Good morning, ladies and gentlemen, and thank you for standing by for Baozun's second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a question and answer session. 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 Baozhen. Please proceed, Wendy.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our second quarter 2026 earnings release was distributed earlier before this call and is available on our IR website at ir.baozhen.com. as well as PR News Square Services. They 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 Baozhen, we have Mr. Vincent Chiu, Chairman and Chief Executive Officer, Ms. Katherine Zhu, Chief Financial Officer, Mr. Junhua Wu, Director and Chief Strategy Officer of Baozhen Group, and Mr. Ken Huang. Chief Financial Officer of Baozhen Brand Management. Ms. Zhu 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 segments, 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. Security Act of 1933 as a mandate, the U.S. Security Exchange Act of 1934 as a mandate, and the U.S. Private Security Litigation Reform Act of 1995. These forward-looking statements are based upon management current expectations and current market and operating conditions. and relates to events that involve known or unknown risk, uncertainties or 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 statement. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the United States Security 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 here and is based on assumptions the company believes to be reasonable as of this date. And the company does not take any obligation to update any forelooking statement except as required in the 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 non-general accepted accounting principles or non-GAAP in order to reduce the overall confusion that may arise from our discussions about financial related to the GAAP brand. You may now turn to slide number two for the executive highlights for the quarter. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Wenxin Qiu. Wenxin, please go ahead.

Thank you, Wendy. Hello, everyone, and thank you for joining us. We delivered another solid second quarter, with earnings quality continuing to improve. Group revenue grew 7% to $2.7 billion, while non-GAAP operating income reached 74 million. Year over year improvement of 25% compared with adjusted base of 59 million in the same period of last year. Both BBM and BEC have contributed solid results, demonstrating the strengths and the resilience of our business in a competitive market. BEC achieved resilient 5% year-over-year revenue growth. More importantly, BEC improved its efficiency and profitability with the expanded non-GAAP operating profit margin. Against a weak e-commerce industry backdrop, we view this performance as a clear demonstration of BEC improving business quality. Our deep brand know-how has been instrumental in understanding and anticipating market trends, consumer behaviors, and brand needs. This expertise enables us to engage with our brand partners more strategically while keeping value creation at the heart of our approach. BBM sustains strong brand momentum, delivering 22% year-over-year top-line growth Double-digit same-store growth, solid gross margin expansion, and further improvement in operating profitability. GAP remains the primary drive of this performance, supported by our effective MMC initiatives and increased consumer engagements from our seasonal brands ambassador program. At the same time, our emerging brands are progressing according to plan and are beginning to make more contribution to the top line as we start to invest in building their long-term presence. We also are very excited to share our advancements in technology innovation and the AI empowerment. We recently began piloting AI and automation initiatives within our GAP e-commerce operations to streamline selected processes The initial results have demonstrated substantial productivity gains, highlighting the potential to extend these capabilities across the broader BEC ecosystem. We are glad that the success of our strategic transformation over the past three years have laid a strong foundation for a more flexible and scalable business model. Leveraging AI and our established technology infrastructure BBM provides an environment where we can develop and improve new operating capabilities, while BEC provides a scale to deploy them across a broader portfolio of brands. With continued AI-driven empowerment and deeper synergies between our two business segments, we are raising our 2028 non-GAAP operating profit target from $550 million to 700 million, reflecting our increased confidence in long-term growth potential. Now I will hand over the call to our team for a deeper dive into our financials and performance.

