime general and administrative expense in BEC's second quarter P&L.

Now let me provide a more detailed overview of financial results for the second quarter of 2025. Please turn to Slide #3. Baozun Group's total net revenues for the second quarter of 2025 increased by 6.8% year-over-year to CNY 2.6 billion. Of this total, e-commerce revenue grew by 3.4% to CNY 2.2 billion, while brand management revenue rose by 35.4% to CNY 398 million.

Breaking down e-commerce revenue by business model. Services revenue increased 3.5% year-over-year to CNY 1.6 billion. This increase was driven by revenue growth in digital marketing and IT and online operations. BEC product sales revenue increased 3.3% year-over-year to CNY 599 million, supported by strong performance in beauty and cosmetics and alcohol categories.

BBM product sales totaled CNY 396 million, representing a 35.5% year-over-year growth. This growth was mainly driven by the strong performance of the Gap brand.

Please turn to Slide #4. From a profitability perspective, our blended gross margin for product sales at the group level was 28.4%, an expansion of 310 basis points year-over-year. Gross profit increased by 28.1% year-over-year to CNY 283 million for the quarter.

Breaking this down by our key business lines. Gross margin for e-commerce product sales expanded to 12.8%, reflecting a 110 basis point improvement compared to 11.7% a year ago. This margin expansion was primarily driven by product mix diversification. Gross margin for BBM was 52%, relatively flat compared with 2.3% a year ago.

Now please turn to Slide #5 for a walk-through of our OpEx. Fulfillment cost for the quarter was reduced by 3.3% to CNY 606 million, reflecting our ongoing efforts in cost optimization. Sales and marketing expenses increased by 11% to CNY 938 million, mainly due to higher spending on creative content and performance-driven digital marketing during the 618 e-commerce campaign as well as increased front-end expenses from expanding BBM's offline network.

Technology and content expenses decreased by 11.7% to CNY 150 million as we continue to enhance monetization efficiency. G&A expenses rose 30.7% to CNY 224 million, primarily due to the onetime write-off of CNY 53 million in account receivables. Excluding this write-off, G&A remained flat compared with the same period of last year.

Turning to bottom line items. Please refer to Slide #6. During the quarter, our non-GAAP income from operations was CNY 6.1 million. Excluding the above-mentioned CNY 53 million nonrecurring provision, our adjusted non-GAAP income from operations was CNY 59 million, a sharp improvement from CNY 10 million in the same period of last year.

BEC's adjusted non-GAAP income from operations was CNY 94 million, representing a year-over-year improvement of 56.4% or CNY 34 million higher than a year ago. BBM reported a non-GAAP operating loss of CNY 35 million, an improvement of 30% compared to the same period of last year.

As of June 30, 2025, our cash and cash equivalents, restricted cash and short-term investments totaled CNY 2.7 billion.

Let me now pass the call over to Junhua to update you on BEC, our e-commerce business.

Thanks, Catherine, and hello, everyone. In the second quarter, BEC stayed focused on profitability and sustainable growth following our phased approach, realigned in Q1, stabilized in Q2 and accelerate in the second half. This quarter, we delivered operating profit growth by 56.4% year-over-year, while sustaining top line growth of 3.4%.

These results were driven by our ongoing efforts to strengthen business fundamentals, enhance the quality of our distribution model and drive continuous development in our service model. In our distribution business, quality has always been our top priority, setting us apart from the broader market. We believe an integrated approach, linking channel management, pricing and inventory control and marketing is crucial for building sustainable distribution partnerships in today's dynamic environment.

Our goal is to elevate our role from a distribution partner to a comprehensive trade partner. To support this, we have conducted a thorough review of our partnership scope and terms. This review aligns us with our partners' evolving needs and helps identify opportunities for innovation and mature growth.

