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On Tuesday, Morgan Stanley adjusted its outlook on Vipshop Holdings (NYSE:VIPS), a leading online discount retailer for brands in China, reducing the stock's price target to $14.00 from the previous $16.00. Despite this change, the firm maintained an Equalweight rating on the stock.
The revision follows Vipshop's guidance indicating a year-over-year revenue decline of 5-10% for the third quarter of 2024, which raises concerns about the company's growth and margin prospects. According to the analyst, this downturn reflects ongoing weak consumer spending and heightened competition, which could pose further challenges in the fourth quarter of 2024, especially as China's e-commerce sector continues to consolidate.
Vipshop has been active in share repurchases, buying back $205.9 million worth of shares in the second quarter of 2024. This represents 41% of its commitment to repurchase $500 million worth of shares by the end of the year. Additionally, the company has announced a new buyback program worth $1 billion, which will commence after the completion of the current program.
Looking ahead to 2025, Vipshop has pledged to return at least 75% of its 2024 non-GAAP Net Profit (NP) to shareholders. The estimated amount of this return is around $900 million, which, based on the current market capitalization, would yield approximately a 13% return for shareholders. This commitment underscores the company's strategy to enhance shareholder value even as it navigates a challenging market environment.
In other recent news, Vipshop Holdings experienced a decrease in Q2 earnings, falling short of analyst expectations. The firm reported an adjusted earnings per American Depositary Share (ADS) of RMB3.91 ($0.54), missing the consensus estimate of RMB3.94. Despite this, its revenue of RMB26.88 billion ($3.7 billion) slightly exceeded the anticipated RMB26.82 billion, although it was down 3.6% year-over-year.
Citi reaffirmed its 'Buy' rating on the stock, following Vipshop's Q2 earnings report, which indicated a modest outperformance as net revenue decreased by 4% year-over-year to 26.9 billion yuan. The firm's non-GAAP net income saw a 10% decline year-over-year to 2.2 billion yuan, marginally higher than the firm's and consensus estimates.
Notably, Vipshop's active customer count decreased by 3% year-over-year to 44.3 million. The total number of orders also fell by 7.5% year-over-year to 197.8 million. However, the company managed to expand its gross margin to 23.6% from 22.2% last year.
Looking ahead, Vipshop provided a third-quarter revenue guidance in the range of 20.5-21.6 billion yuan, representing a decrease of 10% to 5% year-over-year. This forecast falls below both the firm's and consensus revenue estimates, characterized by Citi as conservative. In addition, the company authorized a new $1 billion share buyback program, a significant recent development for Vipshop Holdings.
InvestingPro Insights
Recent metrics from InvestingPro show that Vipshop Holdings (NYSE:VIPS) is trading at a low P/E ratio of 6.43, suggesting a potentially undervalued stock given its near-term earnings growth. This aligns with an InvestingPro Tip highlighting that VIPS is trading at a low earnings multiple. Additionally, with a market capitalization of $7.6 billion and a robust revenue growth of 7.13% over the last twelve months as of Q1 2024, Vipshop stands out as a prominent player in the Broadline Retail industry. This is further supported by the company's strong free cash flow yield, as indicated by another InvestingPro Tip.
It's worth noting that Vipshop holds more cash than debt on its balance sheet, which is a positive indicator of the company's financial health. Moreover, the company's cash flows can sufficiently cover interest payments, a reassuring sign for investors concerned about the company's ability to manage its debt. For readers interested in a more detailed analysis, there are additional InvestingPro Tips available, which can provide further insights into Vipshop's financial performance and stock valuation.
Despite recent price fluctuations, with the price having fallen significantly over the last three months, analysts predict the company will be profitable this year, and it has been profitable over the last twelve months. This information could be crucial for investors considering Vipshop's stock as a potential addition to their portfolio. For a deeper dive into Vipshop's financials and market performance, investors can access more InvestingPro Tips by visiting the InvestingPro platform.
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