Thanks Vincent, and hello everyone. Now let me provide a more detailed overview of financial results for the second quarter of 2026. Please turn to slide number three. Baozun Group's total net revenues for the second quarter of 2026 increased by 7% year over year to 2.7 billion. Of this total, e-commerce revenue grew by 5% to 2.3 billion, while brand management revenue grew by 22% to 486 million. Breaking down e-commerce revenue by business model. Services revenue increased 10% year-over-year to 1.8 billion, while VC product sales revenue decreased by 10% year-over-year to 541 million, as we prioritize business quality. Please turn to slide number four. From a profitability perspective, gross profit for product sales increased by 21.3% year-over-year to $343 million for the quarter. Our group level blended gross margin for product sales was 33%, representing an expansion of 499 basic points year-over-year. Within this, gross margin for e-commerce product sales was 13% compared with 4.8% in the same period of the last year. And the gross margin for BBM was 56.1% for the quarter, compared with 52% in the same period of last year. Now please turn to slide number five for a walkthrough of our OPEX. Sales and marketing expenses increased by $239 million to $1.2 billion. This included an increase of $188 million for BEC, which was mainly due to higher spending on creative content and marketing initiatives on Douyin and Rednode. Consistent with the growth in digital marketing revenue, BBM sales and marketing expenses increased by 46 million, mainly driven by the expansion of offline stores and marketing activities in the quarter. Fulfillment costs for the quarter decreased by 9% to 549 million. Technology and content expenses decreased by 0.4% to 140 million. G&A expenses decreased by 22% to $175 million. The reduction in these three OPEX items reflected our focus on cost control and operational efficiency. Turning to bottom line items, please refer to slide number six. During the quarter, our non-GAAP income from operations was $74 million. compared to $6 million in the same period of last year, or $59 million in the rebased same period of last year, if we exclude the one-time write-off cost. DEC's adjusted non-GAAP income from operations was $107 million, a record level for the second quarter since 2022. DBM reported a non-GAAP operating loss of $33 million, compared with a loss of 35 million a year ago. For the second quarter of 2026, our working capital turnover improved to 107 days compared with 148 days a year ago. Within this, inventory turnover shortened to 112 days from 134 days a year ago. This improvement was driven by both BEC and BBM segments. As of June 30, 2026, our cash, cash equivalents, restricted cash, and short-term investments totaled $2.9 billion. Let me now pass the call over to Junhua to outreach from BEC, our e-commerce business.

Thanks, Catherine, and hello, everyone. For BEC, we have been focused on the quality of growth. with greater emphasis on a business where we can deliver high value results. We believe this approach better aligns and interests of our partners with our own, which will ultimately translate into improved productivity and a margin expansion for BEC. During the second quarter, BEC's revenue grew by 5% year over year and non-GAAP operating income reached 107 million, the highest the second quarter level since 2022. This highlights the improvement in our financial performance and a successful execution of our strategy. Underlying these impressive results, we have taken a proactive approach to refining our service model. We expanded market share in key categories, including luxury, sports and outdoor, driving 10% year-over-year growth in service revenue, enhanced consumer engagement through content creation. Digital marketing and Douyin initiative has also helped strengthen consumer awareness. For example, this June, we produced a large-scale live broadcast of a women's night run for one of our sportswear brand partners. More than just a race, the event was designed to empower women and foster a sense of community. Our live broadcast enabled millions of viewers to join the excitement virtually, amplifying the brand's value while creating a memorable experience that resonates with its target audience. This event set a new benchmark for how we can leverage digital platforms to amplify business opportunities while driving both brand value and sales. We are proud to have once again been awarded Douyin E-commerce Diamond Service Provider certification for the second quarter. These achievements validate our strategy of prioritizing high-quality revenue streams and expanding margins and reinforce our confidence in growth momentum of our service business. We also made a strategic decision to scale back to our participation in certain product sales categories where intense price competition and lower margins limit their attractiveness. Particularly during the 618 campaign, this was most evident in standardized categories such as home and furnishing, beauty and cosmetics, and appliances. As a result, product sales declined 10% year over year for the quarter. For the first half of the year, total product sales reached $1 billion, up slightly by 3% year-over-year and in line with our plans. What is strategic, however, is our investment in infrastructure and capabilities needed to build on a parallel product sales business. While this business requires a longer preparation period, we have made solid progress in supply chain management, advanced data analytics, and product development. We believe this model can leverage our deep brand know-how to build a differentiated and scalable product sales business, contributing to both the top line and the bottom line from 2027 onward. Turning to this profitability, we remain focused on driving greater operating leverage through disciplined cost management and structural efficiency improvements. This significant improvement in BEC's operating performance this quarter reflects the benefits of those efforts, while our increased use of automation provides an additional opportunity to improve productivity over time. As Vincent just highlighted, our trials of AI-enabled systems position us well to re-engineer our operation process and unlock significant productivity gains. Over the next 18 months, we expect to accelerate the development of these initiatives across our operations with a particular focus on optimizing resources and aligning them with streamlined workflows. Over time, we believe BEC can evolve into a linear operation model, allowing us to improve margins while also increasing our capacity to serve a broader range of addressable markets. Now I'll pass to Ken for an update on EVM.