Please turn to Slide #7. During the quarter, BEC product sales grew 3.3%, driven by strong performance in beauty and cosmetics. We also achieved consistent breakthroughs in alcohol and apparel categories. While these apparel categories experienced a revenue contraction, the unit's bottom line improved significantly. This delightful trade-off highlights our focus on quality growth over volume.

Gross profit margin for BEC product sales expanded 110 basis points year-over-year to 12.8% for the quarter, demonstrating how our category mix optimization and ongoing initiatives are translating into stronger profitability.

Turning to Slide #8. Our service revenue increased by 3.5% in the second quarter, driven by solid growth in online store operations and DM and IT solutions by integrating advanced technologies and leveraging our data and analytics. We remain committed to evolving with the market and enhancing our service offerings to better service -- better serve our partners.

Let me use a leading sports brand as a case study to illustrate how we empower our business during the recent 618 promotions. By leveraging our data analytics, we gained deep insights into consumer behavior and shopping trends. This allowed us to refine consumer profiles and adjust marketing top priorities.

We then applied our digital marketing expertise to design highly targeted campaigns across multiple channels, including key marketplaces, social media and influencer partnerships. This strategy generated significant buzz and drove sustainable traffic into the brand.

The results were remarkable with the brand achieving exceptional double-digit growth during the 618 promotions, far exceeded expectations. We are proud to report that the service revenue in online store operations grew across major categories with sports up to 10.8%, luxury 5.5% and other apparel at 17.6% year-over-year.

Our omnichannel initiatives also gained strong momentum in this quarter, with the multichannel reaching a new record high for 48.5% for the second quarter. We saw growth across many key marketplaces, reflecting the effectiveness of our strategies among emerging channels, Douyin and RedNote stood out as top performers.

To advance best practice in brand e-commerce, we enhanced our Douyin services to include daily live stream, storytelling, live streaming and integrated marketing campaigns. This hybrid approach engages consumers across the full consumption circle, driving brand growth, sustainable audience expansion and omnichannel empowerment. With a healthy pipeline of new clients, we expect growth momentum to continue.

On RedNote, revenue grew triple digits, driven by rising demand across both marketing and store operations. In the first half of 2025, we partnered with 20-plus brands across outdoor, sports, luxury and footwear. As 1 of the first 6 qualified RedNote partners validated in data content and marketing, we've earned benchmark recognition and industry awards.

This recognition reinforces our leadership on this emerging platform and serves as a strong casement to our ability to innovate and adapt to new channels.

In summary, Q2 demonstrates that BEC is stabilizing on a stronger foundation. Our quality and value-driven profit-centric framework positions BEC well to accelerate profit generation in the second half of the year. As we navigate market complexities, we remain committed to our vision and strategic goals towards sustainable growth and long-term success.

Now I'll pass the call to Ken for an update to Baozun brand management.

Thank you, Junhua, and hello, everyone. Please turn to Slide #9 for BBM's performance in the second quarter of 2025. I'm pleased to report that BBM's positive momentum continued in Q2, with top line growth accelerating further. Revenue grew by 35.4% year-over-year, driven by positive same-store sales and contributions from new stores as well as healthy expansion across both online and offline channels.

Now let me share with you our key initiatives for Gap China in the second quarter. Our merchandising strategy remains sharply attuned to market timing, helping drive consistent improvements in store traffic and the commercial rates through displaying the product planning and the sharper segmentation. We are strengthening our ability to capture demand across categories, while reinforcing the relevance of Gap's core DNA.

Overall, our BBM gross margin for the quarter was 52.3%, roughly flat year-over-year, while BBM gross profits grew by 34.5% to CNY 208 million.

On the channel front, we expanded our footprint with 11 new openings in the quarter for a net increase of 8, bringing our total to 156 locations by the end of June. Several of these openings were in new markets such as Kashkha, broadening Gap's reach into previously untapped regions.

We also expanded further into emerging cities, including Ningbo, Foshan and Nanning, as we view this new Tier 1 and Tier 2 markets' strong opportunities. With encouraging store level, unique economics, we are adjusting our store opening plans to emphasize local partnerships, leveraging an asset-light approach to secure premium locations. Our revised plan now targets 40 new stores for full year 2025 with our direct stores primarily focused on Tier 1 cities.

At the same time, our e-commerce channels delivered strong momentum, fueled by our tailored segmentation approach. This included product and consumer segmentations, targeted marketing and optimized operational execution, which led to a strong consumer engagement and higher commercial rates.

From a marketing perspective, we launched the successful IP collaboration with Melting Sadness, a renowned Chinese art brand. The collection blended Gap's timeless denim, comfort with Melting Sadness' playful artistic spirit. At the heart of this collaboration is a message, every day needs a Gap moment, aimed at building a stronger emotional connections with consumers.

In celebration of Children's Day, we also rolled out our Brannan Bear campaign, featuring our beloved character designed to spark joy and creativity in children. We created a series of key activities in Brannan features -- featured booklets, fostering a strong sense of family orientation and the community.

Looking ahead, we are preparing an even stronger lineup of marketing activities for the second half of 2025, with the aim of further enhancing Gap's brand resonance and driving continued growth.

In the second quarter, we also achieved solid improvements in efficiency. Inventory management was a standout, with days of inventory reduced to 126 days, representing more than 20% year-over-year improvement. This progress reflects display demand planning, tighter alignment between merchandising and the supply chain and a stronger sell-through on core product lines.

We also realized additional operating savings through efficiency enhancements and leaner back-office spending. Together, these actions provided a solid boost to operating performance.

On a non-GAAP basis, BBM's operating loss narrowed further to CNY 35 million, a 30% improvement from the same period of last year.

Lastly, to share some exciting updates on our brand Hunter. This past May, Hunter celebrated its offline expansion with the simultaneous opening of 3 flagship stores in Shanghai, Zhangyuan, Hangzhou, MixC and Beijing Sanlitun, each achieving profitability in its first quarter, an impressive start. The brand has gained market attention with stylish products, well-designed store displays and the effective marketing that has led to a higher customer traffic and sales.

At the same time, Hunter has continued to diversify its product metrics with new lines introduction. With innovation and customer satisfaction at its core, we are confident that Hunter will continue to strive.

In summary, Q2 marked another strong quarter of progress for BBM with accelerated top line growth and solid execution across merchandising channels and marketing. Gap is strengthening its brand resonance through localization and global collaboration, while Hunter is scaling with a sharper brand identity.

With continued operational discipline and stronger seasonal activations in Q3 and Q4, we remain confident in achieving our full year targets.

That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

[Operator Instructions] The first question comes from Alicia Yap in Citigroup.

I have two quick ones. The first one is that if you can share with us the percentage of the contribution from your various platforms, which including coming from the Tmall and also the non-Tmall platforms. And then related to that is also how do we see the impact from the recent step-up of the instant retail shopping competitive landscape by all these e-commerce platform.

Wondering if Baozun's business and also the store operations or anything that has affected the Baozun business at all. If you can share some color on that.

And then second question is related to your strong growth of your BBM business. So do you anticipate the strength of that momentum will further continue in the coming quarters? And is there any time frame for the profitability time line?

Thank you, Alicia, for the question. So I believe the first question is related to BEC. So let me address that first question. So for the past 618 promotion, we definitely see a lot of GMV growth on Tmall and on JD, especially those 2 traditional marketplaces ecosystem. And the Di Wen platform and the Tencent Smart Retail business, they don't have the very strong 618 mindset.

So let's focus on Tmall and JD. So Tmall growth, I don't have a specific number on Tmall percentage proportions over JD, but I believe that the GMV growth of Tmall is like 2x or 3x compared with JD. So we see that Tmall and JD, they maintain a very strong GMV growth in the 618 campaign.

So back to the question about the instant retail shopping. So we realize that instant retail shopping has been very popular recently, especially between different big ecosystems. So also, we have a lot of different categories.