Thank you, team, and hello, everyone. Please turn to slide number nine for BBM's performance in second quarter of 2026. BBM sustained a strong momentum into the second quarter, with revenue growing 22% year over year and the non-GAAP operating loss further narrowing despite increased investment in emerging brands. For the GAAP brand alone, our non-GAAP operating loss improved by more than 40% year over year. Solid top-line growth was driven by improvements across key operating metrics, including traffic, offline store productivity per square meter, and the blended gross margin. Leveraging our omnichannel capabilities and the IGEL integration, GIF delivered another same-store sales growth in the 20s. Our performance continues to validate the competitive advantage of our brand management model. By combining Baozun's local operating capabilities with GAAP's global brand, we are able to develop products faster, localize assortments more effectively, execute integrated marketing campaigns, and respond more quickly to changing consumer demand. Overall, BBM gross margin expanded to 56.1%, an improvement of 383 basis points year-over-year. Now let me share our key initiatives around the merchandising, marketing, and the channel for GAAP during the quarter. Merchandising remained a key strength during the quarter. By optimizing our product assortments and leveraging data-driven insights, we are better able to meet consumer demand and drive sales growth. We are pleased to have achieved double-digit growth across all three categories of women, men, and kids. and Improved Product Mix, Tactical Pricing Initiatives, and Better Supply Chain Management drove healthy gross margin expansion. Inventory also remained healthy, with GAAP inventory turnover days at 128, reflecting disciplined inventory management and healthy sell-through. Our marketing efforts focus on building strong brand equity and deepening customer loyalty. Our Chen Yi-branded basic campaign, together with the Victoria Beckham Collaboration and other global partnerships, generated strong consumer engagement during the second quarter. These campaigns, combined with strong execution around spring break, Labor Day, 6-18 and summer sales, also drove excellent sales momentum. Turning to our store network, we opened eight new stores during the quarter. bringing our total network to 167 stores. We remain disciplined in our site selection and we are glad that new store productivity has consistently outperformed, reinforcing our confidence in the strength of our expansion strategy and the long-term productivity opportunity across our store base. We remain on track to open more than 50 new stores in 2026 with a focus on expanding to Tier 1 to Tier 2 cities. This July and August, we are seeing further improvements in month-over-month momentum. Our latest autumn launch and the Qixi campaign featuring our brand ambassador have reinforced the Gap China's marketing strengths, giving us increased confidence in the brand's Trajectory for the second half of the year. Now let me also elaborate our key efforts for Hunter brand in the first half of 2026. Following our MMC philosophy for brand management, we have stepped up our efforts to strengthen Hunter's brand equity. In the first half of 2026, we opened three flagship stores In high-profile shopping malls, bringing Hunter's total stock count to 16 by end of June, we also enriched Hunter's product offering. Beyond the brand's renowned rain boots, we introduced new lines of urban apparel and outdoor wear, enabling us to reach a broader consumer base and address diverse lifestyle needs. These initiatives are positioning Hunter as an energetic lifestyle brand that resonates with fashion-forward consumers and supports its long-term goals. In summary, the second quarter reinforced the progress we have made throughout 2026. Our differentiated brand management model continues to position our brands for outperformance through faster localization We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Alicia Yap with Citigroup. Please go ahead.

Hi, good evening, management. Thanks for the opportunity to ask questions. Congrats on the solid results. Two questions for me. First is that regarding the revised 2028 Annual Non-GAAP Operating Income Forecast, which obviously increased substantially from 550 million to 700 million. So I wonder what gives management the confidence to project this higher profitability and what is the anticipated top line growth that entertains this revised forecast? And then the second question is, In light of the wheat macro conditions and also new consumption trends, have you observed any significant shifts in the spending budgets of your brand partners or their expectation for the China market in the future? And additionally, concerning the adoptions of the AI tools, is there any noticeable divergence in sales growth between brands that have embraced the AI-enhanced tools versus those that have been slower to adopt them? If you could share some examples. Thank you.

Thank you, Alicia. Vincent here. Let me answer this first question, and Junhua will answer a second one. Yes, we are quite excited to announce this updated forward-looking results for the 2028. We carefully analyzed all the facts, all the aspects we think can help us to achieve this one, this new goal. The first thing is that we are seeing a stronger trend for BBM. And in the past two or three years, we keep strengthening BBM's positioning and also day-to-day operations, and we are seeing good results. So for a stronger trend for BBM, we are much more confident right now. These are the first consideration. Secondly, recently we did a lot of experiments and pioneer for the AI tools and also along with other infrastructural tools we developed along these years. And we see quite exciting results. So we think, given that, The scale of our VEC business base, our potential to be released from this tools and automation will be huge. So that is quite important reason why we just raise that up. And also, although despite the consumption is not very strong recently, but still we think combine this tool factors and also the potentials we can deploy this kind of tools and AI capabilities into our broad client base will have potential. And this gives us confidence for this new goal.