So our FMCG category is doing a lot of test water stage with this kind of the instant retail shopping, like for fast-moving consumer goods and for those cosmetic categories and alcohol kind of the categories and especially in some kind of the home appliance categories. So we can share you with more information in the future.

So based on the data collect of our business, and we will just keep tracking the instant retail shopping in the long run.

And for BBM in Q3 and Q4, I think first of continuing to expand our stores offline, both Gap and Hunter. And the second way, we will continue to improve our products in Q3. For Gap, we are going to introduce capsule to the market. And we will also launch a series of activities of offline -- both offline and online with some celebrities and offline pop-up stores to enhance our connection with our consumers through music and dance.

So these are all the activities we prepared for the next 2 quarters. So we remain -- still remain very confident for -- to achieving our full year operating business objectives. And our breakeven point, we -- as we committed before, we will make it breakeven in the last quarter, Q4. Thank you.

And following by Ken's prediction about the Q3 and Q4, let me add up something about the projection of the -- from the BEC perspective. So as we all know that we had a strong 618, and that has raised a lot of confidence for all of our brand partners. And they've also starting to plan a big second half of this year.

So for Tmall, so we will see, compared last year, an even stronger double 11 in this Q4 and especially where we have a deeper dive with a high quality of the traffic, Tmall and JD are engaging with us and the more back-end tools we can target to a very accurate -- more accurate consumer profile. So we are foreseeing that this is going to be a very promising second half of this year.

The next question comes from [indiscernible] of CITIC.

Congratulations on this quarter's strong performance. I have 2 questions. The first is regarding the e-commerce business. In the past year, major domestic e-commerce platform have emphasized providing more benefits to the merchants. Has this reduced the operational cost for brands on these platforms? And Baozun benefited as a brand partner?

Some platforms are also prioritizing traffic allocation over absolute low price. And have you observed increase in traffic for brand product? This is my first question.

And my second question is about brand management that Baozun plan to pursue further brand acquisitions or deepen collaborative partnerships. And could you share the criteria for selecting such brands and how the operational experience gained from managing Gap and Hunter in recent years will be leveraged to support new brands in the future?

Thank you. Let me address your first question related to BEC. Yes. So the platform is offering a rebate program in the joint business plan, JBP in short. So all our brand partners, they are signing up the JBP contract with the platform, consider if you reach a certain level of your GMV, you can have a specific percentage of your rebate, especially within your platform commissions.

And from the Baozun perspective, we also signed up different contracts on the JBP with major platform like Tmall and JD regarding the paid media services. And especially, we combine a lot of our brand partners GMV-wise to get rebate from the -- from achieving the target.

So you can see that the platforms are encouraging Baozun and the brand to just keep driving the top line and maintain a healthy growth rate in the long run. So this is the -- about the rebate program.

And the -- about the platforms are also prioritizing traffic allocation over absolute low price. So this is very different from different categories. In the traditional category and heavy categories and very crowded categorized sportswear is the pricing strategy is still a competitive element across different brands.

In the premium and luxury category, they do maintain a support for a higher quality kind of traffic. So we cannot say, in general, you are providing high traffic over the low price, not the other way. So I think by differentiating different kind of the attributes in different categories, so things are very different.

But one thing for trend is like both Tmall and JD, they are trying to adjust -- reallocate a high-quality kind of traffic to the brand to make sure that we are not keep raising on price in the long run.

Thanks for the question. This is Vincent. I will try to answer the first part of your question about the [ BD ] criteria for the new brands. And then maybe Ken can also add some comments for the collaboration between different brands and how BBM can utilize Gap and Hunter's experience for the future brands, yes.

So for the first one, yes, we have a strategy of a brand portfolio for BBM. That means we will have multiple brands. That's why we have the first one Gap, second one Hunter and also maybe the third and the fourth one in the future, yes. I think the -- for the -- luckily, all these 2 brands, Gap and Hunter, was previously Baozun's e-commerce clients. And after many years of e-commerce operations, we then start to work with them in a deeper collaboration manner, which is brand management, include everything.