Okay, thank you, Vincent. So for the second question, so first of all, so we have not seen any significant shifts in spending We still see they focus on making solid marketing allocation in terms of the traffic fees and they focus more on the content driven and they focus more on shifting allocations of inventory towards the live stream kind of platform like Douyin and the others from the original shelf-based e-commerce systems. And the second part is the AI tools, just like Vincent mentioned, leveraging AI scenarios more focused on driving our operation efficiency rather than just driving the top line. So AI tools also can facilitate a lot of top line, providing a lot of tools to facilitate our top line operator more focused on digital analytics, more focused on how do we analyze all those sales results data. So for sales growth, we have not leveraged a lot in terms of AI, but also focused on automation-driven, efficiency-driven, that kind of stuff. Thank you.

Thank you. The next question comes from Chu Ming Tao with Huiting Securities. Please go ahead.

Hi, thank you management for taking my question. I have two questions. The first one is regarding Nike and we have observed some adjustments to its channel strategy and as Nike's core partner and have we observed any changes in consumer habits across channels recently and how do we plan to capture the related opportunities going forward? And my second question is about Hunter And I have observed that Hunter has seen a significant increase in attention on some China social media recently And have we noticed this trend and could we introduce any additional details? Could we share or update any outlook for Hunter in more detail?

Thank you Okay, I'll answer the first question and Vincent or Ken can answer the second one So, I apologize to you that I will not mention a specific brand in terms of a strategy and their roadmap. So, I'll give you a feedback in general. So, Baozun is a very strong DTC partner of a lot of brand partners since they were founded back in the year 2007. So, in terms of behave like a DTC partner, Baozun definitely has a great advantage in just serving them, supporting them, in DTC strategy based on their growth strategy. So if any brands, they are shifting their strategy back to DTC or focus on more, investing more resources in driving DTC-based net GMV or growth, so Baozun is definitely going to be our top choice. That's my first answer. Thank you.

For Hunter, yes, as we mentioned, we are continuing investing in our emerging brands, especially this year. and with GAPS, the improvement of GAPS P&L and also the community experience in GAPS past experience. Now we are trying to strengthen our emerging markets. And your observation of the continuous more voices and investment in the brand equity, especially in Xiaohongshu for Hunter is happening. And our strategy for Hunter during the second half of the year, firstly, we will continue open Hunter stores in high-profile shopping malls, especially mixed-city malls. And the second, we are expanding our apparel category, as we mentioned. and we do see the sales contribution of apparels in certain stores have exceeded 30% during the second quarter. And the third, we are also doing a lot of collaborations with local, both local and international brands for Hunter. And finally, as the IP owner, we are also actively looking for other category business opportunities to enhance the brand's equity and also the profit performance. Thank you.

The next question comes from Frank Tao with CMB International. Please go ahead.

Hello. Hi, Benjamin. Thanks for taking my question. And my congrats on the operating results as well. My question is regarding we have seen more international brands exploring strategic alternatives for their China operations including divestments and other forms of category restructuring. How does Baozun view this trend and could it create a meaningful pipeline of opportunities for BBM? Would management become more aggressive in pursuing such opportunities and what are Baozun's key competitive advantages in winning these deals and creating value after the transaction? Thank you.

Thank you, Frank. This is Vincent. Happy to answer your question. Yes, we are seeing that in the market there are more and more this kind of opportunity, which is just as we expected. That's one of the reasons that we stepped into the brand management market. So, we are talking to, we kept talking to different brands for this. We are quite active in our portfolio brand partners or some other partners outside of our portfolio. They are trying to find new opportunities. That's the truth, yeah. But talking about the, you know, our strategy and the link between our strategy with the new updated 2028 goals, we think, There are four important aspects which can make us to be more confident for the goal. The first one will be the AI efforts we have made. This can contribute a majority of the contribution in the midterm of our plan. And we mentioned this and we counted this factor in. Secondly, There will be a very strong synergy between BEC and DBM. DBM, along with its efforts, will accumulate a lot of experiences and know-how for the whole group. We can utilize this in talking to potential brands and the existing portfolio brands, no matter acquiring new brands or deepening the relationship between the existing ones. And also, this can also deliver very good contribution to us for the future goals. Third one is about BBM itself. We call this BBM Organic. BBM organically includes the three major brands, Gap, Hunter, and Sweaty Betty, and they are doing well. For example, Gap is doing extremely well. Others are following. So we believe this BBM Organic is also a very important factor in the source of our confidence. Number four is what you just talked about, BBM, new opportunities. We are talking to different brands, but our priority is to make the existing BBM brands better, and we are expecting there are some really, really good opportunities, and then we can have this kind of BBM inorganic Thank you.