So I think this help us reduce the risk when we started a new business with these kind of brands, save a lot of time and cost and learning curve. So this is a very good methodology. So in the future, if possible, we are still doing the same thing.

In BEC, we have a quite large client base, including hundreds of fashion apparel, accessories brands. So we can also do this again, cultivate some more brands from a kind of generic e-commerce collaboration into the brand management collaboration. So that gives us a huge potential in the future. But of course, we're open to other brands as well from the outer world.

So for talking about the criteria, I think, firstly, these kind of brands need to be energetic, have a big potential, no matter, online, offline in China and also can benefit from the experience we gained from Gap and Hunter and also for the market. So basically, we need these kind of brands to give us growth and, in the meantime, profitability.

Ken?

And for the second part of -- second question, I think first, Gap and Hunter has been to build a very strong foundation, infrastructure, including the system and process, the talent in the full value chain of apparel retail business.

And second, I think for Gap, it helps to provide a foundation for the future brands to easily onboard, including merchandising, channels and marketing, for example, the merchandise part, the product part just -- because Gap covers all categories of products of apparel.

So if we have any new brand in the future, we are happy -- easily onboarding their local design, local supply chain. And for the channels, if we have any new brands, we can also expand faster than any other brand.

And for Hunter, I think it will also help us to establish the successful case to have the controlling IP rights. And we can write from online to -- both online and offline and expand its business in a very quick pace. So I think that's all for Gap and Hunter's empowerment to other brands in the future.

[Operator Instructions] The next question comes from Frank Tao at CMBI.

Yes. My question is on the growth outlook of BEC business. I think you shared on previous calls that we will be focusing on driving operating efficiency improvement this year. We have noticed some [indiscernible] results in the first half. Just wondering where are we in the progress now, and we have seen some new acceleration in top line growth. How should we expect the trend in the second half?

And a related question is that you've been selected as one of the first batch of service providers in the cooperation between RedNote and Tmall. Just wondering if you could share with us some insights on how are we benefiting from this program currently as well as your business growth expectations in the second half.

Okay, Frank. So let me address your 2 questions. The first question is related on the operational efficiency improvement. So from the beginning of this year, so we really emphasized internally based on our bottom line, optimizing our bottom line and optimizing our cost and drive a lot of efficiency, building a healthier organization and operational flow. That doesn't take our full time.

So it's more like the company policy and implementation job. So right now, just -- as we shared an example in the previous kind of the script, so we -- in the past 618, so in the leading Germany sports brand, we focus a lot on driving the top line growth, especially focused on the merchandising, peering and the quality of the traffic and all those kind of the traffic structure and how do we drive a better ROI.

So basically, this is our day-to-day job is driving the top line in this year. So in the second half of this year, just like I just said, foreseen the coming Q3 and Q4, so we drove a lot of confidence along with our brand partners in the past 618. And with a higher growth, we are planning with a better merchandising support, a relatively higher support on paid media and et cetera.

So the second half, especially in the coming Double 11 is going to be very promising. That's my first question addressable.

The second one is, let me clarify the second one. So you want to know how are we benefiting from the fact we were awarded as a Red Partner or you want to know how are we benefiting from RedNote itself?

From the RedNote partner as you have been selected the first batch of Red partners, yes.

Yes, that's right. That's right. So we were the first -- 1 of the 6 Red partner, especially the only one in the fashion sports category. That happened in the first month of the past 6 18. So this gives us a lot of credentials across different categories.

The day before yesterday, RedNote just announced to release, to open the gate to all those categories, which means that a lot of different categories can be open to RedNote and Red Cat initiatives selecting great partners.