As a reminder, if you would like to ask a question, please press star then one to be joined into the question queue. That's star then one to ask a question. The next question comes from Yanjie Wei with Citix. Please go ahead.

Good evening, management team. Congratulations on this quite a strong performance, and thank you for taking my question. My question is, as the AI development looks Many service providers are building their own AI soft system. Does the company believe its differentiation versus other e-commerce agency service provider is widening or narrowing? And what impact is AI having on industry concentration at this stage? Thank you.

Okay, thank you for the question, Jiawei. This is Junhua. If you have deeply tracking Baozun for a while, so you will know that from day one when Baozun was founded, so technology was the key to our success. And our mission is leveraging technology to make our business results more and more successful. So during the past 19 years, so we've been investing a lot in our IT resources. So we still maintain the highest IT resources in terms of the IT payroll and different kind of the investment during technology. So under the AIA, so I'll be very proud to say that Baozhen is definitely taking the leadership among all other competitors during that sector. So we have definitely leveraged a lot of our resources to help our existing brand partner over 480 to successfully deliver a lot of their backbone system, different kind of their sales system, their auto system, among all other kind of scenarios and categories. So, under the AI age, as we have so many resources and foreseen a lot of opportunities, so Baozhen is definitely going to leverage a lot of AI-powered technology to increase our efficiency of operation, and facilitate our sales growth in terms of the top-line growth. So, definitely, among this period, we are still strengthening and widening the distance between us and our competitors. So, as you can see that AI is really powerful in a lot of industries. So, we don't see there is many things we can compromise in the future for seeing. So, we still focus on a lot of all the categories basically. AI data focused, automation increasing, AI knowledge base, and GEO consumer behaviors, a lot of scenarios we can help. Thank you for the question.

The next question comes from Thomas Chong with Jefferies. Please go ahead.

Thank you, Manager, for taking my question. So my question is, as we see BBM top 22% double digits in soil growth rate, which is quite impressive compared to many peers in the retail industry. So how should we think about the latest trend for third quarter also when we have relative high base for the same period last year. And also, group management provide updates on annual BBM top-line growth guidance of 15 to 20%.

Thanks. Thank you. This is Ken. Yes, GAAP, BBM, especially GAAP, continues to deliver double-digit We are seeing the trend of even stronger same-store increase. I would say it will contribute to our MMC strategy. First, there is merchandising. After several seasons of product improvement, We are bettering understand our customers. When we launched our four products in August, we see even better acceptance of the products from our consumers than before. And our merchandising operating capabilities are also keeping hands. We have our better category and assortment planning. We have better strategy pricing and discounting strategy. So all these experiences and the initiatives of our merchandising help us to improve the productivity of our performance. And the second for marketing, we continue to deliver strong brand ambassador campaigns. In the second quarter is April and in the third quarter is August. Both of them are exceeding our expectation, the sales performance. And this year we also benefited a lot from GAAP's global bread assets. In the third quarter we have the Helle Bieber collaboration. And today we also just announced the collaboration with Marbon, the golf brands, fashion golf brands. And the third, I think, is the channel. The channel, as we mentioned, we are going to deliver over 50 new stores in this year. And in the In the second quarter, we have opened many good stores, including Shanghai New Prisma, Beijing APM, Tianjin Tmall, we just opened in the third quarter, and also Nanning Mix City. And we're also going to open our first Macau store in Venetian next month. So, I think with this merchandising, marketing, and also channel strategy, are working well. We are very confident to keep the strong same-store growth and also the increase of the total scale. For the full year, we believe we will achieve a 20 to 25 percent increase. Thank you.

The next question comes from Yanjie Wei with Citix. Please go ahead.

Hi, management team. Thanks for taking my question again. I have another question is that the NBS data in July 2026 points to subdued consumption. Does company observe any change in sales trends across different platforms and different categories? Thank you.

Okay, thank you for the question, Yanjie Wei. This is Junhua again. So, we haven't seen a big change in sales trends among different kind of platforms, but we can share something to you is the shelf-based e-commerce is becoming very stable, especially after the past 6-18. We can foresee and also expect a very strong finish in the coming double 11. And the live stream platform is still growing, for example, like Douyin and different kind of the live stream platform. And for categories-wise, we're still seeing very strong growth in Premium Luxury Sector, Sports and Outdoor Sector, Fashion Sector, and Health and Caring Sector. Thank you.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over 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 is now concluded. Thank you for attending today's presentation. You may now disconnect.