So Baozun and our team is always listed on the top of the selection, just like our 6-star TP partner in Taobao and Diamond in Douyin and also the first plus service partner on JD. So we will be very exposable to all those potential clients, which means that we are selectable for a lot of high-quality clients.

And especially when everybody is being very confident about the new initiatives and the new consumer experience from RedNote to Tmall, especially driving transactions in seating, heating and for new arrivals and for those great content designing.

So we believe that with this early bird kind of initiative and award, so we can have a higher revenue coming from the RedNote stream. And also meanwhile, we can link to our business directly from the Red Cat initiative. Hope that makes sense to you, Frank.

Yes. Got it. Super helpful. So a quick follow-up, if I may. We saw some recent rumors regarding a Yoga brand onboarding. Just wondering, can you elaborate more on the collaboration approach between you and this brand?

Okay. Thanks for the question. Vincent again. Yes, we also noticed that. We have already reached some of the agreement with the brand. And we are quite excited, although the brand right now is not so big. And just as what I just said, this brand has also operated the e-commerce business first by our team, and then we convert this into a brand management brand.

So it's not a stranger to us. It is a long-time friend already. We know a lot of this brand already, ups and downs in China. I think it is a very good timing because, right now, we have operated the 2 brands, 2 brother, sisters in the past years. So this new brand can benefit from a lot of good things.

For example, the designing power and also the supply chain capability, which we built alongside with the 2 brands can benefit this new baby. And also we have all the systems in place, so they don't need any efforts in system building. They can use all the things immediately. And also they can also learn from Hunter how we build -- how we strengthen -- build and strengthen, establish a clear core category of products, how we market this through RedNote, Douyin and other channels and then how we expand the category into others.

So we are quite excited to see the potential because yoga and other sports apparel industry is huge in China. So the potential is so big, and we are just a baby. So that means a huge potential ahead of us. Yes, it's true. Thank you.

Your next question comes from Chris Zhao in Guotai Securities.

I have 2 questions. The first question is about the AI application. How do we think about the progress we made in AI this quarter? And is it mainly about increasing our revenue or reducing our cost and like increasing efficiency? Are there any further direction we can assume for the AI use in the development in the future?

And with some new models emerging recently, have you noticed any better effect when applying these kind of AI new technology and models in the business operation?

And my second question is about the Double 11 promotion. So we can see that we experienced strong momentum in 618 Festival. So do we currently have any early indication or plan for this year's Double 11 promotion?

Okay. Chris, let me address your 2 questions. The first one is related to AI. So Baozun, we are centric focused on our technology. So we have over 800 in-house software engineers. So we spent a lot of resources in the -- increasing the efficiency, especially leveraging AI to save our bottom line.

So now we are developing more internal tools focused on the digital assets kind of the management, like how can we quickly using AI to just make sure we can drive content like pictures, like scripts, like video, something like that. So basically, our focus on AI is more from the internal driving efficiency, making, creating content, especially for the consumer-facing part and the PDP and the short video clips, et cetera.

So we are not spending a lot of resources on driving -- leveraging AI to drive revenue because we believe that AI -- and not to mention the big scale -- large-scale model and the AI agent, it's not quite mature enough to replace the human kind of expertise, especially in different categories like merchandising, like marketing campaign, like competitor analysis, something like that. So AI for now for BEC is more focused on driving efficiency in our back office. That's question number one.

The second question is related to the forecast of Double 11. We do not have a very clear focus on Double 11 because we haven't received any information or clues about how we will start the Double 11 campaign and how that's going to end. So the past 618 was the longest 618 for the history. So we have no idea about the mechanism of the coming Double 11.

The things we can share is a lot of our brand partners and us are being confident, leveraging a lot of expertise and experience we learned from the past 618 to the Double 11. So more and more brands are planning, putting more inventory for the Double 11 and allocating a higher -- relatively higher paid marketing services budget to Double 11. So we can share more information later on maybe in the next quarter. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Wendy Sun for any closing remarks.

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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.